Remarks to Ontario Legislature Standing Committee on Finance and Economic Affairs Pre-budget Hearing, Tuesday, February 2, 2010.
Remarks by:
Doug Reycraft, AMO Past President
and Mayor of Southwest Middlesex/Councillor for the County of Middlesex  
Tuesday February 2, 2010
Ontario Legislature Standing Committee on Finance and Economic Affairs Pre-budget Hearing

Check Against Delivery

Good afternoon ladies and gentlemen.

I am Doug Reycraft, Mayor of Southwest Middlesex and Past-President of the Association of Municipalities of Ontario.  Unfortunately, AMO’s current President, Peter Hume, must attend a funeral today.  

I will be making comments that relate to some areas in our written submission.  You may want to look at the chart on page 11 of the document the Clerk has handed you. 

The global economic developments of the past year have had a profound impact on every order of government and many Ontarians themselves.  The response of every order of government has been equally profound.  The economic stimulus plan seems to have propelled recovery to this point.  It has resulted in massive infrastructure investment, the majority of which is owned and operated by municipal governments.  

For every federal dollar spent, and every provincial dollar spent, a municipal dollar has been spent too.  We know the impacts – federally and provincially each has announced massive budgetary deficits.   For municipalities the bill is still being tallied. It will be big. It will limit debt capacity in some municipalities and will draw down on their capital reserve funds.  For others, it will require higher operating costs, especially where new transit is provided. 

We know that the 2009 infrastructure spending is not a sustainable level of investment for any order of government. Ontario municipalities were eager and willing participants to take the necessary measures to help halt the economic decline.  Each municipal council chose to match those investments. They did so based on the knowledge of the on-going cost-sharing arrangements which include:

- the 10 year plan for social service cost uploads of the Provincial-Municipal Fiscal and Service Delivery Review; 
- the agreed to provincial funding agreements for programs like land ambulance and public health; and 
- the stability of equalization payments offered by the Ontario Municipal Partnership Fund, to name but a few.  

The wisdom and importance of each of these existing agreements is all the more important today. Changes to these understandings would plunge many municipalities into deep and frigid financial waters.

For too many years, municipalities were forced to divert billions away from infrastructure investment to pay for social services. The start of uploading of social service costs helped municipalities match every federal and provincial dollar this past year. When fully implemented, the upload will eliminate the financial exposure that property taxpayers have shouldered for far too long. The structural cost-sharing changes are long overdue and are good public policy. 

In looking to the future, the Association of Municipalities of Ontario is seeking:

1) a re-affirmation of current cost-shared arrangements that provide predictable municipal funding; 
2) improved economic development opportunities with enhanced financing tools; and 
3) reduced municipal insurance and liability costs by rebalancing municipal liability exposure.  

Municipal governments receive funding through the Ontario Municipal Partnership Fund (OMPF) and several other cost-sharing formulae. Changing these funding relationships is not the vehicle for dealing with the provincial deficit as it will place more burden on property taxes – widely noted as the most regressive of all the sources of taxation and the only one available to municipal governments.  

In addition, AMO and its member municipalities are awaiting the government’s confirmation that it will proceed with the 2008 reconciliation of OMPF amounts followed by the 2009 reconciliation.  Each year the government estimates its social service costs for municipal service delivery when making annual OMPF allocations. Reconciliation adjusts for actual costs incurred, not estimates.  To illustrate the difference, for one eastern Ontario county it represents $650,000 in 2008 alone.  

We caution the government not to fix its deficit by reneging on reconciliation. A positive announcement regarding the government’s plans to reconcile actual costs for 2008 and 2009 is needed soon.  

We have agreed that where actual to estimated costs go down; there would be a dollar for dollar reduction and the corollary is true. If caseloads go up and benefits cost more, then the province must pay its share of actual costs. That is good public policy too. That is what makes for good partnerships.

We acknowledge that the province has provided municipalities with a stable funding guarantee for the past five years. The announcement of 2010 OMPF allocations was marked by the withdrawal of that guarantee.  In 2010, nearly fifty municipalities will weather a provincial funding cut with an equivalent tax impact of $30 per household on average, and for some, up to $85 per household. No municipality should receive any less funding in 2010, nor in any future year.  

For some municipal governments, the loss of the stable funding guarantee, a retreat on reconciliation, or changes to other cost-sharing formulae would have dramatic consequences. They would become an enormous household property tax burden. We caution the government from going down these routes.

This past year’s infrastructure investments have helped narrow the infrastructure gap but it remains wide, particularly when the housing stock that was downloaded in the late 90’s is added in. While a sustained infrastructure investment at the 2009 level is impossible for any order of government, continued investments will need to be made in the future if we are to continue to close the infrastructure deficit gap.

Turning the tap off in 2010 assumes that the infrastructure gap is no longer important and that economic recovery is achieved. We suggest otherwise and recommend that the province continue to use infrastructure funding as a strategic vehicle for economic recovery.

AMO also urges the government to undertake a targeted infrastructure investment initiative to continue to upgrade small municipal water systems.  

In addition, AMO also seeks some enhanced financing tools to leverage additional infrastructure investments. The first is moving forward on the review of the Development Charges Act. The charges currently permissible under the Act do not uphold the principle that growth should pay for growth.  The current policy is exacerbating the infrastructure deficit.  The burden must be shared much more equitably.

The second tool municipalities seek is the legislative provision to create a provincial fund for the remediation of existing brownfield properties.  It would be financed by levying industry or commercial enterprises which have a higher risk of contaminating lands. Additional details regarding these and other financing tools are contained within AMO’s submission.  Our written submission also explains a few other tools that would be helpful to residents and the economy. 

The third and final point I would like to raise with you today is the issue of municipal liability reform and insurance costs. Viewed as “deep pocket” defendants, municipalities are increasingly becoming the targets of litigation. Because of joint and several liability, a disproportionate burden is placed on municipalities.  It has caused municipalities (and/or their insurers) to settle out of court to avoid protracted and expensive litigation for amounts that far exceed their degree of fault.  It has forced municipal governments to scale back the scope of the services provided to citizens.  In addition, it has resulted in insurance premium increases for some municipalities of 47% in 2010 alone.

Many common law jurisdictions around the world have adopted legal reforms to limit the exposure and restore balance while preserving the rights of aggrieved parties. Other Commonwealth jurisdictions and the vast majority of state governments in the United States have modified the rule of joint and several liability in favour of some form of proportionate liability.  It is time for Ontario to do the same.  

The year 2008 was a turning point for Ontario municipalities. The outcomes of the Provincial-Municipal Fiscal and Service Delivery Review are among the most important advances municipalities have seen in decades. Significant improvements to provincial-municipal fiscal relations are underway.

Restoring the balance of municipal responsibilities and revenues from the era of unabashed downloading has taken a substantial effort. For the last ten years municipal leaders, economists, and politicians from every party have argued that social services should not be funded from the property tax base.  

It took ten years to reach agreement for that to change and it will take eight more years for the worst of the downloads to be fully reversed. It is an outcome that will match the right service with the right tax base. The government recognized this and we now have a cooperative strategy built on goodwill and trust between two orders of government.  

Much has been achieved as a result. The 2010 provincial budget must not break that trust and goodwill. AMO looks forward to the government’s consideration of our 2010 recommendations aimed at creating a strong foundation for a prosperous future.

Thank you for listening to AMO.