As COVID-19 continues to sweep across the globe, governments are responding with various financial support programs to bridge both individuals and businesses while public health restrictions are in place. While much of the focus in Canada has been on policy responses from the federal and provincial governments, municipal governments also have an important role to play in supporting people, nonprofits, and businesses through the pandemic. This includes financial relief measures as well as work to support essential service provision.

However, for local governments to play their essential role, the vast majority of municipalities in Canada will need emergency financial transfers from higher orders of government to do so. This is because municipalities in Canada face strict budgetary, legal, and service provision constraints that are different and bind more firmly than those faced by the federal and provincial governments, in a manner that will impede the direct actions that they can take without emergency transfers.

First, unlike the federal and provincial governments, municipal governments are not permitted to run operating deficits: they must balance their operating budgets and they cannot borrow to fund current operating expenses. To balance their operating budgets, municipalities have little choice as to their source of revenue.

Second, the primary sources of revenue for municipalities are property taxes and user levies, which make up more than 70 percent of municipal revenues. These revenues, however, are at significant risk due to the COVID-19 lockdown and the resulting economic slowdown. Municipalities are facing severely reduced revenues from user levies as some fees are waived for safety reasons (public transit, for example), facilities that generate fees are closed (recreational facilities, for example), and activities that generate revenues may be temporarily halted during the pandemic (building permits, for example, and development charges). In addition, the default rate on property taxes, especially non-residential taxes, is likely to rise substantially in 2020, and possibly beyond, despite property tax deferral programs.

Third, further complicating the situation, municipalities must meet their obligations as set and prioritized by the province regardless of their fiscal capacity. That is, whatever the outcome of COVID-19, municipalities have to continue to meet their core responsibilities as delegated by the province. These are the essential services that help keep people healthy, safe, and happy, including water and wastewater treatment, waste collection, police and fire services, and recreation opportunities, to name just a few, and they are vital even in this pandemic.

Together, these factors seriously constrain the fiscal capacity of many municipalities in their choice of policy response to COVID-19 and, in many cases, may force municipalities into policy choices that deepen the economic and social crisis.

Municipalities that have larger reserves will have more room to manoeuvre; however, municipalities with smaller or no reserves will have very limited fiscal capacity. There have been calls from municipal governments to the various provinces to relax the restriction on borrowing to fund operating deficits, at least temporarily; however, given the limited revenue tools devolved to municipalities, and the unique nature of this economic crisis, increasing intergovernmental transfers from higher orders of government would be a more prudent approach. Ideally, municipalities should be able to engage in a series of policy responses tailored to the crisis, but they are very much reliant on provincial and financial governments to be able to do so.

Provinces will need to provide emergency transfers to municipalities that have limited fiscal capacity and, ideally, should do so in all cases. Further, it is possible that this pandemic will significantly affect property tax revenues from the non-residential sector for the short, medium, and potentially longer term, despite federal support for wage subsidies, businesses support programs, and provincial measures related to rent abatements, suggesting that provinces may also need to seriously consider expanding the revenue authorities they have devolved to municipalities or accept that transfers from higher orders of government to fund day-to-day municipal operations may need to be in place for at least the medium term.

Assuming this fiscal challenge is addressed, municipalities should be able to avoid wide-scale layoffs and focus on addressing the public health and economic crisis. We are seeing (with lists being compiled here and here) that Canadian municipalities are taking substantially different approaches to addressing the crisis. While the exact policy measures taken by a municipality will depend on a number of factors, including the province it is in and whether it is rural or urban, municipalities are in the unique position to provide frontline services to vulnerable populations, individuals, businesses, and the not-for-profit sector, and to fill in gaps left by federal and provincial policy responses.

Working alongside a number of experts in municipal policy and governance, we have assembled a list of recommended policy actions a municipality could take to assist with essential service provision, contain the public health crisis, and provide bridging support for individuals and businesses:

Fiscal management:

  1. Use reserve funds where available. Municipalities with available reserve funds should dip into these reserves to bridge the period until provincial support arrives.
  2. Maintain or expand employment levels. Municipalities should do all that they can to maintain and potentially expand staffing levels, particularly once province emergency transfers begin to arrive. This will be valuable in minimizing service disruptions, expanding service delivery in essential areas, and minimizing the depth of the local shock in economic activity.
  3. Defer non-essential projects if necessary and cancel projects without a firm economic justification. Ideally, capital projects should not be cancelled and be shovel ready for the recovery period. However, deferrals may be necessary to bridge the period prior to provincial emergency transfers. Frivolous projects or those with poor value for dollar should be cancelled if contractually possible to preserve reserve funds for maintaining employment levels.

Financial bridging:

  1. Deferral of all municipal property taxes and fees. Municipalities should move forward with temporary deferral of property taxes, fees for water, wastewater and sewers, dog licenses, business license renewals and other fees, without penalty, for several months to ensure liquidity in the coming months.
  2. Refund all registration fees. Similarly, municipalities should refund any recreational or other registration fees for programming for families for the spring/summer period.

