Canada’s Cities Need Billions After Deferring Property Taxes

Canadian cities need more federal and provincial help during the pandemic, including access to a greater share of tax revenue, according to the country’s top representative of local governments.

Local governments need C$10 billion to C$15 billion (U.S. $7.4 billion-$11.1 billion) in the near term because they’re losing revenue while simultaneously providing more front-line support, Bill Karsten, president of the Federation of Canadian Municipalities, said Tuesday in an interview.

“This is a threat to our vital services,” Karsten said.

Prime Minister Justin Trudeau said Monday that Ottawa would fast-track C$2.2 billion in transfers to municipalities. The money, while welcome, isn’t new and has already been accounted for in city budgets, Karsten said.

Many municipalities have deferred property tax payments for 60 or 90 days and have seen a sharp decrease in fees from things like bus fares during the pandemic, requiring a multibillion-dollar package to cover operations, he said.

Toronto, Canada’s largest city, would have to raise property taxes 56% if it doesn’t get any help, his group estimates.

Trudeau on Monday described the fast-tracked money as an initial measure. But he said any more help must come in agreement with the provinces, which have jurisdiction over cities under the Constitution.

“The federal government will be there to work with the provinces to support, to help flow money, but the provinces need to step up as well,” Trudeau said.

Provinces Respond

Ontario Premier Doug Ford is the only provincial leader so far to say he’ll help lift cities out of the fiscal abyss, and other premiers need to match his pledge, Karsten said.

Other large provinces said they’re open to helping more after Trudeau’s announcement, but also cited their past actions.

British Columbia has loosened some fiscal restraints on cities and is asking the federal government for more municipal funding, an official with the Ministry of Municipal Affairs and Housing said in a background statement.

Alberta has already had many made changes to help cities, including extending deadlines for tax notices, an official with the ministry said on agreement the comment wouldn’t be attributed. The province will announce new measures in the coming days, Municipal Affairs Minister Kaycee Madu said Tuesday in an emailed statement.

Cities are restricted by the provinces in how they can raise and spend money. Karsten said the Covid-19 crisis has revealed that their reliance on property taxes isn’t sustainable, and they should be allowed to find new sources of revenue in the wake of the health emergency.

Cities have long suffered from a misalignment between the revenue streams they’re allowed to use and the widening range of services they provide, Enid Slack, director of the Institute of Municipal Finance and Governance in Toronto, said in an interview Tuesday.

Municipalities would benefit from being able to employ more progressive tax sources like income taxes, she said, because of the need to support redistributive programs like homeless shelters.

The situation is bound to worsen in the coming months, when property tax deferrals end and pandemic-battered businesses have to pay up, Karsten said.

The federation estimates that a 10% increase in tax payment delinquencies would create a $684 million loss in Toronto and a $130 million lose in Vancouver.

Small business groups are solidly against a tax increase; they argue instead that tax bills should be forgiven.

“The worst thing any municipality could do right now is add any new cost,” Corinne Pohlmann, senior vice president of national affairs at the Canadian Federation of Independent Business, said in an email.

Cities should consider shrinking property taxes by 25%, the federation says.

Trudeau said Monday he was talking with premiers about more help, but didn’t specify when an agreement might occur.

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