Sheppard Subway Debacle Shows Why Cities Need More Autonomy

Commentary, Taxation, Steve Lafleur

Toronto voters decided last September that they want the City of Toronto to build a subway extension along Sheppard Avenue. It now looks as though that project may never be built. This isn’t because the municipal government had a change of heart, or that the project ran into engineering difficulties. The major stumbling block is the Government of Ontario. It isn’t that the province intends to block the project. Indeed, Premier McGuinty seems entirely indifferent to it. This project is threatening to become the poster child for a failure of federal and provincial governments to co-ordinate with the municipalities to provide infrastructure. That would be a much needed wake up call.

The crux of the problem is that the City of Toronto doesn’t have the revenue generating capacity to fund such a large project. The federal and provincial governments receive 92% of all tax revenue in Canada. Given that the Ontario government consumed 20.8% of the provinces GDP in 2010, and the federal government took another 18%, there isn’t any way that Torontonians can afford to pay substantially more municipal taxes. The city also has little room to experiment with various user fees, since the province lays out strict revenue generation guidelines for municipalities. This makes the city reliant on upper levels of government for infrastructure financing. And if provincewide, or indeed nationwide voters don’t believe that the project is a priority, the City of Toronto will be out of luck. They voted for their tax dollars to be used in a particular way, so there’s no reason why their city government shouldn’t be able to proceed—especially given that Torontonians pay more in federal and provincial taxes than they get back in services . Yet politicians representing the entire province—indeed the entire country—will ultimately determine whether the Sheppard subway line gets built. It’s no wonder that Canadian cities have a $123 billion infrastructure deficit.

In order to restore accountability to municipal infrastructure spending, we need to end the dependency of cities on upper levels of government for funding. This will mean not only giving municipal governments discretion to experiment with different forms of taxation and user fees, but accepting that upper levels of government have no responsibility for municipal infrastructure. This will give upper levels of government fiscal room to lower taxes, so that municipalities can raise the revenue needed to meet all of their infrastructure needs. By more closely linking expenditures and revenues, we will get more accountability in three ways. First, making municipal governments solely responsible for municipal infrastructure ensures that voters know exactly who to blame or praise for infrastructure decisions. It makes it impossible for municipal politicians to pass the blame to other levels of government. Second, it would make infrastructure decisions more responsive to city residents. Local politicians know better what their constituents want and need than national or provincial politicians. Third, tying expenditures and revenues more closely together makes it easier for voters to determine how much they value particular projects. They may be content when their municipal government are able to wrestle money from the provincial government for expensive, highly visible projects, but they might prefer to find less expensive solutions if they can see the link between their taxes and expenditures. This is a far better solution than having municipal governments sabre rattling with upper levels of government. When every municipal government in the country claims they aren’t getting their fair share, something is clearly wrong.

The only transfer from upper levels of government to municipal governments that should take place is a percentage of the gas tax. This makes sense since taxing gasoline is more efficient at the upper levels of government. But it needs to be consistent, and fair. Allocating a fixed percentage to the cities, and distributing it on a per capita basis is a reasonable approach. But micromanagement from upper levels of government will ensure that the Sheppard subway debacle won’t be the last time that municipal voters are thwarted by other levels of government.