A New Deal
Property Tax Levy, City Finances (grants and taxes), Legislative Reform, Municipal Autonomy and Tax Exemptions. Edited: October 25, 2024.
Executive Summary
This report will focus on the appropriateness of the provincial property tax levy for education; the City of Saskatoon finances (balanced budgets and limited debt), including grant payments received from the provincial and federal government and taxes paid by the City to the provincial and federal governments in 2023. Before moving onto and considering the merits of much needed legislative reform of The Cities Act, including for greater municipal autonomy. And, finally this report will make a compelling case for the exemption of cities from paying any taxes to the federal and provincial governments on municipal tax revenues.
Cities across Canada need fundamental property tax reform.
City revenues are being cannibalized by taxation from the provincial and federal governments.
Never should a City Council have to report to city residents that Council may need to increase property taxes and by as much as 18% when the answer is simple: Cities across Canada require an exemption from paying any taxes, on revenues generated through the direct taxation of city residents, to the federal and provincial governments.
Cities cannot be expected to shoulder the burden of helping any provincial government pass a balanced budget, this is very poor public policy, especially when it comes to the service delivery of education.
Now is the time for fundamental change; tax reform – a new deal – whether the provincial and federal governments like it or not.
Introduction
[1] In Saskatchewan and throughout most of Canada; provincial governments require cities to levy a property tax to fund education: “The City of Saskatoon is bound by provincial legislation to bill and collect education property tax. The City of Saskatoon does not keep education property tax for use in providing City services.” (1)
[2] Historically, provinces have held a monopoly of power over municipalities: “The scope of provincial control over municipalities is largely unfettered, and municipal responsibilities can be altered by votes of the provincial legislature.” (2) This needs fundamental change, for cities, to meet the ever-expanding role cities play in the delivery of services to city residents.
[3] Cities across Canada do not have a spending problem; cities across Canada have a revenue problem. A revenue problem that is rooted in provincial statutes that enable cities to exist as mere creatures of statute and with very little autonomy: “Because local governments are legally subordinate to provincial governments, the only sources of authority and revenue available to municipalities are those that are specifically granted by provincial legislation.” (3)
Provincial Property/Education Tax
[4] This is especially true, for cities, when it comes to the provincial property/education tax:
“The ostensible rationale for provincial levies is to fund a portion of public schooling, but in fact property taxes are often simply part of provincial general revenue – they are not always earmarked for education.” (4)
The provincial governments need to discontinue the use of a property tax levy to fund education when the appropriate source of funding, for the delivery of education from the province, is through provincial corporate taxes and/or natural resource royalty and taxes – not municipal property taxes.
[5] Provincial property tax levies are ill-suited to meeting the demands of delivering a service as important as education; which is the exclusive responsibility of the provincial governments and under the constitutional division of powers contained within section 93 of the Constitution Act, 1867. Although throughout Canada; it appears that the provincial governments want all the benefits afforded by the constitution but without actually delivering on those same constitutional responsibilities.
Current City Council
[6] Never should a City Council have to report to the residents of a city that their property taxes may need to increase by as much as 18% to meet the needs of the city, as was the case with Saskatoon City Council in June, 2023: “The city is facing a $52-million funding gap in 2024, due to inflation and spending growth plans. If spending isn't reduced, that would require an 18 per cent increase to property taxes next year.” (5) This is unreasonable; unsustainable and a failure to lead by anyone on the current City Council. Perhaps it is time to move onto taking a critical and detailed look at the City of Saskatoon finances?
Balanced Budgets
[7] But, first, according to the Province of Saskatchewan; the City of Saskatoon must pass a balanced budget and that the City cannot plan for or run surpluses/deficits:
“As required by The Cities Act, the City of Saskatoon must pass a balanced operating budget each year, and this legislation mandates that the City cannot budget for an operating surplus or deficit, unlike federal and provincial governments. As a result, the City collects the necessary amount of property tax required to balance the budget after applying all other revenue sources. If a revenue gap exists, then the property tax increase fills this gap.” (6)
Limited Debt
[8] The City of Saskatoon further reports that the City’s: “…current debt level of $263.0 million is well within the City’s approved debt limit of $558.0 million as authorized by the Saskatchewan Municipal Board.” (7)
City of Saskatoon Finances
[9] In 2023, the City of Saskatoon had total revenues of $1,134.70 billion dollars; the City had consolidated operating expenses of $988.6 million dollars, which left the City with a surplus of $146.1 million dollars. (8)
Wait, a Surplus?
[10] If the City of Saskatoon cannot budget for an operating surplus or deficit, then where did the surplus of $146.1 million dollars go? This will be discussed shortly but first transfer payments and taxes collected on behalf of others needs to be considered.
