Municipal Government

78:263 Municipal Government

The Evolving Provincial-Local Financial Relationship in Canada, and the Prospects for Municipal Fiscal Autonomy

Karly McRae

000421

Nov. 21, 2003

After tracing the evolution of the provincial-local financial relationship in Canada it has become apparent that the trend, throughout history, has been towards greater Provincial control and in turn less fiscal autonomy for the municipality. There has been an increase (due to demand as well as downloading from the provinces) in the functions and responsibilities of the municipality, as well as the cost of these functions, and a decrease in fiscal resources and revenue sources.

Yet, It has only been in very recent years that we have seen a trend moving in the direction of Municipal fiscal autonomy. The trend towards Municipal fiscal autonomy is possibly more prevalent today then it has ever been. The proposal of such things as Glen Murray's New Deal for Winnipeg, and Paul Martin's proposed change in federal-provincial-municipal relations (of the same name), provides optimism for local fiscal autonomy in the future.

The Baldwin Act was the beginning of Provincial Regulation over the Municipality. It was based on several principles including the decree that "Municipal Councils were the creatures of the provincial legislature and were subject to its sovereign authority." The second principle of the Baldwin Act stated that a municipality's power should vary with its size and character (i.e. whether it was rural or urban), and the third principle stated that members of council should be elected from only those people who held stakes in local property. "The powers of the municipal councils were strictly defined by the provincial legislature and strictly interpreted by the courts." The Baldwin Act was only the beginning of what would be decades of development that would hinder the autonomy and independence of local government. The Baldwin Act began the landslide of provincial downloading, conditional grants and a provincial-local relationship that seems more like a parent child relationship then a relationship between two elected governing bodies. Early municipal roles were much more simple and straightforward then they are today, but they were dependent on much the same source of revenue as modern municipalities. Although modern municipalities receive much more assistance from the provinces as well as the federal government then did their early counterparts, they have very few new ways of generating substantial revenue other then through property tax.

Since the Baldwin act, the provinces have tightened their grip mainly in times where municipalities were in a state of great financial need, or where the demand on them seemed to exceed their functional ability. "The department of municipal affairs was formed within a number of provinces by the turn of the century." This was intended to "give leadership and guidance in municipal development and to provide for the continuous study of the problems of the municipalities." "Manitoba established a Department of Municipal Commissioner as early as 1886, with Saskatchewan following suit in 1908 and Alberta in 1911. British Columbia appointed an Inspector of Municipalities in 1914, but a full department was not created until 1934. Ontario's experience was somewhat similar, with an office of Provincial-Municipal Auditor as early as 1897 and a Bureau of Municipal Affairs from 1917, but no department until 1935. The same year Nova Scotia created a Department of Municipal Affairs and in 1936 New Brunswick established a Department of Education, Federal, and Municipal Relations." The provinces put these departments in place to accommodate for "rapid development of local government institutions and a sudden expansion of population."

The Depression of the 1930's led to the next era in tightening of provincial control over municipal finance. In response to "municipal defaulting on financial obligations, provincial governments established or expanded not only municipal departments but also boards with a variety of administrative and quasi judicial responsibilities relating to local government. A number of these bodies had originally been formed to regulate public utilities and their relations with municipal authorities. As a result of the financial difficulties of the 1930's many of these bodies were assigned responsibility for controlling municipal financing as well as jurisdiction in other areas such as zoning and assessment." Municipal Boards were created from organizations that previously had no jurisdiction over fiscal matters pertaining to municipalities. With the creation of these boards, the province now had control over approving or disapproving debenture issues in regards to the local governments. By the mid 30's provincial control had increased immensely. "Every municipal by-law was subject to approval of the Minister of Municipal AffairsÐ'...All of the provinces except Prince Edward Island required provincial approval of by-laws to incur debt." "In many cases municipalities were authorized to exercise specific powers only subject to review or control by some provincial authority." Today the Municipal Act states, "No municipality can proceed with any undertaking that is to be paid for in a subsequent year, or by an issue of debentures, until the approval of the Municipal Board is obtained."

The grip that the provinces had on municipal fiscal autonomy only tightened in the post WWII era. "Massive centralization occurred because of the war effort. As part of the tax-rental and then tax-sharing agreements brought on by the wartime emergency, municipal governments were squeezed out of such fields as income tax and sales tax, and confined to their historical dependence upon the real property tax as their main source of revenues." Massive urbanization led to increased demands on municipalities, forcing the provinces to increase their assistance. "As the revenues from the real property tax became less and less adequate to finance the growing expenditures of municipal government, the provinces increased their financial assistance. Most of this increased assistance, however, was in the form of conditional grants." The idea behind these conditional grants was that the "provinces were attempting to ensure that certain services were provided to at least a minimum standard regardless of the varying financial capacities of their individual municipalities." The result was that