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Federations Magazine Article
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Canada’s federal government reluctant to fund cities

reluctant to
fund cities
anadian municipalities are
con tinuing to press the federal
government in Ottawa
for increased funding – this
despite the fact that municipalities
in Canada fall
squarely within the jurisdiction of the
provincial governments. Economic
forces seem to be accentuating the
importance of the larger cities, which
are growing fast, while municipalities in
peripheral areas struggle with decline in
population. Financial stress is widespread
among Canadian municipalities
of all sizes. Business interests, labour
and academic allies of municipalities
have pushed what they call their “cities
agenda” in and around Parliament Hill
in Ottawa. And the federal government
has responded, especially during the
Cities and their
Robert Young is professor of political science at the University of
Western Ontario, where he holds the Canada Research Chair in
Multilevel Governance.
FEBRU ARY | MARCH 2008 Federations
Cit y of Ottawa /Roge r La londe
Ottawa City councillors march on
Parliament in December 2007. Councillor
Michel Bellemare, surrounded by his
fellow councillors, repeats the call for
Ottawa to give one cent of the federal
sales tax to Canada’s cities.
Local governments chronically
In this thematic section on Local Go vernment and Metropolitan
regions in federal countries, our experts examine how municipalities
in Brazil, Canada, India, South Africa and Spain go
about delivering front-line services to their clamoring, burgeoning
The common thread for these five countries is that local
governments are struggling as they do not have the wherewithal
to provide the costly services they are obliged to deliver
and must rely on other orders of government for funds.
In Brazil, economics writer Brian Nicholson tells a fascinating
tale of contrasts between the municipality of Altamira,
which covers 159,700 square kilometers and Diadema, a city in
the grimy industrial belt around Sao Paulo. Brazilian municipalities,
depending on their size, receive funds in the form of
transfers from the federal government or from states’ valueadded
Canadian cities however are creations of provincial governments
and Prof. Robert Young of University of Western Ontario
recounts how municipalities are scrambling for money, as the
federal government under Prime Minister Stephen Harper disapproves
of Ottawa circumventing the Constitution to help
fund the cities, undoing a policy his predecessor had embarked
In India, there are 60 cities with populations exceeding one
million people. Journalist Rashme Sehgal notes that the mayor
of Delhi, India’s capital, is fuming, contending that Delhi has
had its powers encroached upon by the state government.
Indian cities raise the bunk of their revenues from property
taxes, but require transfers from the central and state government
for education, health and welfare.
South African cities are bustling with new construction as
they prepare for the 2010 World Cup of Soccer. But there has
been a proliferation of community protests over lack of service
delivery by municipal governments, explains Annette
Christmas of the University of the Western Cape.
In Spain, municipalities are also struggling with delivering
services. Carlos Alba and Carmen Navarro of the Autonomous
University of Madrid tell how Spaniards are counting on a general
election in March to elect a government that will complete
a reform meant to empower local government.
period of former prime minister Paul Martin’s Liberal government,
December 2003-January 2006. More recently, however,
the pendulum has swung backward, as Stephen Harper’s
Conservative government, elected in 2006, has largely backtracked
from bold initiatives on the municipal file. This
illustrates a fundamental feature of federalism: when some
pressing problem is not in the jurisdiction of a particular order
of government, the constitution provides an excuse for that
level of government not to address it.
Municipalities in Canada are “creatures of the provinces.”
Cities, towns, villages and rural municipalities fall under provincial
jurisdiction. There are significant differences among the
provinces as they relate to the municipalities, but there are
commonalties as well. First, the country’s municipalities are
subject to provincial legislation concerning the environment,
housing, land use, police and many other matters. Second,
local governments are rather dependent on provincial government
financial transfers, which make up about 16 per cent of
municipal revenues. Federal transfers to municipalities, on the
other hand, make up only about two per cent of their revenues.
Finally, Canadian municipalities are heavily dependent on
property-tax revenue, which does not rise automatically with
economic growth. Property taxes are also visible and politically
difficult to increase.
