I live in the City of Toronto which is in an urban region of 5.5 million people. In other words, it is big. And it is plain B-R-O-K-E. Some of the financial woes are self inflicted and others structural. However, our local fiscal issues are common throughout large urban region. Chicago has its own fiscal problems. The City of San Jose, in the heart of Silicon Valley, struck up a Budget Shortfall Advisory Committee such was the extent of the issue. The City of Las Vegas, one of the fastest growing cities in the U.S., has to trim $16 million off its budget. I cite these examples to show that these are not rust belt vs. sun belt, east vs. west, north vs. south issues. There are structural impediments large cities everywhere are facing that our agricultural based constitutions never contemplated.

Several weeks ago, through much political and bureaucratic bundling, a trial balloon (subsequently spun that way at least) was floated by the City of Toronto on raising user fees to keep property tax increases to a moderate 3.8%. In some cases, the user fees were going to be raise approximately $20 (or the price of a movie and parking for one person) but opponents focused on the percentage increase of 20% plus to raise enough furor for City Council to revisit the issue.

Here’s the issue though- all cities have very little revenue generating power outside of the following:

1. property taxes
2. user fees (paying to access the city pool, renewing a library card etc.)
3. development charges (which never cover the true life cycle of infrastructure costs associated with supporting any new development)

Property taxes are very inefficient taxes- they are levied on property values and not the owner’s ability to pay and, depending on the assessment method, do not capture 100% of the true value of the property regardless. They are seen to hit the poor in the pocket book harder than the rich (i.e. they are a regressive tax). Thus, I found it ironic that the left leaning media in the city opposed user fees so vigorously. At least with a pay as you go system, those who can pay will play. User fees, however, are opposed by those who promote access as a priority.

However, said that, this is not a political issue. It is really, stripped of the emotional attachments, how best to get the bang for the buck in the current system we live in. I don’t live under the illusion that one can have its cake and eat it too by having low property tax, no user fees and gold-plated municipal services. As in all things, it comes down to choice and the options in the current system are really:

1. Low property tax, user fees reflective of the cost of the service
2. High property tax, no user fees since these costs are borne by the property tax
3. Low property tax, no user fees, minimal municipal services

Again, my assumption is that nothing is going to change; a city will not be granted its own municipal taxes (like New York City) or the Province/State will not share tax points with it. I also take it as a fact of life that even the most fiscally prudent cities will have some “fat.” Democracy is naturally inefficient from a finance perspective- access and profit are two different imperatives. A solution to remove the “fat cats at city hall” is only a temporary one at best and cities come back to the structural issue that they have tax vehicles which aren’t very efficient relative to the senior levels of government.

Given those assumptions, I have to take #1 since you have a “fairer” property tax regime in that property taxes are being used to service property and certain city building events and not for services which everyone may not necessarily use such as the local municipal pool or skating rink. I will add one exemption though- seniors and children under 12 would be exempt from many user fees.

The other alternatives are too ugly- high property taxes would cripple too many low income earners and the vulnerable. A city with low taxes but no municipal services is just not a city at all; it would be soul-less. I met a couple of business men from Singapore (well regarded as being very pro-business) and I asked them about how they lived living there after hearing all these great things about the efficiency of the city (and having been there myself)- surprisingly, they didn’t like it. They found it cold- the city operated like a business and nothing else; there were no services provided by the city other than to accommodate businesses. I want to live in a city that has reasonable taxes that they use to service property and makes the citizens of a city feel human; I would like my garbage picked up for street festivals.

I am not sure there is a perfect solution (or mine is the right one). But my one grip about the debate on this issue is that politicians of all political strips are selling us a dream that, over the low term, is not sustainable- pay low taxes but get lots of services. I wish the debate was framed with some degree of reasonability and a semblance of setting out realistic options that we can prioritize. Right now, I get the sense that our elected politicians think we are too stupid to prioritize if given clear choices or there just isn’t the collective political courage to meet this issue head-on in a constructive manner. Instead, our elected officials resort to name-calling, a hue and cry to the heavens and general whining.

Just my two cents, Thoughts?