Transfer Payments
[11] In 2023, the City of Saskatoon received (capital and operating) transfer payments totalling $138.1 million dollars from the federal and provincial governments. (9) The City paid to the Receiver General for Canada $132.9 million dollars in taxes. (10) This is somewhat of an improvement, the City received $5.9 million dollars more in transfer payments in 2023 than 2022 from the federal and provincial governments. In fact, in 2022, the City paid more in taxes to the federal government than the City received from both the federal and provincial governments in transfer payments.
Taxes Collected on Behalf of Others
[12] The City of Saskatoon collected taxes on behalf of others for $178,197,000.00 million dollars:
Taxes Collected on Behalf of Others (2023): $178,197,000.00 million dollars.
Receiver General for Canada (2023): $132,928,495.00 million dollars.
Total Taxes Paid to Both Orders of Government (2023): $311,125,495.00 million dollars.
Cannibalized Surplus Revenues
[13] The remaining $146.1 million dollar surplus is cannibalized:
Gross Tax: $508,201.00
Taxes collected on behalf of others: $178,197.00
Net Taxes Available for Municipal: $330,004,000.00 (11)
Receiver General for Canada: $132,928,495.00
After Feds take their cut: $197,075,505.00
Revenue Surplus: $146,100,000.00
Outstanding balance: $50,975,505.00
[14] If cities were exempted from paying federal and provincial taxes; cities would not need to be looking for additional sources of revenues or nickel and diming city residents with new and increasingly more ridiculous fees for the delivery of services. Such as a subscription for different sizes of garbage bins or a green bin for the collection of organics, which should be including in one flat property tax.
Legislative Reform and Greater Municipal Autonomy
[15] Cities across Canada need more financial flexibility and autonomy. The problem with The Cities Act is it is paternalistic and unless something is specifically provided for in the Act. Then this authority does not exist and cities are expected to make the best of a bad financial situation.
[16] Without legislative reform of The Cities Act; cities in Saskatchewan cannot plan for or run budgets that include surpluses or deficits, nor does the City have the ability to control the cities debt as City Council sees fit, which is of a uniquely local nature.
[17] City councils know what’s best when it comes to what a city needs. But, without legislative reform; cities are operating in a vacuum – city councils cannot take proactive steps that may have positive effects on the city’s overall (financial) wellbeing and in the delivery of services to city residents.
[18] Under the current legislative system; if the City of Saskatoon wants to build anything. The City is required to fund that project, from start to finish, in a given fiscal year. The problem with this approach is inflation; paying for the development of something upfront may seem like a good idea. But, construction costs often go up, over budget and as a result; a project the City earmarked $40 million dollars for, in one fiscal year, will end up costing significantly more than what was originally planned/budgeted for, especially when it comes to funding high ticket items.
[19] Cities cannot control inflation; cities can only deal with inflation as a symptom of a larger problem. A problem that has a simple solution; cities need the ability to finance big ticket projects (sports arenas, libraries, civic centers) over a multi-year cycle. If a project costs $100 million dollars; spread the projects cost out over 3 years, this works out to $33.4 million dollars a year, which is a much better solution than trying to pay for a project upfront in a fiscal year. This would allow council the flexibility to control the projects development, including intervention by council where a projects financial situation changes.
The Big Government Approach to Budgets
[20] Cities, across Canada, need the same ability to run deficits and surpluses as the provincial and federal government. And, it has been a long time coming that cities need the ability to run surpluses and deficits; in addition to having the ability to control long-term debt obligations as a city council see’s fit. This is a necessary change for cities, across Canada, to meet the evolving needs of the cities. In fact, this should be called: 'The big government approach to budgets'.
[21] Much has been published about municipalities, across Canada, being tasked with doing more with less financial resources; in fact, as the Federation of Canadian Municipalities correctly states in their 2023 Municipal Growth Framework:
“With municipal budgets impacted by inflation, municipalities are being asked to do more to address the housing crisis and other challenges and do not share in the revenue growth that provincial, territorial and federal governments receive. The lack of growth-oriented revenue sources means local governments have been receiving an ever-decreasing share of the Canadian tax dollar since 1990. This also means that municipalities do not directly benefit from the action they take to stimulate local and regional economic development.” (12)
This is a recurring theme of city councils across Canada: Municipal budgets are heavily impacted by inflation and cities do not share in the same revenue growth enjoyed by the federal and provincial governments from the action cities take to stimulate local and regional economic growth.
Tax Exemptions for Cities
[22] Consider: In 2023, the City of Saskatoon paid $311,125,495.00 million dollars in taxes to the federal and provincial governments. This is no insignificant amount of money being siphoned off from City revenues by the federal and provincial governments. The City paid the federal government (Receiver General for Canada) $132,928,495.00 million dollars. And, the City paid the provincial government (Taxes Collected on Behalf of Others) $178,197,000.00 million dollars.
