”œAs some of you might remember, I spoke with the Federation of Canadian Municipalities (FCM) last May, and three days later found myself out of a job.” That’s how Paul Martin began a speech about cities in May of 2003. Whatever happens during Martin’s prime minister- ship, his departure from the Chrétien government will always be linked to this event. And since he left the Cabinet. Martin has built up expectations about his commitment to cities, crisscrossing the country to speak about a ”œNew Deal” for municipalities.
Canada is an urban nation. More than 64 percent of Canadians now live in census metropolitan areas ”” urban areas with populations over 100,000. It is increasingly understood that our standard of living will in large part be determined by how successfully our cities attract talented people and support innovation. Martin knows this. At the level of partisan politics, he also knows that, to his political left, the New Democratic Party has chosen a leader, Jack Layton, whose political base is in downtown Toronto and who used his position as president of the FCM as a spring- board for his successful leadership campaign.
So cities are high on the Martin agenda. In this article we look first at what the municipalities are demanding of Martin, then at where the constitution and the provinces fit in, and finally at the challenges facing Martin in organizing the fed- eral government to cope with his new urban initiatives.
Some municipalities want more power; some are interested in par- ticipation in policy-making; all of them want more money. They are not especially concerned where it comes from, but there are two reasons why the federal government appears as a likely target: first, compared to the provinces, the federal government’s fiscal situation is far superior; second, compared to the United States, the Canadian federal government is lag- ging in its support for cities. On the latter point, the FCM has data showing that in 1996 transfers from the nation- al government comprised 3.3 percent of total municipal revenue in the United States, but only 1.3 percent ofmunicipal revenue in Canada.
More important, the US federal government has been providing mas- sive amounts of highly visible capital funding for American cities, especially in transportation. In 1999, Joe Berridge, a well-known Toronto plan- ning consultant, calculated that Boston was receiving $100 million a week from Washington for the Central Artery Project, the Harbour Clean-Up and the Logan Airport expansion. He acknowledged that such astronomical capital subsidies were less the result of systematic, rational policy-making than of traditional congressional pork- barrelling, but from Berridge’s perspec- tive, the source of the funds was less important than the amount: the fact was that the public infrastructure of American cities was being rebuilt while Canadian cities were being left behind and becoming less competitive in the global economy.
Not surprisingly, the most common demand from municipalities in Canada is for continuing funds from Ottawa to renew infrastructure. The FCM estimates that $60 billion is the total infrastructural backlog. This organization defines infrastructure as including ”œstreets, sidewalks, bridges and viaducts, water purification and water treatment plants, as well as pub- lic transportation.” It is asking that the federal government commit $3 billion a year to municipal infrastructure ($2 billion to urban areas and $1 billion to rural areas) for a ten-year period.
A visit to the Infrastructure Canada Web site makes it clear that the federal government is already pro- viding a large proportion of the funds that the FCM is asking for. The same Web site establishes that the federal government is in the business of pro- viding capital subsidies for municipal water purification and distribution sys- tems. In one sense, this is not surpris- ing, because such systems are a crucial and obvious part of municipal infra- structure. But there is another sense in which the subsidies are surprising, because there is almost unanimous agreement from across the ideological spectrum that users of water should pay its full cost, including both operat- ing and capital expenses.
Such a view is expressed in Recommendation 48 of Mr. Justice O’Connor’s Report of the Walkerton Inquiry, which states: ”œAs a general principle, municipalities should plan to raise adequate resources for their local water systems from local revenue sources, barring exceptional circum- stances.” Mr. Justice O’Connor discuss- es briefly how such ”œexceptional circumstances” might be defined, and is clear that the availability of federal infrastructure funds is not such a cir- cumstance. Some simple questions are obvious: Why is the federal govern- ment already subsidizing the provision of publicly-supplied water? Why would Paul Martin want to continue such a policy?
With respect to housing, the FCM is simply asking the federal government to go back to doing what it did prior to the 1990s: provide significant funds to subsidize the building of social housing. The current modest request is for an additional $135 million a year for this purpose. The FCM claims that such funds would enable provinces and municipalities to provide 20,000 new affordable housing units over the next ten years and to renovate 10,000 older units. Admirable as such a plan might be, neither Paul Martin nor anybody else should expect that the granting of these funds will remove homeless peo- ple from our cities’ streets, a paramount objective for many urban residents.
Unless or until a whole range of other actions are taken involving the police and mental-health care and social-service systems there will con- tinue to be more homeless people on the streets of Montreal than on the streets of New York. There is a direct connection between the injection of federal money and the solution of the municipal infrastructure problem; however, the link between federal money and the prevention of home- lessness is tortuous at best. And this single example illustrates how urban problems span the functional respon- sibilities of governments, both provin- cial and federal.
For transportation purposes, the FCM is asking the federal government to set aside for municipalities five cents per litre of the tax revenue it rais- es from gasoline and fuels. This plan would cost the federal government $2.5 billion a year and would provide still more money for municipal infra- structure, although in this case it could be tied to transportation requirements.
