The Free Ride is Over: Why Cities, and Citizens, Must Start Paying for Much-Needed Infrastructure

Canada’s roads, bridges, wastewater treatment centres and sewer systems are already past their prime. On average, and across the country, these key elements of municipal infrastructure are now past the halfway point of their useful lifespans. In the next 10 to 15 years, Canadian cities will face some very expensive bills for replacing critical infrastructure. But there are better means of funding needed infrastructure than raising local taxes or pleading with the provincial and federal governments for more transfers. A better solution, for many reasons, is user fees. Municipal governments have already managed to extract a great deal of infrastructure funding out of higher levels of governments. In the last 50 years, the portion of municipal revenues provided by federal and provincial transfers has increased from under 30 per cent to roughly 45 per cent, while the portion of revenues representing local property taxes has fallen from over 50 per cent to roughly 35 per cent. Yet, federal-provincial government funding is a seriously flawed means of funding local infrastructure. Money gathered at the federal and provincial level is placed in municipal coffers, breaking the chain of political accountability for the outcomes. This alters the spending priorities of municipal governments as they are inclined to favour those projects with federal or provincial subsidies attached. Such subsidies lower the political costs for local governments allowing municipalities to maintain artificially low taxes for their constituents by spending federal or provincial tax revenue. This is essentially having their cake and eating it too, and on a policy level, we are left to wonder how decision making surrounding municipal priorities is affected. These projects come at a discount to local governments, but not their constituents who will ultimately pay through federal or provincial income taxes. Most importantly, this kind of funding results in unpriced infrastructure access and contributes to the over-usage of infrastructure. It is only rational for residents to live further from work by taking full advantage of underpriced highways, bridges, transit and other infrastructure that someone else pays for, exacerbating congestion and commuting times in Canada’s major cities. Yet, federal-provincial government funding is a seriously flawed means of funding local infrastructure. Money gathered at the federal and provincial level is placed in municipal coffers, breaking the chain of political accountability for the outcomes. This alters the spending priorities of municipal governments as they are inclined to favour those projects with federal or provincial subsidies attached. Such subsidies lower the political costs for local governments allowing municipalities to maintain artificially low taxes for their constituents by spending federal or provincial tax revenue. This is essentially having their cake and eating it too, and on a policy level, we are left to wonder how decision making surrounding municipal priorities is affected. These projects come at a discount to local governments, but not their constituents who will ultimately pay through federal or provincial income taxes. Most importantly, this kind of funding results in unpriced infrastructure access and contributes to the over-usage of infrastructure. It is only rational for residents to live further from work by taking full advantage of underpriced highways, bridges, transit and other infrastructure that someone else pays for, exacerbating congestion and commuting times in Canada’s major cities. User fees would bring a predictable and dedicated revenue stream that would allow municipalities to responsibly take on the debt required to invest in much-needed infrastructure projects. Canadian city governments already have the tools they need to keep up with their pressing infrastructure needs; they need only find the creativity and political will to make use of them.Journal: The School of Public Policy SPP Research Papers