August 2016
Backgrounder

Across Ontario, 110 municipal governments host power dams.  These communities rely on provincial payments to make up for the lost property tax revenues from hosting the tax-exempt facilities.  In its 2014 Budget, the Province proposed cutting these payments by $4.4 million over four years.  Ontario’s 2015 Budget deferred this cut by one year, while the Province considered options to restore municipal taxation authority over power dams.  To date, such a plan remains pending.  Given delays in provincial decision-making, municipalities are asking for a further deferral in 2016 or to eliminate changes to these payments altogether.

The cuts will have a significant financial impact on municipalities with power dams.  For example, for the Municipality of Wawa, payments under this program represent the uncollectable tax revenue coming from 47 percent of its property assessment base.  To make up for these losses, residents of Wawa face a 12.6 percent property tax increase over four years.

Hydro-electric generation facilities were made tax-exempt in 2001, with the Province compensating municipalities for lost property taxes on the hydro facilities in existence at that time.  Compensation was based on the amount of taxes levied on those facilities in the 2000 tax year.  From 2006 onwards, these payments were indexed based on the Consumer Price Index, at the discretion of the Minister.

The power dam payments to municipalities totalled $18 million in 2012.  In September 2012, the Ministry of Finance informed municipalities that the power dam special payment program would be examined as part of a broader review of government programs, taking into account the Province’s fiscal situation.

For the 2013 and 2014 taxation years, the payments issued to municipalities under the power dam special payment program were frozen at their 2012 levels.  The Ministry is now consulting with municipalities about the future design of the program.

AMO is extremely concerned with this provincial direction – particularly that there has been no analysis of the cumulative fiscal impact of multiple provincial initiatives on local governments, such as accelerated cuts to the Ontario Municipal Partnership Fund (OMPF) and changes to the OPP billing model.

The reduction of these payments is inconsistent with recent court decisions affecting the federal government and Provincial Payments in Lieu (PILs).  Any erosion of these payments could open the Province up to potential legal and equity challenges.