02/02/2006

Closing the Gap: The Ontario Municipal Fiscal Situation; Pre-Budget Speech to the Standing Committee on Finance and Economic Affairs. February 2, 2006.
AMO President Roger Anderson
Pre-Budget Speech to the Standing Committee on Finance and Economic Affairs
February 2, 2006

Introduction

Good morning, my name is Roger Anderson. I am the Chair of the Regional Municipality of Durham and the President of the Association of Municipalities of Ontario.
 
AMO has long advocated for strong communities. Ontario’s citizens expect all three orders of government – Federal, Provincial and Municipal - to work cooperatively in the interest of these priorities.

I think we all agree that Ontario’s municipalities are struggling under an unsustainable fiscal situation.  

In 1998, the Province sought to balance its books by pushing Provincial program and services costs onto the municipal property tax bill.  

As a result, the Province improved its fiscal situation and Municipal governments were left with a mess.  This mess must now be addressed - in the interest of Ontario’s future prosperity.  

Without dealing with this systemic problem, the Government will have a very difficult time in its objective of creating a new generation of economic growth.

As leader of the Opposition, Dalton McGuinty said of the downloading that “… the Harris government had better return to the drawing board now and come up with a better solution fast before they do any more damage.”

He also said, “The property tax system, when it comes to paying for social services, is a recipe for disaster”.   

These statements were made a number of years ago and we still have no plan to address the problem.

The new Ontario Municipal Partnership Fund is not the plan. It is a reshaped, resized band-aid.

For some communities it is an improvement to the former Community Reinvestment Fund, but it will not do the job that is required.

The longer we wait, the more it will cost us in lost opportunity and investment in core municipal responsibilities, such as transit, transportation, and essential water and wastewater infrastructure. 

The facts speak for themselves:

• Ontario property taxpayers pay the highest municipal property taxes in the country
• As of 2003, Provincial health and social service costs consume an incredible 25% of municipal property tax revenue
• No other jurisdiction in North America funds health and social services this way
• And no other jurisdiction has chosen to follow Ontario’s download example
• There is a resulting $3 billion dollar gap between the costs that municipalities pay to fund Provincial health and social services programs, and the Province’s contributions to these programs.

That $3 billion gap leaves little room for investment in municipal infrastructure, and the result is a massive and growing infrastructure deficit that can no longer be ignored.

It’s time for the Province to turn its attention to the needs of Ontario’s municipalities.
 
This government delivered a multi-year health care Budget in 2004, and a multi-year education Budget in 2005.

In 2006, Ontarians need a multi-year municipal Budget that recognizes the needs of communities.

AMO is urging this Committee and all Ontario MPPs to seize the following three priorities in this year’s Budget:

• Provide an immediate and meaningful reduction in the municipal contribution to Provincial health and social services programs, with a view to the eventual elimination of the $3 billion gap.
• Commit to ensuring that predictable and sustainable revenue is available to all municipalities.
• And commit to providing a plan to eliminate the municipal infrastructure deficit over time.

Competing Priorities

We recognize that the Province has a range of goals to achieve. Competing demands and limited fiscal resources are a reality for all orders of government.

However, Ontario is the only province in Canada that requires municipalities to subsidize health and social services programs – to the tune of $3 billion dollars a year.

That means, in effect, that one of every four municipal property tax dollars collected is remitted to the provincial treasury.

As a result, Ontario property taxpayers have the highest municipal property taxes in the country.

Municipal governments are forced to defer investment in municipal services and infrastructure, while individuals and families in Ontario’s communities watch services decline.
 
Municipalities have not been able to keep up with capital infrastructure needs while trying to hold the line on property taxes.

This inequity has resulted in a deferred maintenance and delayed infrastructure investment of about $5 billion dollars a year.

AMO appreciates that the Provincial government has taken steps to shield municipalities from escalating costs in the areas of public health and child care, and is making a welcomed offsetting investment in municipal public transit.

However, a great deal more needs to be done if Ontario communities are to be livable, sustainable and competitive in the national and global marketplace.

There is a growing understanding of the challenges that municipalities are facing.

Leading academics, economists and public policy research institutes agree with municipal governments and property tax payers that requiring municipalities to subsidize provincial services is not good public policy.

We all agree that it is not economically sustainable.

In speaking to this very Committee last December, the Honourable Dwight Duncan, Minister of Finance himself acknowledged that, [and I quote] “…although municipalities have benefited from the gas tax and other recent measures – they continue to feel the effects of downloading from the previous government” [end quote].

The costs of these downloaded services have compounded – having risen steadily and, in many cases, sharply.

A system that subsidizes the Province by $3 billion annually is not a system that supports communities.

It is not a system that supports accountability for municipal property taxpayers.

And, it is not a system that creates opportunities where opportunities are needed most.

Investments in Infrastructure

Ontario municipalities play a large part in building strong, productive and competitive communities across Ontario.  We construct, maintain, and operate the entire spectrum of facilities required to deliver water and sewer services, transit and transportation, waste management, cultural and recreational centres, and parks.

In the information age, viable, safe, well-serviced communities attract jobs and investment.

Yet, growing responsibilities and shrinking resources are stifling our communities, large and small.