Municipalities flex their muscles in Ottawa
Municipalities do have political power when they are united
and determined. This is true in provinces dominated by cities.
Rural inhabitants may resent this weight, but the City of
Winnipeg’s population makes up 60 per cent of that of the
Province of Manitoba, while the three biggest Canadian cities –
Toronto, Montreal and Vancouver – loom large in the provinces
of Ontario, Quebec and British Columbia, where they account
for 41 per cent, 47 per cent and 51 per cent of the respective
SPECIAL SECTION : Cities an d thei r agen das
FEBRU ARY | MARCH 2008 Federations
SPECIAL SECTION : Cities an d thei r agen das
The federal government must also respond to urban voters.
The three largest cities alone elect 85 of the 308 Members of
Parliament, and most federal programs and expenditures are
delivered in cities and towns. However, direct contact between
Ottawa and the municipalities has waxed and waned over time.
Until recently, the high point of engagement with municipalities
was in the 1970s, through the short-lived federal Ministry of
State for Urban Affairs. But the pendulum swung decisively
towards more federal involvement when former prime minister
Paul Martin’s Liberal government took power in Ottawa.
Pushing the ‘Cities Agenda’
Pressure for change in the federal government’s stance grew
from the mid-1990s on. Continued urbanization created problems
of growth in the larger centres, because foreign
immigrants are attracted mainly to the largest cities. In Western
Canada there was also a trend of Aboriginal people moving
from reserves into cities. Meanwhile, peripheral municipalities
struggled to continue providing services to declining or stagnant
numbers of residents.
In some provinces, transfers to municipalities were reduced,
arguably because of cuts to federal-provincial transfers after
1995. But the major issue was municipal infrastructure – the
roads, sewers, bridges and water supply systems – both in the
rapidly growing cities and in smaller towns and villages. The
Federation of Canadian Municipalities (FCM), an increasingly
expert and effective lobby in Ottawa, estimated the “infrastructure
deficit” at some C$60 billion, a sum clearly beyond the
capacity of municipalities to handle alone. Consequently, pressure
grew on the federal government to become more involved
in solving municipal problems.
Federal involvement in 2004
When the Martin government was formed in December 2003,
the federal government did move. Mr. Martin had promised a
“New Deal” for cities, even though this would mean surmounting
the “reefs of entrenched ways and attitudes.” He quickly set
up a Cities Secretariat within the Privy Council Office, the elite
research and secretarial department of the Canadian government.
By July 2004, there was a Minister of State responsible for
the new portfolio of Infrastructure and Communities. In the
first budget, municipalities were granted a 100 per cent rebate
on their federal sales tax payments, a benefit estimated at C$7
billion over 10 years, and C$4 billion was allocated for cleaning
up contaminated sites. The next budget delivered C$5 billion in
transfers to municipalities over the following five years, nominally
from the federal share of the tax on gasoline, and another
C$300 million was added to the Green Municipal Funds which
are administered through the Federation of Canadian
Beyond this, while the government awaited a report from an
external advisory committee, Ottawa renewed urban development
agreements with the cities of Vancouver and Winnipeg.
These were tripartite, cost-shared pacts signed by the city, the
province and the federal government, and they involved tightly
co-ordinated programs and spending. New agreements were
signed in 2005 with the cities of Regina and Saskatoon and the
provincial government of Saskatchewan, and further negotiations
were being undertaken with other cities. While the
negotiations with Toronto were taking place, the Martin government
was defeated on a vote of confidence and, after
winning the subsequent election, Stephen Harper and his
Conservatives took power.
The Cities Agenda meets ‘Open Federalism’
To explain the current government’s approach to municipalities
– or, more precisely, its retrenchment and withdrawal from
the daring initiatives of its predecessor – one needs to understand
the broader framework of Mr. Harper’s approach to
federalism. Mr. Harper calls his approach “Open Federalism.”
Significant principles of his approach include:
• There should be rectitude and order in federal-provincial
relations, with principled agreements instead of improvised
deals and last-minute compromises.
