Municipal Finance and Governance:Tools to Affect Land Use Decisions
Enid Slack
Institute on Municipal Finance and Governance
University of Toronto
Presentation to the
Leading Edge 2006 Conference
Niagara Escarpment Commission
Burlington, Ontario
October 5, 2006
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Outline of Presentation
Fiscal challenges facing large cities
How do municipal financing tools affect urbangrowth patterns: development charges,property taxes, user fees, tax incrementfinancing?
What is the role played by local governance?
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Municipal Expenditures, 2004
Transportation (20%)
Water, sewers, garbage (18%)
Fire and police protection (17%)
Health, social services, social housing (16%)
Recreation and culture (12%)
General government (9%)
Debt charges (4%)
Planning and development (2%)
Other (2%)
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Municipal Revenues, 2004
Property taxes (53%)
User fees (23%)
Provincial transfers (15%)
Federal transfers (1%)
Investment income (5%)
Other revenues (3%)
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Fiscal Challenges Facing Cities
Offloading of services
International competitiveness
Amalgamation
Urban sprawl
No diversification of revenue sources
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Fiscal Challenges – Success onFiscal Measures
Municipalities have done well on fiscalmeasures:
Size of the operating deficit
Amount of borrowing for capital
Rate of property tax increases
Reliance on provincial grants
Extent of tax arrears
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Fiscal Challenges –Infrastructure and Services
Fiscal health may have been achievedat the expense of the overall health ofCanadian municipalities:
The state of municipal infrastructure(water, sewers, roads, transit, etc.)
The quality of service delivery
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Finance and Governance andUrban Sprawl
We know that many of the environmentalissues we face today (air and water pollution,loss of agricultural land, open space,environmentally-sensitive areas, greenhousegas emissions) stem, in large part, from theway we have planned and built our cities inthe past
We know, for example, that compact urbandevelopment is more environmentallysustainable than urban sprawl
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Finance and Governance andUrban Sprawl
What is less well understood is how the decisionswe make around how to pay for services andinfrastructure and how we govern our citiesaffect whether we will have sprawl or compactdevelopment
In many cities, financing tools subsidize sprawlbecause they charge an artificially low cost forinfrastructure and services in sprawldevelopments
Few regional governance structures exist thatallow us to coordinate land use planning andinfrastructure investment on a region-wide basis
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Financing Tools and UrbanGrowth Patterns
Where people choose to live, wherebusinesses choose to locate, and wheremunicipalities choose to invest ininfrastructure are all influenced by fiscalincentives
If it costs more to locate in outlying, low-density developments, need to charge moreto pay for services and infrastructure in thosedevelopments
Financing tools need to create the rightincentives
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Development Charges
Also known as lot levies, impact fees
Pay for growth-related capital costs
Can be levied on a uniform basis or adevelopment by development basis
Area-based charges reflect costs ofdevelopment in different locations – noincentive for sprawl
If uniform, they can promote sprawl
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Property Taxes
Based on market value of properties
Property tax differentials that do not reflectservice differentials will mean there aresubsidies (positive and negative) that willworsen development patterns
Often apartments pay higher tax rates thansingle-family homes
Farm properties are favoured (value incurrent use) but does not necessarily stopdevelopment of farmland on the urban fringe
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User Fees
Need to be based on marginal cost(cost of additional user) rather thanaverage cost
Average cost means that those inoutlying areas pay less than themarginal cost and receive a subsidy
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User Fees: Road Tolls
In the absence of tolls, decision to drivedepends on private costs (gas, depreciationetc.); with tolls, also consider social costs(congestion, pollution)
Discourage use of automobiles; reducedemand for commuting; increase demand formore compact development
Fuel taxes not as good because they don’tvary with time of day or location
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Tax Increment Financing
Way to raise money to revitalizeblighted areas, downtowns, brownfieldremediation
Uses increment in property tax to payfor redevelopment
Reduce need to develop greenfield sites
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Local Governance
Local governance determines howdecisions are made with respect to landuse and infrastructure investment –decisions that affect type ofdevelopment
Growth management needs to betackled on a region-wide basis; needregional governance structure
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Local Governance
Need to coordinate regional planning,infrastructure planning and investment,economic development and environmentalprotection on a regional basis
Models of regional governance: one-tier ortwo-tier government, inter-municipalcooperation, special purpose districts,provincial role
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Local Governance
Different models have worked indifferent places at different times
The precise model is less importantthan that there is some form ofeffective regional governance
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Concluding Comments
Cities can improve their use of existing revenue tools
Revenue tools need to reflect benefits received fromlocal services
Revenue tools need to work with planning tools
Need to coordinate land use planning andinfrastructure investment on a region-wide basis
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Concluding Comments
User fees based on marginal cost (road tolls)
Development charges should be area-based
Property taxes should reflect benefitsreceived; eliminate over-taxation ofapartments
Tax increment financing to revitalizedowntowns and remediate brownfields
Some form of regional governance to managegrowth