Tax in the City

Image from Service New Brunswick website

 Stop me if you've heard this one before: Canadian cities, due their Constitution status (or lack thereof) are hampered from effectively addressing the needs of their constituents.

I started thinking about this lately after reading this recent article in Salon that talks about the issues with applying libertarian principles to city planning. Now, certainly such a viewpoint that planning is a worthwhile activity -- despite the cost and infringements to property rights -- would certainly be self-serving for a guy who likes to think of himself as an urban planner. I've also never been to Tampa Bay and could only talk broadly about their tax system. So instead I'm going to talk about the Canadian context, and some of its implications for planning.

Cities get funds in one of three general ways:

1. Money from the Federal government, or their respective Provincial Government. These are almost always conditional (i.e. "use the money to do x"). An Ontario example would be from last year, when the provincial government offered to hire nurses to work in some of their "health units" around the province. Provincial money, municipal gain.
2. User fees. These are quite varied, but can range from punitive (e.g. parking tickets), to a public benefit (e.g. transit fare). It can also encompass the small fees that the city charges for services, such as printing a copy of a by-law, and the large fees charged to developers for greenfield development that require new infrastructure to be built. The $3.10 token fare for the TTC for example, is effectively a user fee.
3. Property taxes. The money that the city charges home and property owners for owning a building within municipal boundaries. These are almost always the top source of revenues for a city.

The problem with all three revenue sources is that they tend to be extremely inflexible.

If the province says "here's 10 million to hire some police officers", great news if the city believes the new bodies on the ground can help stamp out say, a perceived gang problem. But what if the city thinks that 10 million would be better put into firefighters? Well, too bad! 

User fees are great if they can recoup some of the costs of providing a service. Keeping on the TTC example, both you and the city benefit if that $3.10 is worth paying to keep your car parked at home rather than adding another vehicle to rush-hour traffic. But there's rarely any nuance to a user fee; that $3.10 cost might be prohibitively expensive if you're unemployed or living on a fixed income (you'd pay twice there and back, and when money is short, $6.20 can be worth two or more meals).

And property taxes! Certainly, they do a relatively good job of providing funds to keep the roads repaired and the street lights on. But you can't get creative with property taxes. Consider the library at Toronto City Hall. If the city wanted $200,000 to upgrade the library, who should pay? People who use the library? Businesses and residences within 500 metres? All of Toronto? City Council? Taxes traditionally work best when they capture a "problem" (e.g. the wear and tear your car makes on the road) and applies a tax to cover it. But much like the problem with people who live in say, Markham but drive to work in Toronto (and therefore use Toronto's roads, but don't pay taxes to keep them repaired), there isn't necessarily a great way of capturing "users" of a particular services, such as a libraries (a $200,000 upgrade won't be paid for by late fees). And raising property taxes can be like pulling teeth without the novacane from a political viewpoint.

I should mention that the City of Toronto Act has given Toronto some taxation powers that are foreign to other Canadian municipalities, but their introduction has certainly been no less politically charged as property taxes often are, and the number of new revenue options the Act has opened have been actually quite narrow... but that's another post. Still, it's a step in the right direction. While the Car Registration Tax was later appealed, it served the purpose of tackling a problem (car use) and hitting those who were causing the problem (car users).

There are many who will claim that the problem isn't a lack of tax revenue, it's an abundance of wasteful government spending. While hyperbolic, it's true that taxes should never be taken for granted in any form. Government should always be looking to do more for less. But, with inflexible revenue sources, you're simply going to end up with some people paying for stuff they'll never use, and others free-riding on a public benefit despite having the capacity to contribute to it. Short of a constitutional amendment (which will never happen), it's up to provincial leaders to understand the tax dilemmas that many of their cities face cannot be solved with a few conditional grants.