[23] At this point in time, it is safe to say that cities will not settle for anything less than capitulation, nor should cities expect anything less. This is not negotiable. Moving forward, the only way this will work is cities receiving 100% exemption from paying any taxes on municipal revenues generated through the direct taxation of city residents. And, if the provinces are worried about foregone tax revenues from cities; perhaps it is time to form new, more competent provincial governments that are up to the task of finding additional sources of revenue to meet the provinces financial needs instead of nickel and diming cities and in an attempt at balancing provincial budgets.
[24] In fact, the federal and provincial governments had every opportunity to proactively find solutions to the growing problems faced by cities. But, since the federal and provincial governments did not want to do the right thing, took no corrective action, whatsoever; which is not surprising considering politics is about power, not fairness. The absolute best the federal and provincial governments can now hope for is appeasing the cities by granting 100% tax exemptions to cities. The real political power, in confederation, is with the cities!
Conclusion
[25] The preceding report has elucidated the precarious financial positions of cities throughout Canada, including the need for autonomy, tax exemptions, legislative reform, among other things. However, this is the first in a series of reports that will inform the public at large of the greater situations faced by all municipalities throughout Canada. The problems faced by the City of Saskatoon are not an isolated incident; in fact, cities across Canada are facing the same problems as Saskatoon. And, it was only a matter of time before someone finally had enough with the current, sad state of political affairs locally, provincially and nationally.
[26] Change is possible. The real political power has always been with the cities; not the provincial or federal governments. And, unfortunately, for the current Saskatchewan Party government; their political bacon is on the line as the provincial election is in October, 2024.
[27] The purpose of this report was two-fold: 1) Inform City of Saskatoon residents of the current financial situation of the City of Saskatoon and offer progressive solutions to those problems. And, 2) this report serves as the framework for my candidacy as Mayor of Saskatoon in the November, 2024 civic election.
[28] I expect the federal government to cave at first instance but the current provincial government of Saskatchewan will try to fight, tooth and nail, once the Sask. Party is put on blast for their abysmal record leading the province during the previous terms. The Sask. Party only enjoys forming a government when the taxpayers are happy with the services they receive from the municipal and provincial governments.
[29] In essence, the November, 2024 civic election serves as a referendum and puts the provincial and federal governments on notice that change is coming, whether they like it or not.
[30] The federal and provincial governments are either with the cities or against the cities.
Mike Harder
References
(1) City of Saskatoon. “Property Tax”. Accessed on Monday April 22nd, 2024. Retrieved from: https://www.saskatoon.ca/services-residents/property-tax-assessment/property-tax
(2) “MUNICIPALITIES, THE CONSTITUTION, AND THE CANADIAN FEDERAL SYSTEM”. Prepared by: Erin Tolley, Economics Division. William R. Young, Political and Social Affairs Division October 1991. Revised February 2001. Retrieved from: https://publications.gc.ca/Collection-R/LoPBdP/BP/bp276-e.htm
(3) Ibid.
(4) “Property Taxes in Canada: Current Issues and Future Prospects”. Provincial Property Taxes at page 10. IMFG Perspectives, 2019. Authors: Harry Kitchen, Enid Slack and Tomas Hachard. Retrieved from: https://tspace.library.utoronto.ca/bitstream/1807/98034/1/Perspectives-27-Kitchen-Slack-Hachard-Property-Tax-Issues-Prospects.pdf
(5) “Saskatoon Council Fails to Make Inroads on City Budget Shortfall”. CBC News. Date: June 22, 2023. Author: Hannan Spray. Retrieved from:
https://www.cbc.ca/news/canada/saskatoon/council-fails-inroads-city-budget-shortfall-1.6885804
(6) City of Saskatoon. “Taxation and General Revenue”. 2022 ANNUAL REPORT at page 46.
Retrieved from: https://www.saskatoon.ca/sites/default/files/documents/asset-financial-management/finance-supply/COS_2022-AnnualReport_Aug31-final.pdf
(7) City of Saskatoon. “Financial Discussion and Analysis”. 2023 ANNUAL REPORT at page 63.
(8) City of Saskatoon. “Financial Discussion and Analysis”. 2023 ANNUAL REPORT at page 58.
(9) City of Saskatoon. “Government Transfers”. 2023 ANNUAL REPORT at page 99.
(10) City of Saskatoon. Public Accounts 2023. “THIRD PARTY PAYMENTS” at page 76. Retrieved from: https://www.saskatoon.ca/sites/default/files/documents/asset-financial-management/finance-supply/PublicAccounts2023_Master_July%2015.pdf
(11) City of Saskatoon. “20. Net Taxes Available for Municipal Purposes.” 2023 ANNUAL REPORT at page 99.
(12) “MUNICIPAL GROWTH FRAMEWORK”. Federation of Canadian Municipalities, 2023. Retrieved from: https://media.fcm.ca/municipal-growth-framework-backgrounder.pdf