Citizens for Local Democracy

Principles governing municipal/provincial financial relationships

At a time when the province is proposing to alter radically its financial relationships with municipalities and particularly to download financial responsibilities, it is important to set out the principles which have governed these relationships. In past decades, provincial governments have generally recognized the separate nature of local government and have not acted unilaterally in the field of financial relationships, but have attempted to reach amicable agreement.

The principles governing these relationships have not previously been set down, but have proceeded according to unwritten assumptions which we believe are fairly summarized below, followed by a brief commentary.


Municipalities are the first order of government within the Canadian political system, and exist to provide residents control over a wide range of local matters as well as being entrusted to discharge other duties. The following statements describe the principles that have generally established the terms of the municipal/provincial financial relationships:

Section 92(8) of the British North America states that the Legislature may `exclusively make laws in relation to.... municipal institutions', but nothing in the constitution gives a province the power to abolish municipalities or local governments against the will of those served by those governments, or impose new responsibilities without their consent. Nothing in the constitution says that municipalities are a 'creature' of the provincial government to be reshaped according to the whim of provincial politicians. The Ontario government does not have the moral
authority or legal power to force municipalities to assume responsibility for new program areas. For instance, nothing in the Canadian constitution permits the province to require municipalities to assume costs for universal program areas which are broadly social in nature.

1. Municipal governments are elected by and accountable to their local citizens for the expenditure of locally generated tax revenues. Accordingly, changes to what services are funded by locally generated tax revenues require the agreement of municipal councils.

For instance, if the Ontario provincial government wishes to re-organize how the costs of income redistribution programs are paid, it must first get the agreement of municipalities to these changes. The provincial government has no right to impose unilaterally new program expenditures on an unwilling partner.

2. Property tax revenue is the major source of municipal revenue, and must remain in the control of municipalities. Property tax revenue may not be used as a revenue source by the provincial government.

The proposals for changing education financing entirely violates this principle by assuming that the province will use property tax revenue from non-residential properties to pay for the costs of a provincially controlled education system.

3. In general, universal programs addressing problems of health care and income distribution should be funded by sources of taxation that are progressive and based on ability to pay, such as income and corporate taxes, and should be spread across as broad a population base as possible.

Some people believe there is a small degree of progressiveness in property taxes - more expensive properties pay more taxes in a system based on market values - but most people recognize that at best, property taxes are not very progressive, and are inappropriate for supporting universal social programs. Further, the costs of such
programs are counter-cyclical, and are highest when a community's ability to pay is the lowest - which is why such costs should be spread as widely as possible. It is unacceptable to burden families and individuals with fixed incomes (such as senior citizens) with heavy social costs which will force them to sell their homes.

4. The development of proposals to significantly change the municipal/provincial financial relationship should begin with the establishment of a process involving a wide range of interests led by locally elected representatives chosen by councils and municipal organizations, and representatives of service agencies and other interested groups and persons. The process should start with a full and independent study of problems, opportunities, alternatives and impacts.

The changes being proposed by the Ontario provincial government are without any foundation - there is not a single report the government can point to which reviews problems, opportunities, alternatives or impacts. Not one single report. As a result, there can be no intelligent discussion.

5. The study and any proposals to significantly change the municipal/provincial financial relationship should be publicized and made widely available to all affected municipalities and their citizens. A meaningful public consultation process should provide full opportunities for a full discussion by citizens, permit the securing of other information if needed, and encourage citizen input.

To begin discussing how the proposed downloading relationship will be changed, the Ontario government has refused to provide any comprehensive report on its proposals. It has then carefully hand-picked a few elected councillors and friends who agree with its drift and direction, people do not represent the vast number of
municipal councils, social agencies, community leaders, and others interested in this issue. They are unable to hold a legitimate and informed discussion about what a new relationship might be.

6. In discussing changes to municipal/provincial financial relationships, care must be taken to protect public assets and the contractual interests of third parties.

Some social programs contractually involve third parties - non-profit housing companies, for instance, have contractual relationships for the management and provision of social housing. Many employees have contractual arrangements securing terms of employment. Changes affecting these contractual obligations should only be made with the consent of such third parties.

Changes might also imply the disposal of public assets such as sewage and water facilities. Protections must be built into discussions to ensure the public interest is protected.

March 20, 1997.

Citizens for Local Democracy
c/o Suite 304, 50 Baldwin Street
Toronto M5T 1L4
FAX: 416 348 0438
Hot Line 977 8736


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