(AlbertaIndex, September 16 2008, Tuesday) --- Cities in Western Canada must find new municipal funding mechanisms that can help diversify the local government tax base and reduce their dependence on property taxes.

       The Canada West Foundation made this recommendation in its latest report examining the finances of six of the West’s largest and most important cities

The report said that a wide gulf exists between the growth potential of city revenue sources and federal and provincial revenue sources.

But unlike provincial and federal taxes, it said the property tax does not have built-in mechanisms that respond to population and economic growth.  To better secure the fiscal future of Canada’s cities, provincial and federal governments need to work with cities to find new municipal funding mechanisms that can help diversify the local government tax base.

“Dollars and Sense II:  Big City Finances in Western Canada” explores the fiscal experience and key financial indicators of Vancouver, Edmonton, Calgary, Saskatoon, Regina, and Winnipeg from 1990-2007.

“The future fiscal sustainability of the West’s big cities remains in doubt,” said author Casey Vander Ploeg.  “A lot depends on whether or not recently increased provincial and federal support for infrastructure will be sustained over the long-term and whether or not those governments are going to stay in the urban infrastructure game for the duration.”

He identified several options to help place cities on a more sure fiscal footing include:
• pursuing user pay and better pricing models wherever possible;
• exploring new modes of program and service delivery;
• pursuing innovative infrastructure financing, funding, and delivery;  and
• securing new tax tools and/or new tax revenue sharing with other orders of government.

Vander Ploeg, Canada West Foundation Senior Policy Analyst, said big cities are increasingly recognized as economic engines and gateways to the global economy.

To maintain the quality of urban life and ensure that provincial, regional, and national economies realize their full potential, he said cities must be able to finance critical investments in infrastructure and deliver a package of quality municipal services at an affordable price.

“Throughout the 1990s, western Canada’s cities experienced a severe financial crunch in the form of reduced operating grants, inconsistent and unpredictable funding for infrastructure, and the offloading of federal and provincial services as those governments sought to bring balance to their own fiscal houses,” said Vander Ploeg.  “The purpose of the study was to crack the window on whether or not this fiscal storm has subsided.”

One of the bright spots on the urban fiscal landscape in western Canada is significantly higher levels of infrastructure spending and investment. For most of the cities, infrastructure spending is the single fastest growing expenditure category since 1990.

“Given the huge infrastructure needs reported by western Canada’s cities, this is welcome news and symbolizes policy action moving in the right direction at the right time,” he said.  “But there are also warnings to heed as well.”

Capital expenditure is not “one-off” spending—every dollar spent on capital today requires at least some dollars for operations and maintenance tomorrow.  Every dollar spent on capital today will require many more dollars at some point in the future to rehabilitate and replace the capital assets when they reach the end of their life cycle.

“It is unclear if the cities have the fiscal capacity to deal with the future needs of the infrastructure being built today,” said Vander Ploeg.  “If that consideration is ignored, then fiscal capacity is shorted and long-term fiscal sustainability remains elusive.”

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