In many respects, Canadian cities face some of the same challenges as their U.S. counterparts - including a shift in economic activity from downtown cores to the suburbs, large pockets of brownfields, and inadequate overall infrastructure. Moreover, like in the U.S., legislative limits imposed by provincial governments have restrained municipalities' flexibility to address their specific challenges. This suggests that it might be useful to include TIF policy - which is currently not permitted under the current provincial legislative framework - in the municipal fiscal arsenal.38
Still, some key differences in situations in Canada and that south of the border provide a clearer picture as to why the push for TIFs hasn't transpired in Canada. Most importantly, Canadian cities have not taken advantage of general-obligations borrowing nearly to the same extent as their U.S. counterparts, leaving considerable scope for them to address many of their infrastructure financing challenges through this lower-cost technique. This relative aversion to debt could reflect a number of factors, including an over-reliance on the slow-growing property taxes for revenues, as well as the fact that Canadian cities have not faced quite the extent of urban decline that U.S. cities did in the 1970s and 1980s that triggered massive efforts to redevelop blighted and dilapidated areas. Second, tax-exempt bonds - which have driven growth in the municipal debt market Stateside - have not been used in Canada. At the provincial level, only Ontario has moved to establish this type of instrument (i.e., Opportunity Bonds) which would exempt from tax interest paid at the provincial level. Nonetheless, the federal government has shown little appetite to extend tax-exempt status to municipal borrowers. As we indicated earlier (see footnote 2 on the bottom of page 2), we believe that TEBs are a flawed vehicle, and we do not support their application in Canada.
These differing circumstances between Canada and the U.S. raise the question as to why municipalities would choose to borrow through more expensive TIF debt instruments, when a cheaper alternative remains at their disposal? And, general obligation borrowing is not the only means of securing cheaper financing costs, as we argue in the following section.