Are user fees becoming a hidden cash cow for Canadian cities?
Last night, Toronto City Council passed its $8.7 billion operating budget. Not a lot of analysis in today’s papers: there was opposition to the budget expressed by centre-right councillors (the final vote was 27-18); the budget was passed in half the allotted time; and the Star offers a handy breakdown of what municipal services are funded through property taxes on the average home (note: can we start using median prices and not averages? Toronto has wealthy enclaves such as a Rosedale, the Bridal Path and Forest Hill and lower-income neighbourhoods such as most of York South-Weston, Regent Park and Jane-Finch. A median measurement would be far more informative than an average).
Of no surprise, residential property taxes will increase by 4% while commercial property taxes go up by 1.3%.
Getting lost in this storm of figures is the increase in user fees; up by $6.6 million. In a budget of $8.7 billion, this is a miniscule amount (0.08%), but it should encourage citizens to start asking themselves and their elected representatives about the role of user fees, how they are used, if they are used equitably and how important they are to raising revenue for cities.
We know that municipal governments are responsible for myriad services yet lack a variety of revenue-raising tools to pay for those services. And many services have been downloaded onto municipalities without giving local officials the means to pay. This was most certainly true for Ontarians during the midnight of the soul know as the “Harris Years”.
In “Urban Governance and Finance – A Question of Who Does What” author Harry Kitchen argues that user fees “represent the only revenue source over which local officials have full control” (p. 139). This argument alone might support local governments collecting user fees, but it seems rather limited in scope.
In Canada, most of the revenue raised by municipalities is through property taxes. Under this model, user fees offer a degree of flexibility and control for local officials. But should we entertain other methods of raising revenue? For example, city income tax: a concept foreign to Canadians but known to many European municipalities such Frankfurt and Stockholm.
Exploring alternatives to user fees is vital to addressing the diversity within our cities because not all such fees are efficient, equitable, fair or accountable. Where behaviour and conservation are factors, such as water consumption and sewerage (or garbage, as is the case in Toronto where the goal is to reduce by 70% the amount of trash we dump in landfills) there may be some benefit to user fees; but lower income citizens cannot be barred from accessing public services because of exorbitant fees.
Kitchen asserts that user fees demand more efficient use of resources, are fair in charging for benefits and accountable because consumers can judge quality of service for price.
This may be true for some services such as water, but Kitchen extends user fees to other individually consumed services such as libraries and public recreation. User fees for these services may actually be deleterious to citizen participation, choice and access. In these cases, to quote Oscar Wilde, Kitchen is a cynic – he knows the cost of everything and the value of nothing.
In other words, efficiency and cost should not trump fairness and equity and there is a risk of this happening with broad application of user fees.
I’m not insinuating that Toronto is headed down Kitchen’s highway to user fee hell, but as municipalities tighten their belts and figure out how to rake in more money, we need to think not only about how user fees affect the lives of citizens but whether we should explore other revenue-raising tools.
PS: Someone brought to my attention a line I wrote yesterday that made no sense (that they found only one nonsensical line amongst all of my scribblings tells me they must not be reading closely or often enough). I wrote about “unsubstantiated delusions”. Yeah, I should have been a bit harsher in editing before posting (is there such a thing as substantiated delusions?). But I usually write these posts in about 10 minutes, re-read them once or twice, then post. Hey, I have a day job and I don’t get paid for this, but I’m always striving to be a better writer.