• Provinces are legitimate actors that occupy important areas
of jurisdiction for which they are responsible.
• The constitutional division of powers should be respected,
with the federal government focusing on its core functions
such as defence, foreign affairs and the economic union
(though Ottawa must continue its involvement in health,
higher education and infrastructure, in a respectful and cooperative
• Quebec is a province with special responsibility for its culture
and institutions, and it is of great importance that
Quebecers perceive that federalism can work for them.
The implications of the Conservative approach to the municipal
file are obvious. Municipalities fall within provincial
jurisdiction. Determination to maintain provincial control has
been strongest within Quebec governments. Municipalities
might require more secure and stable revenues, but the provinces
are the principal actors for municipal governments.
Ottawa may devise policies to attack particular urban problems,
such as crime and immigrant settlement, but continuous tripartite
relations are not congruent with the doctrine of Open
Pulling back and re-engaging
Very quickly Harper’s government folded the Department of
Infrastructure and Communities into the much larger and older
Department of Transport. Officially this resulted in a new
“Transport, Infrastructure and Communities Portfolio,” but the
separate position of deputy minister of Infrastructure and
Communities did not survive long, and the communities
branch has largely disappeared from official websites.
The Conservative government did extend the gasoline-tax
transfers from the federal government to the municipalities
until 2014, and it remains committed to infrastructure programs,
where allocations have increased steadily. There are even signs
of a new national urban transit policy.
But a clear signal about the Harper government’s withdrawal
from the ambitious agenda of its predecessor was
delivered when the Prime Minister addressed the Federation of
Canadian Municipalities in 2006.
[Continued on pa ge 22]
FEBRU ARY | MARCH Canada [from pa ge 12]
He complimented local governments, but referred several
times to the “levels of government”
in Canada, rather that the egalitarian
designation of “orders of
government” long coveted by the
FCM. He maintained that “for
decades – and especially in recent
years – Ottawa has stuck its nose
into provincial and local matters,”
and insisted that Ottawa would confine
new program spending to
“jurisdictional areas that are clearly
federal.” Significantly, he pointed to
Quebec, which “zealously guards its
constitutional responsibilities,
including those for municipal
affairs,” noting that the Quebec gove
rnment had subs t ant i a l l y
increased its own transfers to
The pendulum swings
To explain Ottawa’s swing back, it is
difficult to appeal to constitutional
jurisdiction as such, because the
federal government has long been
active in areas of provincial responsibility
by virtue of the “federal
spending power.” This power is
invoked by the federal government
when it makes certain direct transfers to people or when it
offers transfers to provinces conditional on them delivering on
their particular programs.
The reason for Ottawa’s pullback, one might argue, is that it
was possible. The division of jurisdiction in Canadian federalism,
as elsewhere, provides a rationale for Ottawa not to act in
some policy areas. In a unitary state,
in contrast, one government is
responsible for the entire scope of
public policy, and public demands
about some pressing local problem
inevitably become a problem of the
central government. An essential
feature of a federation, in contrast,
is that governments do not have
responsibility for certain policy
fields, and this absolves them from
acting to solve such problems.
It is true that once involvement
has become deep, as in the
Canadian health care system, retreat
is politically unthinkable. But on the
cities and communities agenda, the
Harper government can invoke the
constitution to step back from new
initiatives. And there are reasons for
doing so. Such big undertakings
raise expectations across the country
and these are difficult to meet.
The needs of Canadian communities
are enormous, and there is a fear
that municipal governments could
become a bottomless pit for spending.
For a federal government that is
ambitious to act boldly in its areas of
responsibility, such as defence, and
eager to cut taxes as well, there needs to be an excuse not to act
in other areas. Insofar as Canadian municipalities are concerned,
the constitution provides such a rationale. And so the
pendulum has swung.
Rebuilding an overpass that collapsed in Laval,
Quebec, in 2006 took money as well as muscle.
Canada’s cities face shortages of funds for replacing
major parts of their aging infrastructure.
CP Photo/Paul Chiass on