Yet the federal government has always been reluctant to earmark tax rev- enues for particular purposes. For Paul Martin, a successful defender of Finance department orthodoxy if there ever was one, to have a hand as prime minister in changing such a longstanding approach to public finances in Canada would be far more significant than the relatively simple act of promising the $2.5 billion as a direct federal grant.
Finally, municipalities do not want to pay the GST. Currently they pay at 42 percent of the normal rate, at a total cost to them of $465 million. Letting municipalities off the hook for the GST would presumably provoke more demands for similar relief, from universities, for example.
So the most basic demand of all municipalities is for money. Many want consultation and some leaders in the big cities want more autonomy and more power. For the most part, though, Paul Martin’s New Deal will be judged by the answer to one simple question: how much cash did he deliver?
It is often held that the federal gov- ernment is constrained from tackling the problems of cities and municipali- ties more generally. Because municipal- ities are a ”œprovincial responsibility” under the constitution, then the federal role must be limited, or else action by Ottawa requires provincial consent or cooperation. Nothing could be further from the truth. It is the case that under Section 92.8 of the Constitution Act (1867), ”œMunicipal Institutions in the Province” fall within provincial powers. But this section provides that the provincial governments ”œmay exclu- sively make Laws” in relation to munic- ipalities. And so the provincial order of government ”” alone ”” can create municipalities, allocate powers to them (including taxation powers), and pre- scribe and proscribe their behaviours.
However, this provision quite fails to restrain the federal government from transferring funds to municipalities, or from spending and otherwise acting within their boundaries. Indeed, most federal spending actually occurs within the boundaries of some municipality. Ottawa can act directly in helping settle immigrants, providing loans and advice to business, erecting military and other facilities, granting money to cultural events, and so on and so on. The important distinction is whether the federal government spends money and conducts other operations within municipalities or rather spends and acts through municipal governments, by forming partnerships, conducting joint operations, or extending grants.
On spending, there are no constitu- tional constraints. This issue was settled by a series of cases, and com- mentators agree with the view of Canada’s leading constitutional author- ity, Peter Hogg, that ”œthe federal Parliament may spend or lend its funds to any government or institution or individual it chooses, for any purpose it chooses; and that it may attach to any grant or loan any conditions it chooses, including conditions it could not directly legislate.” The federal spending power is untrammelled legally, and the current minister of Intergovernmental Affairs, asked directly whether there is any policy field in which the federal government cannot spend, answered ”œNo.” And he’s right. As for the 1999 Social Union Framework Agreement [SUFA] which was designed in part to rein in the spending power, on a strict reading, most new federal initiatives would require only that Ottawa ”œgive at least three months notice and offer to consult” with the provincial govern- ments. So much for the legalities. What about the politics?
Here, the normal view is that the provinces are jealous of their jurisdic- tion. They restrict municipalities from entering into direct arrangements with Ottawa. This is especially true of Quebec, which prevents municipalities and other bodies, by law, from entering into agreements with other govern- ments in Canada. The provinces are not only concerned with jurisdiction but are also worried about being drawn into large, open-ended programs that absorb resources, raise expectations, and can be terminated unilaterally by Ottawa. On the other hand, municipal- ities are always eager for funds. They are reluctant to raise property taxes or even to borrow much. As well, much of the citizenry supports new programs, and generally cares not a whit about the source of the financing. During the recent SUFA review, for example, the Social Planning Council of Winnipeg argued that the Agreement ”œunreason- ably restricts the federal spending power, which has often been used to support provincial and voluntary sec- tor innovation.”
As a consequence, the provincial governments are porous to municipal- federal relations, more or less. In the 1950s, metropolitan Toronto’s Frederick Gardiner bulled through Premier Leslie Frost, insisting that he be able to importune John Diefenbaker directly to seek money for the Toronto subway. More recently, the Muskeg Lake First Nation and the City of Saskatoon negotiated an urban reserve, with fed- eral involvement but little or no provincial intervention. Lots of munic- ipal-federal relationships in areas like culture and heritage come in under the provincial radar screen. Other federal initiatives have involved ”œhealthy communities,” urban security, home- lessness, and airports. Even in Quebec a federal-municipal-provincial-private sector organization called Montréal International brings together important policy-makers to attract and accommo- date new investment.
The norm, in fact, is that provin- cial governments try to mediate municipal-federal relations in order to gain political credit while diverting expenditures toward their own priori- ties. The extent to which they are able and willing to intervene depends on the size of the municipality, the size of the financial commitment involved, whether the policy field is in federal jurisdiction (military, ports and multi- culturalism, for example, as opposed to health and education), and the politi- cal complexion of the administration. On the last point, it has been hard for the Chrétien government to deal with the sovereigntists and even harder to reach accord with the tax-cutting Harris/Eves government in Ontario. This has changed, and Paul Martin has new opportunities for collaboration.
