So Moved, NL: Municipalities in a Fiscally Foreboding Time

“We can’t pretend that the municipal sector, with its property tax, is going to be able to afford a billion dollars over the next 10 years.”

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Compared with other pressing provincial matters—like the low minimum wage, dismal mental health care resources, soon-to-balloon electricity bills, and dramatic changes coming for the economic future of our province—we tend to forget about the issues facing Newfoundland and Labrador’s 276 municipalities. (Did you even know there were that many?)

The problems municipal governments face are usually a slow boil. But, like a frog in a heated pot of water, there comes a point at which things go from Somewhat Uncomfortable to Extremely Bad.  

Municipalities operate against a background of crumbling infrastructure and a dwindling population that isn’t getting any younger. Ever-present, overworked, and often disrespected, people working in the municipal sector undertake great sacrifices to meet their residents’ needs—generally with too few resources. It’s a valiant effort, but usually not sustainable.  

Within the current provincial budget, roughly 2% of net provincial spending is on municipalities. Municipal operating grants from the provincial government, at present, amount to about $22 million. In the late 1980s and early 1990s, they were closer to $50 million. The rug was pulled out from under our most important level of government, and the cost of running a municipality has only increased. 

Municipalities Newfoundland & Labrador (MNL) is an organization representing the interests of all incorporated towns and cities in our province. They have launched a provincial election advocacy campaign in hopes of alerting people—and the parties vying for our trust to form government—about the canaries in the proverbial coal mine.

The first pillar of their platform is: Municipal Stability Requires New Fiscal Solutions. 

The Independent caught up with Craig Pollett, chief executive officer of MNL, and Craig Scott, Mayor of Torbay, to get a behind-the-scenes perspective.

What’s Wrong With The Municipal Money System?

Pollett explained that while our current property tax system is a reliable way to get money into municipal governments, the fact that it constitutes about 75% of municipal revenue makes the system very fragile. Covid-19 has only underscored this fragility.

The current approach is based on an outdated view that municipal services are attached to your property. It doesn’t reflect the suite of services that municipalities—particularly larger ones—are expected to offer in this day and age. 

“[Property tax] is a regressive tax. So it doesn’t do a great job of estimating [people’s] ability to pay,” Pollett said. It can hurt people on fixed-incomes, lower incomes, and people in neighbourhoods that are experiencing gentrification. 

A progressive (stepped) property tax would see increasing mill rates for higher property values. There are examples of this from across North America. We would not be trail blazers here; it’s just that decades-old policies from other jurisdictions tend to appear innovative in a place like Newfoundland and Labrador. 

Pollett suggests that with 5 or 6 different streams of revenue to draw from, the current issues with property taxes wouldn’t be as big a deal. “If you’ve got a basket of [revenue streams] they can balance each other out,” he said. 

What can you fill up the basket with besides property tax?

  • Municipal sales tax (lots of towns and cities in the States can do this)
  • Bonds
  • Transference of a small portion (1%) of Provincial Personal Income Tax
  • Transference of a small portion (1%) of Provincial Sales Tax
  • Increased transference of the Provincial Gas Tax (currently 1¢ per litre)

To be clear, MNL is advocating for these transfers to take place from within the current bucket of taxes that the provincial government collects. (“A reprofiling, or a reprioritizing,” is how Pollett described it.) They’re not suggesting a tax increase at this time.

That said: a 1% transfer (or increase) in NL Income Tax—which is progressive—would generate $116 million. A 1% transfer (or increase) in NL HST—which is regressive—would generate $80 million.

Combined, that extra $200 million or so (divvied up amongst municipalities according to population) would see municipal budgets across the province increase on average by 37%. 

Imagine if you got a raise of 37%. How much would quality of life improve for your family? 

To drum up that kind of dough at the municipal level, the Town of Torbay, for example, would have to increase their mill rate from 6.7 to roughly 11—a 64% increase. This would apply across the board to every resident, from wealthy McMansion-dwellers to seniors on fixed incomes. For Grand Falls-Windsor, they’d have to jack it up by 76%. Entire councils would be wiped out during the next municipal elections if they tried that. 

If the Town of Torbay were to receive their share of this money, “it would [mean] an extra $3.7 million,” Mayor Craig Scott told the Independent. 

“It’s not what we could do with that extra money, but it would lessen the burden of having to rely on property tax alone,” he explained. 

(The research that supports these numbers was done locally by Wade Locke, professor of economics at Memorial University, in 2011. The numbers are getting old now, but Pollett says they haven’t changed much. Furthermore, MNL has teamed up with the municipal associations in the other three Atlantic provinces, to start coordinated research and advocacy. First on the docket is—you guessed it—fiscal frameworks.)

