01/30/2007

2007 Pre-Budget Presentation to the Standing Committee on Finance and Economic Affairs, January 30, 2007.
Doug Reycraft, President of 
The Association of Municipalities of Ontario
2007 Pre-Budget Presentation to the Standing Committee on Finance and Economic Affairs 
January 30, 2007

Good Morning.

My name is Doug Reycraft. I am the Mayor of Southwest Middlesex and the President of the Association of Municipalities of Ontario.

Municipalities are an order of government that is critical to the prosperity of our communities, our Province and our Country.

There is a shared understanding that the current state of municipal finance does not provide municipalities with the resources they need to fund their immediate responsibilities, let alone invest in our future.

While the municipal community has been saying this for years, the chorus has grown to include the Federal Government and all three of the provincial parties represented here today.

Ontario has stood alone for far too long in its approach to provincial-municipal fiscal relations.  

Municipalities struggle under arrangements that are ill-conceived, poorly executed, unaccountable to tax payers, and devastating to our communities. The result is the highest property taxes in Canada and deteriorating infrastructure.

Is help on the way?  We believe that the Premier’s launch of a joint review, with AMO, of how municipal services are financed and governed in Ontario will get us solutions.  

The Premier understands the need to create a sustainable, provincial-municipal fiscal relationship where both orders of government can meet their responsibilities efficiently and effectively. 
 
Conservative Party leader John Tory has pledged that, if elected, he would “create a clear, agreed upon framework for provincial versus municipal responsibilities with a realistic funding model behind it.” 

Similarly, the NDP has shown consistent leadership, and long advocated the uploading of provincial health and social services costs from the municipal property tax base.

While I’d like to suggest that AMO’s advocacy work has led to this consensus, the sad truth is that a decade of unsustainable municipal finance is coming home to roost in Ontario.

The damage is visible.  The public sees its effects in our streets and the business community measures it in terms of lost opportunity.

We recognize that the Ontario government faces a number of serious fiscal challenges that cannot be ignored. And that the Ontario government has set a number of priority goals it wishes to achieve.

Some of these are evident over the course of the last three provincial Budgets: deficit reduction; investments in health care; and investments in education.

Each of these is a laudable goal and has merit in its own right.

As community leaders, we understand the value of provincial investment in people, in research and technology and in services for vulnerable Ontarians.

But failing to invest in municipal infrastructure, and undermining our ability to invest municipal revenues in municipal services, is a false economy with long-term consequences.

There is an urgent need to address the provincial-municipal fiscal imbalance and resulting municipal infrastructure deficit.

There are a number of areas where immediate changes to funding arrangements will provide an immediate return on investment for our communities. What’s more, it is the right thing to do if we are truly committed to good public policy and good fiscal policy in Ontario.

Here are two examples.

First, billing municipalities for 20% of the Province’s ODSP disability benefit program makes sense to no one. Sending us a bill for half of the cost of the provincial delivery of the program is equally unaccountable.

Second, charging municipalities for drug benefits of low-income Ontarians is a prescription for escalating property taxes and the decline of our communities.

I could go on with additional examples but I know that the provincial-municipal $3 billion gap is well known to the members of this committee.

The combination of education property taxes and the $3 billion gap means that 50 cents of every property tax dollar collected from Ontario residents and businesses ends up in the provincial treasury.

The bottom line is clear - municipalities need to be free to use the municipal property tax base for their own services and capital expenditures.

This gap has prevented municipalities from reaching their full potential as drivers of economic development, and challenged the basic municipal infrastructure that underpins the quality of life in our communities. 

It has undermined our ability to deliver:
• safe, clean water and wastewater systems;
• effective transit and transportation systems; 
• sustainable waste management systems;
• well maintained roads; and
• the cultural and recreation infrastructure that must be key elements in a healthy and competitive Ontario.

The municipal response to the Canada-Ontario Municipal Rural Infrastructure Fund (COMRIF) provides a breathtaking example of the need.  Each of three COMRIF Intakes has resulted in a $1 billion worth of applications. 

