Municipal government exists to facilitate local decision-making with a focus on providing services to property and addressing local needs (UBCM 2001). In other words, city governments cannot be "all things to all people." While many concerns can be tagged as "urban issues", it does not follow that local governments should be responsible for them, especially given the limitations of the property tax. Because cities are under intense pressure to widen their activities at the same time they remain in a highly restrictive fiscal environment, cities need to keep the focus on traditional local priorities.
| INFRASTRUCTURE BANKS Infrastructure banks are special state-run lending institutions in the U.S. that were created with federal grants to finance municipal infrastructure. In some ways, these banks operate similar to provincial municipal finance authorities in Canada, which borrow on behalf of a number municipalities to secure lower interest rates. At the same time, infrastructure banks do operate somewhat differently and may carry some unique advantages. For example, low interest loans are guaranteed by the bank's reserves rather than the credit of the municipality, and short-term construction loans are often available to maintain liquidity in the event that a project goes over budget. Further, interest-only loans are provided where the principal is repaid only when projects that result in a new stream of revenue actually begin to earn money. Most important, infrastructure banks effectively recycle federal grants to finance more capital projects than can be financed through a direct subsidy. On the downside, infrastructure banks are often used to finance projects that result in the creation of a new revenue source, such as a toll road or utility system. These types of projects can be limited, unless a radically new approach to certain types of infrastructure is taken. Legislative amendments would certainly be required and municipalities themselves may not be interested in substituting any direct federal assistance for access to low interest financing. From a federal perspective, transferring a lump sum grant provides more recognition than setting up a bank, and many large western cities are still somewhat reluctant to engage in borrowing. Finally, creating infrastructure banks requires a significant initial grant and involves set-up costs, a certain amount of financial and managerial expertise, as well as market credibility and public support. As a result of these downsides, some have suggested that one alternative to establishing a revenue-generating infrastructure bank is one that simply operates as a long-term subsidy. Here, the infrastructure bank would be established by federal funds, and then issue interest free loans that only require municipalities to repay the principal. This would certainly reduce municipal adversity to debt financing, and would reorganize grant funding so that it is gradually diminished over time rather than spent in one lump sum. The worry, of course, is that capital markets could become distorted and the ability of the infrastructure bank to issue debt on its own behalf is compromised over time because the value of its assets and future revenues is being consistently reduced. | |
| SOURCE: | Crockatt, Michael A. and Prentice, Barry E. 1999. Infrastructure Banks: Innovative Financing for Tapped out Transport Budgets. Transport Institute, University of Manitoba. Winnipeg, MB. |
■ Advantages: A more limited focus helps close the structural fiscal gap that inevitably builds whenever financial resources are unable to meet expenditures spread over a wide range of activities, and a more clear definition of roles and responsibilities enhances accountability. If cities can distance themselves from what is arguably a very confusing web of functions, they would find themselves better able to sidestep pressures to expand expenditures.
■ Disadvantages: All of this is much easier said than done. If cities completely disengage from certain services they feel are inappropriate (e.g. income redistributive issues such as homelessness or urban Aboriginal issues) and the other orders of government refuse to pick them up, Canadians are simply left with the spectre of a group of rising urban problems no one is addressing. Disentanglement is clearly an ideal, but despite the logic of a sharper focus, distinguishing between services that are local and those that are not is difficult (Tindal and Tindal 2000).
■ Moving Forward: Disentanglement requires the participation of other orders of government, and they may be unwilling - many of these exercises in the past have not met with success (Kitchen 2000). At the same time, cities can move ahead by identifying priorities and ensuring their policies are working in the same direction. Lobbying for a more clear definition of roles through provincial and national associations should continue, and cities should insist that any services being pushed down will be preceded by consultation and a commitment for predictable financial compensation over the long-term (AUMA 2001a, 2001b, UBCM 2001). If it proves difficult to vacate an activity, cities should try and limit their activities to non-financial involvement. For example, provincial and federal governments could be encouraged to deal directly with community non-profits that may be better positioned to undertake certain activities given their specialized expertise in community-based solutions. Finally, cities could undertake a comprehensive review of all their services to identify areas unrelated to core competency or that generate uncontrollable externalities, and seek to upload those to the province.
This reform is specifically designed to ease pressure on the property tax base and the city's operating budget. This will allow a sharper focus and more funds to be shifted to capital. While success here is not guaranteed, it is often mentioned as a first step in recovering the essential purposes of municipal government.
| EXAMPLES: Recent Uploads Calgary: Responsibility for maintaining several urban freeways such as the Deerfoot Trail and Stoney Trail were recently uploaded to the Province. Some suggest that more could also be done. For example, Calgary is currently responsible for maintaining those portions of Highway 8 that run through the City. Alberta Rural MDs: Responsibility for maintaining secondary highways in rural municipalities was taken over by the Province. Vancouver: Responsibility for financing certain community health services was uploaded to the Province of BC and swapped with increased responsibility for regional transit. Winnipeg: Certain aspects of social service delivery were uploaded to the Province of Manitoba and grants associated with the services came to an end. The potential of uploading city EMS services was also discussed, but not undertaken. Rather, a new cost-sharing formula was devised where ambulance services are now covered 50% through user fees, 25% through city property taxes, and 25% through provincial grants. |