Service provision:

  1. Municipal worker reassignment. Municipalities should work with their staff and unions to re-assign workers to essential services to maximize staff resources and consider temporary expansions in staffing in essential areas. This could include the cleaning of public transit vehicles, enforcement of public health restrictions, helping with deliveries to vulnerable people, making masks, repurposing green spaces and flower planters for fruits and vegetables, for example.
  2. Free wifi access for low income neighbourhoods. Since many libraries and public spaces have closed, many low income residents do not have access to the internet. To help encourage social distancing and keep up with schoolwork, municipalities should leave the wifi on in libraries and related buildings so people can access it from a parking lot or public space if they need it. In addition, they should work with internet providers to arrange free wifi hotspots in low income neighborhoods that do not have access to Shaw Open. This could include working with Telus to expand the Internet for Good program for low income residents.
  3. Accessible and safe public transit. Public transit is an essential service that many residents and particularly essential workers need to get to work and obtain necessary supplies. Municipalities should deploy larger buses that allow for social distancing, use back of the bus boarding to protect transit operators, and either suspend fare collection or extend the period that a monthly pass can be used. Further, they should cease all fare violation enforcement efforts.
  4. Increase the amount of accessible outdoor public space. People and their pets continue to go outdoors. Sidewalks, however, are often too narrow to allow for proper physical distancing. Municipalities should cordon off streets or parts of streets to allow for people to safely spend time outside.
  5. Support for persons experiencing homelessness. Municipalities should secure indoor spaces such as hotels, schools, and community centres for safe housing for those experiencing homelessness. In the event that indoor space cannot be secured, municipal outdoor spaces should be employed, allowing temporary structures, such as tents, to be set up in parks and other areas where they are typically not permitted so that social distancing is possible for those who live in these types of temporary housing facilities.
  6. Help link businesses and residents to essential services being provided in the community. Many people and businesses who need help will not know where to turn for that help. Municipalities should work with local NGOs to establish resources that those in need can consult to find the help they need, including accessing many of the new programs that federal and provincial governments are rolling out. Further, this should include supports related to domestic violence, mental health, and addiction services, the needs for which are expected to increase during the pandemic. Where fiscal space is available, municipalities should also increase grants to these essential services provided by NGOs.
  7. Relax enforcement of parking bylaws. Due to social distancing limitations, many more people and businesses will be relying on delivery services. To support them in their work, municipalities should limit enforcement of parking bylaws, particularly for delivery vehicles in residential areas and in front of apartments and condo buildings.
  8. Inventory of all closed municipal buildings for usage. Municipalities should evaluate all empty municipal buildings and ensure that this information and an offer of usage is available to the Ministry of Health.

We will end with two notes. First, municipalities should continue to work with the federal and provincial governments to advocate for further leadership on measures that fall within these governments’ jurisdictions, such as rent relief measures. Our list focuses solely on measures that fall within the jurisdiction of municipal governments writ large in Canada. In addition, as eyes eventually turn to economic recovery and stimulus, it is important to note the unique impacts of this economic shock. It is creating massive disruptions for the labour force and business community, particularly for those in the service sector, women, younger Canadians, and vulnerable communities. Any recovery policies and measures, including those proposed by municipalities, should be put through a GBA (gender-based analysis)+  lens to ensure that these policies match those most affected by the economic shock.

We would like to thank Kate Graham, Tomas Hachard, Toby Sanger, Zachary Spicer, Alexandra Flynn, Meriam Bravante, and several anonymous contributors for their helpful comments and ideas as we developed this response.

This article is part of the The Coronavirus Pandemic: Canada’s Response special feature.

Photo: Riverside Park in Fredericton, NB. Shutterstock, by Albert Pego.

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Rob Gillezeau
Rob Gillezeau is an assistant professor at the Department of Economics and the School of Public Administration at the University of Victoria and a former adviser to BC Finance Minister and Deputy Premier Carole James and Official Opposition Leader Thomas Mulcair.
Lindsay Tedds
Lindsay Tedds is an associate professor of economics and scientific director of Fiscal and Economic Policy at the School of Public Policy at the University of Calgary. Her most recent book, a co-edited volume, is Funding the Canadian City (Canadian Tax Foundation, 2018). Twitter @LindsayTedds
Gillian Petit
Gillian Petit est associée de recherche à l’Université de Calgary. Elle est titulaire d’un doctorat de l’Université de Calgary et d’un doctorat en droit de l'Université Queen’s. Elle s’intéresse en particulier à la conception et la mise en œuvre des revenus et des aides sociales, à la politique fiscale, à la politique municipale, aux politiques de lutte à la pauvreté et à l’accès à la justice.

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