The Canadian Council of Professional Engineers has estimated the municipal infrastructure gap in Canada to be $60 billion, growing at $2 billion a year. The Ontario Ministry of Public Infrastructure Renewal itself estimates that Ontario’s total infrastructure gap is $100 billion.

The need is great, and all orders of government have a responsibility to ensure that the infrastructure that underpins our economic prosperity is not allowed to fail.

Ontario’s municipalities require a fiscal relationship that is sustainable, predictable and accountable.

Reducing the Province’s dependency on municipal property taxes is the only solution.

This budget provides the government an opportunity to begin to establish a sustainable fiscal framework for infrastructure investment in Ontario communities.

There are many areas where improvements can be made. I want to highlight three specific issues for you today.
 
The first concerns the costs associated with Crown lands.

While Crown lands generate substantial revenues for the Province  -- stumpage fees alone bring in an estimated $100 million a year -- they generate no revenue for municipal governments.

Yet municipalities must operate a wide range of services that support activities on Crown land.  These include road and bridge infrastructure, as well as ambulance, fire and police services. 

This can be a considerable responsibility – in Eastern Ontario alone, Crown lands cover more than 11,000 square kilometers – and the costs of these services falls solely upon municipal property tax payers outside of Crown land.

In the interest of equity and fairness, we believe that these costs should be shared with the Province.  A provincial payment-in-lieu program for all Crown land, based on local and county residential tax rates, would assist in reducing this burden.

A second issue is provincial programs that are designed to meet provincial environmental and agricultural policy objectives but are funded by municipalities.

I am speaking specifically of the “Managed Forest Tax Incentive Program” and the “Farmland Tax Program.”

The Managed Forest Tax Incentive Program is a voluntary program administered by the Ministry of Natural Resources.

It provides a 75% discount on property taxes to landowners who agree to manage their forests, including commercial forestry operations – shifting the property tax burden to others in the community.  

While the total costs of this program are not extraordinary, the principle of forcing municipalities to subsidize a provincial forest management program is bizarre and unaccountable.

Likewise, the Farmland Taxation Policy taxes farm land and farm wood lots at only 25 per cent of the municipal residential rate.

When the cost of this program was downloaded by the previous government, the cost to municipalities was estimated at $165 million a year for about $30 billion worth of farm land.

I cannot tell you what the cost of the download is today. Members of this Committee may wish to put the question to officials from the Ministry of Finance.

You will often hear that the impact of these policies is offset by the Government’s Ontario Municipal Partnership Fund. But the fact of the matter is, that in 2007, the OMPF will include only $49 million in total offsets for the farm tax and managed forest programs.

AMO has long advocated on behalf of rural Ontarians and we are acutely aware of the importance of a sustainable agriculture industry and of environmental conservation efforts. However, provincial programs based on municipal tax expenditures are flawed in principal and in practice.

A third priority, and one of the simplest ways to begin addressing the infrastructure deficit and promote sustainable growth, is to fix the discounting and limitations on development charges.

Growth should pay for growth. The Development Charges Act, as currently structured, destabilizes the municipal revenue base and forces existing property tax payers to subsidize Ontario’s development industry.

In this government’s election platform there was a commitment to ensuring that developers absorb their share of the costs of new growth. But there is no sign yet of the promised review of the Development Charges Act.

Municipal governments continue to lose out on hundreds of millions of dollars in revenue, and property tax payers continue to pay a higher price as a result.

These examples have one thing in common - property tax payers are being required to subsidize non municipal programs and priorities.

Subsidizing services to provincial Crown lands, subsidizing provincial agricultural and conservation programs, and subsidizing the development industry diverts municipal resources away from municipal services in a way that subverts any notion of good public policy.

AMO and its member municipalities are calling on you to undo the harm wrought by the current fiscal relationship, and to lay the groundwork for a new fiscal relationship that will make our communities and our province competitive in the global marketplace.

Thank you.