Municipal Financing Opportunities in Canada: How Do Cities Use Their Fiscal Space?

Over the past decade, the legal framework that enables Canadian municipalities to carry out their activities and collect revenues has evolved in all provinces. Most major cities have been granted some new revenue sources. Yet, little is known about how cities actually use them or how they have benefitted.

In a new paper for the Institute on Municipal Finance and Governance (IMFG), Jean-Philippe Meloche and François Vaillancourt review financial data from the largest city in each province and conclude that most of the new financing tools available to these cities yield very low levels of revenue.

The authors also find that simply increasing the number of financing tools available to cities does not lead to diversification of revenues, as measured by the share of revenue sources in total revenues. Rather, local revenue diversification generally results from differences in the reliance on property taxes and user fees. Furthermore, the authors note that providing municipalities with more sources of revenue does not systematically result in more services or an increased ability to raise revenues. The paper also highlights the persistent difficulties of finding and using comparable municipal finance data, suggesting that efforts to remedy this gap would greatly ease comparisons among Canadian cities.

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The Urban Project:
This paper is the third in a series of papers IMFG is preparing for the Urban Project, an initiative led by the Federation of Canadian Municipalities (FCM) that brings city leaders together with other levels of government, academia, civil society, and the private sector to identify actionable and scalable solutions to the biggest challenges facing Canada’s cities. With generous support from Maytree, Metcalf Foundation, McConnell Foundation, and TD Bank Group, IMFG has commissioned papers focused on municipal legislative and fiscal autonomy, governance, and intergovernmental relations, drawing on discussions convened by the Urban Project. The first paper in the series is entitled Power and Purpose: Canadian Municipal Law In Transition and is followed by Policy in Place: Revisiting Canada's Tri-Level Agreements.