Thursday, April 17, 2008

Hiding responsibilities behind taxes

As indicated in a recent Canadian Federation of Municipalities survey (PDF), residents of London and other Canadian cities are correct to perceive municipal infrastructure as a worsening problem. This result, however, does not merit the conclusions that respondants had been directed to make in correspondence with the lobbying objectives of the survey's authors: that underfunding of municipal properties by the federal government is responsible for the problem or that property tax revenues are insufficient for coping with it.*

The latter is demonstrably untrue on the basic ground that municipalities have free reign to set property tax rates to meet expenditures, while the former is simply an attempt by municipalities to pass off the political consequences of their own underfunding of essential priorities. Given the rapid escalation in the size of London's budgets — over 40 per cent since 2000 — infrastructure neglect has hardly been the result of revenue constraints. Massive spending on politically attractive but non-essential programs and capital projects has instead imposed funding constraints on basic services. Taxpayers may well wonder how increasing their tax burdens to the federal government will amend this problem. London politicians have the least to complain of in any case — a 2007 Frontier Centre study found that London receives 121 per cent more in grants from other levels of government than the average for Canadian municipalities.

Recent discussions on the sale of Mississauga's power utility suggest a far more responsible approach for cities to take to the problem of infrastructure, by raising revenues and discharging liabilities from their own bloated assets. If the City claims that $30 million is needed annually for maintenance and building of basic infrastructure, much of that amount can be claimed from debt-servicing obligations that have reached $59.8 million in 2008 alone. The savings from these costs would likely approach the $30 million annual figure alone by applying the proceeds of a sale of London Hydro — lately estimated at $246 million — to London's $350 million debt, and would certainly far exceed the $2 million the City annually receives in dividends from the utility. Considering that almost all of the utility's primary practises are governed by provincial agencies, Londoners have no tangible stake in public ownership of London Hydro beyond the merely symbolic — a decidedly weak value when compared to the very tangible prospect of increased taxes.
*Note: one must be extremely skeptical of a survey that identifies 67 per cent support for additional taxes over 30 per cent for lowering taxes, or 64 per cent support for re-increasing the GST to fund municipalities. When 38 per cent of respondents declare that affordable housing is one of the top two priorities for "additional attention," credibility of the survey's representativeness is completely blown out of the water.


WE Speak said...

Interesting questions. Certainly seems to be quite the slant towards the Federal aspect of funding, which is strange considering that municipalities are creations of their respective Provincial governments. I love the way they group Federal/Provincial/Municipal taxes together to come up with the municipalities receiving "only 8%".

I've seen data for two recent polls done for individual federal ridings and infrastructure spending didn't even register 1%.

Given the current FCM president is a former Liberal candidate who replaced Conservative Gloria Kovach, forced out for unspecified reasons, you can colour me highly skeptical of this poll. This is a political lobbying tool, commissioned by the FCM, to suit their own needs.

Jake said...

Mississauga is the benchmark for how municipalities should be run. The city hasn't borrowed a penny since the mid 1970's and has one of the best maintained infrastructure in Canada.

I've driven there many times and you are hard pressed to find a pothole on their arterial roads. Their city council is smaller than ours and they are twice the size of London.

Selling London Hydro will have heavy resistance from those on council who are philosophically programmed to believe that government ownership is the best.

Even if Hydro was sold off to the highest bidder, there is no guarantee that the profits would be used to pay off the city's debt--they could go on a massive spending spree on more arenas, performing art centres, turing Storybook Gardens into an indoctrinating global warming theme park, etc.

And, even if the profits were used to pay of the debt, there is no guarantee that the savings in interest from the debt will be used on infrastructure and cutting taxes.

Too many open windows for idiocy to get inside.

MapMaster said...

Too many open windows for idiocy to get inside.

All true, Jake, and I've no doubt that we would have a PAC if London Hydro was sold. But we've got to open the windows anyway.