A key priority for the Province must be to ensure that municipalities function well and provide a foundation for Ontario and Canada’s economies.

The Ontario Government’s Water Strategy Expert Panel released its report on Ontario’s water infrastructure, estimating that Ontario would require a $34 billion investment in water systems alone over the next 15 years.

If we were not subsidizing the province for the last 10 years, that $3 billion gap could have resulted in a $30 billion dollars in potential infrastructure investments.

Locally, in communities across Ontario, the $3 billion gap translates to tens and hundreds of millions in lost opportunity and deferred infrastructure investment. Right now, it is translating into double digit property tax increases for 2006.

The Provincial and Federal investments in transit and environmentally sustainable infrastructure are a further recognition that Municipal governments are not in a financial position to make such investments.

In fact, Federal and Provincial gas tax revenues for Ontario’s municipalities will amount to just over $1 billion dollars when fully mature.

One billion dollars in additional revenue for municipal infrastructure is important progress.

But, it does not do the job of solving the $5 billion a year infrastructure deficit and it does not address the fiscal gap of $3 billion dollars a year.

Ontario municipalities need long-term, structural solutions.

We need a sustainable financial framework. One that matches appropriate revenues to the services we provide.  

The current arrangements leave municipalities vulnerable to ongoing and anticipated growth in the provincial programs we subsidize – like drug and disability benefits. And it leaves us vulnerable to considerable risk where costs are tied to economic shifts such as Ontario Works.

And provincial legislation like OMERS Bill 206, designed to enrich the benefits of municipal emergency services workers, only serves to further undermine the fiscal situation of Ontario’s communities.

Changes to the OMPF

The former Community Reinvestment Fund – CRF - did partially offset a small portion of the cost of Provincial health and social services programs.  

Last year, AMO petitioned this Committee to ensure that the 2005 Budget included CRF reconciliation funding owed to municipalities. We were pleased that the government did the right thing and fulfilled its CRF reconciliation obligations.

The replacement for the CRF - the Ontario Municipal Partnership Fund - provides limited assistance to many municipalities.  

The OMPF grants for 2005 were a total of $656 million distributed to 87% of municipalities – distributing less funding than what the former CRF would have, had it continued.

Like the CRF, the OMPF is underfunded and it is designed to address the symptoms – not the disease.

And with clear municipal “winners” and “losers” the OMPF has, to date, proven to be very difficult to implement. 

Since inception, OMPF has been considered a partial measure that ignores the fundamental and unworkable problems associated with using the municipal property tax base to finance provincial programs.

AMO has urged the Provincial government to maintain the “Stable Funding Guarantee” in 2006 and onwards, until real steps are taken to address the Provincial-Municipal fiscal gap of $3 billion dollars.

Earlier this week, we were pleased to see that the Provincial Government had taken steps to improve the OMPF for 2006: 

• a base increase of $51 million dollars will benefit a total of 391 municipalities; and,
• one-time special assistance will ensure that no municipality will see OMPF reductions in 2006.

I congratulate the Minister of Finance for this decision.

However, without a significant and permanent infusion in funding, OMPF remains neither equitable nor sustainable.

Making another stable funding guarantee for 2006 is an important signal.

It’s a signal that reducing Provincial funding to municipalities without addressing the fundamental problems in provincial-municipal cost sharing arrangements is unworkable.

Conclusion

Municipal contributions to Ontario’s prosperity cannot be overstated. Yet, municipalities in Ontario are being forced to compromise the future of our communities – more so than at any other time.  

We have an opportunity to turn this situation around.

As Ontario’s fiscal situation improves, its communities must not be left behind. 

And as Ontario moves toward a balanced budget, AMO urges this Committee to consider this question. 

 As long as the Province relies on municipal property taxes to subsidize provincial programs, can Ontario’s Budget ever be “balanced” in the true sense of the word?   

For Ontario’s communities to succeed, and for our province to succeed, the 2006 Ontario Budget MUST begin to address the $3 billion gap between what municipalities pay to the province and what we receive.

We have no illusions that all these changes can occur overnight, but we do know that change must come – and the Province has a responsibility to begin planning for change as soon as possible.

And we are ready to help.

We understand that part of the solution rests with the federal-provincial fiscal imbalance.  But the Province can ill-afford to do nothing in the short term.

At a minimum, the Province should commit to upload cost-sharing tied to the $3 billion dollar subsidy for health and social services programs – a minimum of $600 million dollars a year until the full subsidy is eliminated.

Furthermore, the Province must work toward addressing other cost-sharing tensions that contribute to the municipal fiscal imbalance – including the failure of the Provincial government to provide its 50% share of land ambulance costs.

Ontarians now have a government in Ottawa that recognizes the fiscal imbalance that has left provinces, territories and municipalities short.

AMO and its member Municipal governments are calling on the Minister of Finance to demonstrate Ontario’s leadership in this important matter of national interest. We are asking the Government to commit to addressing the provincial-municipal fiscal imbalance here in Ontario, right now.

We believe that a commitment from this government to undo the harm created by current fiscal arrangements in Ontario will demonstrate clearly to the Harper government that Ontario, and its municipal partners, are committed to strong communities, a strong Ontario, and a strong Canada.

Thank you.