Ok, But How Urgent Is This Ask?

To build the wastewater treatment facilities that are being required by the federal government, it’s going to cost Newfoundlanders and Labradorians $600-700 million. (That’s just to build—not to operate.)

To bring all the drinking water systems up to snuff and get rid of the boil water advisories, it’s going to take $400 million. 

In other words: we need a cool $1 billion in order to avoid poisoning ourselves or the environment—and also not break federal law just by existing every day. MNL is requesting the provincial government find a way to dedicate 20% of that to municipalities, so Nan can drink the tap water and the town clerk doesn’t get charged or jailed for the sewer outfalls sending raw waste into the ocean.

“We can’t pretend that the municipal sector, with its property tax, is going to be able to afford a billion dollars over the next 10 years,” Pollett said.

“[This money] absolutely needs to be spent,” he continued. “And either a well-resourced, well-run municipal system can manage it, in the way our western democracy is designed, or, dozens of municipalities can go bankrupt and the province will have to pay for all this stuff directly from their chequing account. These costs are not going away.”

Mayor Scott added that a Town can only borrow money for the construction of infrastructure—not operation. So what good is a new wastewater treatment plant that a town cannot afford to run? If the Town of Torbay received their share of a 1% provincial tax transfer, it would be able to move forward with its wastewater treatment plant and cover operation costs. 

In order to see any of these changes (which MNL has been suggesting for at least 10 years), we need to update the Municipalities’ Act. Pollett says that a new act is currently being put together and is expected to be finished and in place by the fall of 2021.

Will the new act give municipalities the authority and flexibility they need to come up with new revenue? So far, it remains to be seen. 

MNL is asking for a seat at the table, as well as one for Professional Municipal Administrators NL (PMA). They want to work in concert with the provincial government to pool research, assess existing public consultation and conduct more where necessary, and run actual numbers for economic impact assessments. (i.e. “What’s the tax or administrative efficiency of doing it one way, or another?”)

There are working groups like this that currently exist and operate for both the municipal legislative update and regionalization.

I’ll be honest: this is the most encouraging, transparent, and collaborative approach around economics that I have heard during this provincial election. Too bad we can’t vote for MNL. 

What Say The Parties?

The diction and tone of the three responses are super interesting. Check out the links if you’re curious. 

The Liberals support “exploring any and all initiatives” that will help towns have a more stable financial future. They will look to the feds for help in addressing the “infrastructure deficit,” and they support the creation of more multi-year funding options. They also have “a sincere desire to work with MNL and no hesitation in having MNL at the table when decisions impacting councils are to be made.”

The Progressive Conservatives “will work with MNL to develop a new progressive tax regime for our communities.” They want to “ensure that municipalities have a seat and a voice at the decision-making table,” and they will also “pursue a multi-year planning approach for infrastructure… and review best practices to ensure that new builds are efficient in terms of cost of heating the building and the environmental impact of emissions.”

Meanwhile, the New Democrats “pledge to work with municipalities” to create better funding mechanisms. They are open to the idea of “municipal sales and income tax, or grants in lieu of taxes.” They “will also lobby the federal government to back up their municipal regulations with the proper funding” so towns can comply. 

They will also “regularly invite MNL and our local governments in.” And they “pledge to make every decision that affects municipalities in consultation with the communities affected by them.”

Final Thoughts

All the parties were generally supportive of collaboration, but careful not to endorse exploring a tax increase. Which I get: that’s not going to win an election. But—beyond the election—I wanted to know how valid that stance is.

When asked about taxation, Pollett explained: “within reason, if you can show people that you’re doing something useful with the money you’re raising from an increase in taxes—if you can show that it’s going to either make their life a little bit easier, or make the municipality or the province run a little bit better, or solve a particular problem that we’ve been dealing with—people don’t really have a big issue with it.”

He then posed the following questions:

“Do we want good roads leading to our hospitals and schools? Do we want to be able to get through the road when there’s storms? Do we want safe drinking water going to our hospitals and our schools and our homes? Do we want our solid waste managed in an environmentally meaningful way?”

“If we want these things, well, those things aren’t free,” he concluded. “And we need to figure out a way to pay for it.”

If we expect people to invest in the sector, one way or another, Pollett believes, “we’ve gotta show that we’re delivering something.” 

Regionalization is a big part of this. We’ll bring you an update on that front next.

Photo by Josh Appel on Unsplash.

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