When Toronto Mayor Mel Lastman petulantly demanded provincial status two years ago, many people laughed. But the master stuntman didn’t just make headlines: he made a point about the pivotal importance of cities. Toronto has more people than six of the provinces. After amalgamation next January, Montreal’s population will exceed that of the Maritimes.
Fifty-five per cent of Manitobans live in Winnipeg. More than 35 per cent of Nova Scotians reside in Lfalifax. Despite its great swaths of open land, Canada is an urban nation: Statistics Canada says more than 86 per cent of the population now lives in cities; 49 per cent are in cities with more than 500,000 people.
This is not just a lifestyle trend.
Cities are the nation’s economic heart. Just three decades ago, the most visible economic activity took place outside urban cores in manufacturing zones with easy access to cheap labour and resources.
Today, the economic powerhouses include firms that perform services like biotechnology research or financial management. Located within urban cores, they employ people who are highly trained—and highly mobile. And those people may move if they cannot find a quality of life that compares with thriving U.S. cities. “The urban economy pays the bills,” says consultant Joe Berridge, a partner in Toronto-based Urban Strategies Inc. “There is no longer a national economy: city-regions are essentially the economic units. And they are in intense competition with their U.S. counterparts.” It could be a losing battle. Berridge has calculated that Toronto invested only one-fifth of the average amount that 10 U.S. cities, from Boston to Miami, poured into their newly spiffy downtowns and waterfronts during the 1990s. The reason is simple: Canada’s cities are starved for funds. While U.S. mayors can tap generous grants from other levels of government, their Canadian counterparts watched federal and provincial grants actually decline during the last half of the 1990s. Worse, provincial regulations tighdy control the type of taxes that cities can levy: most rely heavily on property taxes, which are only peripherally linked to ability to pay. Provincial rules also hobble the cities’ right to form partnerships with the private sector—and leverage private funds. “Cities are in a
They are the country s economic heart, but they are being starved for binds
financial straitjacket,” warns Toronto Councillor Jack Layton, president of the 1,100-member Federation of Canadian Municipalities. “And our economy is going to be in deep trouble.” Belatedly, other levels of government are realizing their peril. Ottawa has put aside $2.6 billion for infrastructure needs over the next five years. It is also fine-tuning plans to
offer $170 million per year in capital grants for the construction of affordable rental housing over four years. Prime Minister Jean Chretien even appointed a 12-member Liberal caucus task force on urban issues last month.
The provinces, in turn, are hesitantly offering new revenue sources—and new legal powers. Both Vancouver and Winnipeg collect hotel occupancy taxes. Alberta has turned its cities into distinct legal entities that can offer business incentives for projects such as affordable housing. Ontario may allow its cities to deploy “tax increment financ-
ing” tools: that is, sell bonds that earmark the money for improvements in run-down areas—and then use the increased property tax revenues to pay off the bonds. “It is in everybody’s interest for senior levels of government to take a leap of faith in cities,” says Glenn Miller, applied research director at the
Canadian Urban Institute. “We have got to make up for lost time.”
Governments must act boldly. The old rules ensured that cities did not become encumbered with debt—or saddle their taxpayers with major burdens.
Today, those cities are so important that they must be treated—and trusted—as equal partners. Cities need new revenue sources: Ottawa should grant the federation’s request for three cents out of its 10-cents-per-litre excise tax on gasoline, which would be used for urban transit needs. The feds and the provinces should commit more money to the infrastmcture fund. All provinces should provide guarantees for city bonds so cities can receive better credit ratings—and thus pay lower interest rates. And they should allow their cities to make maximum use of private funds through for-profit partnerships. Above all, other governments should increase grants—bigtime. “The city generates so much revenue for the country,” says David Perry, senior research associate at the Canadian Tax Foundation. It’s time they got a lot more back.
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