On the other hand, Martin’s gov- ernment will face demands from some provincial governments to address the ”œfiscal imbalance” that, in their view, leaves Ottawa with too much tax revenue and provinces with too many responsibilities. If the federal government unilaterally starts provid- ing funds directly to municipalities to meet the needs of our major cities without first addressing provincial fis- cal demands, then it seems inevitable that we would enter a new period of federal-provincial conflict. Pierre Trudeau was never very sympathetic to federal involvement in cities, but he showed no reluctance to take on the provinces. Martin appears to want to help the cities and to preside over a period of federal-provincial harmony, especially in relation to the new Liberal premiers in Quebec and Ontario.
Premier McGuinty might indeed be willing to accept federal largesse for Ontario’s cities, as there would seem to be little political downside in such a position. But Premier Charest is in another position altogether. He simply cannot afford to be seen as the premier who opened the door to direct federal involvement with Quebec cities, except in the unlikely event that Ottawa at the same time freed up billions of addi- tional tax dollars so that Quebec could meet its other pressing priorities. If Charest allowed federal funding of Quebec municipalities without getting this or something else substantial, he would be open to attacks from all kinds of Quebec nationalists, including those within the Quebec Liberal Party.
In general, the porosity of provin- cial governments to federal-municipal relationships also depends on the financial position of the province. As noted at the outset, Ottawa is in a far better fiscal position to boost assistance to municipalities than are most provincial administrations. Between the fiscal years 1998 and 2001, federal revenues rose 12.3 percent, and surpluses were very large. Total provincial revenues rose by 13.7 percent, but rising health- care costs absorbed a lot of this, and some of the rise was caused by greater federal-provincial transfers (up 14.5 percent). Fiscally weaker provinces are more prone to countenance federal- municipal cooperation, especially when they face strong internal demands from cities and citizens. And those demands are there. Over the 1998-2001 period, total municipal-government revenues were up by only 6.2 percent, and total transfers to them were down by 10 per- cent, though this reflects, in part, some reallocation of functions.
But the potential demands from the municipalities are both huge and het- erogeneous. As a consequence, Ottawa’s position has been very restrained. When the Sgro Committee ”” the Prime Minister’s Caucus Task Force on Urban Issues ”” was established in 2001, the press release declared that it was to con- sult with ”œcitizens, experts and other orders of government,” and that the aim was to work within our federal juris- diction, to strengthen quality of life in our large urban centres.” In the end, the committee’s report highlighted only three traditional areas of federal urban activity ”” housing, infrastructure and transportation. Similarly, the minister of Intergovernmental Affairs may have a broad view of the spending power and may support programs like the Millenium Scholarships and the Canada Research Chairs program, but when it comes to cities he has always been care- ful to insist that ”œall three orders of gov- ernment must work together, mindful of their respective jurisdictions.”
This may dovetail well with Paul Martin’s fundamental instinct that governance requires wide consultation and inclusive partnerships. But his rhet- oric about cities, as found in his last speech to the Federation of Canadian Municipalities, is also typical of his approach to other issues. The message was this: there are historic problems looming and opportunities in the off- ing; the situation is urgent and impor- tant; in broad consultation, all the options have to be on the table; if we find consensus and work together, a New Deal can be forged; and, if we get it right, this new set of policies and arrangements will last for a long time, setting Canada on a fundamentally changed path. This is a very tall order, and not only because it raises huge expectations within a very diverse con- stituency that has pressing needs, but also because the mechanics remain as unclear as the policies.
We are not privy to information about the transition to Martin. We do not know about current policy debates, or about how plans are evolving about re-organizing the administrative machine. It’s clear, though, that some unusual ideas about government struc- ture are floating around Ottawa, and administrative innovation may be far- reaching. But the transition will have to produce something very creative indeed if the obstacles to tackling municipal problems are to be overcome.
Consultation, so central to the Martin approach, appears relatively easy. The Liberal caucus has already been involved. In the PCO, the Task Force on Canada’s Urban Communities has conducted a certain amount of research and has been actively listening to participants in the urban file for some time. Municipalities can be involved in pre-budget consultations, and Martin has promised that this will take place when he is prime minister. But here the mode of representation will be a problem. Will there be a dele- gation of mayors or will the FCM be the prime interlocutor? The FCM has made many submissions in the past, but its large membership is fractured between municipalities seeking both more autonomy and increased funding and those which would be content with just higher levels of stable funding.
Martin has also suggested that municipalities participate in First Ministers’ Conferences. Here, represen- tation is even more problematic. Giving a voice to the mayors of Vancouver and Toronto is one thing, but what about Surrey and Mississauga, let alone the mayor of Two Creeks, Nova Scotia? Further, to any such rep- resentation, most provincial govern- ments would be opposed, unless it were done as a one-shot, obviously symbolic exercise in participation. But, like everyone else, municipalities seek ”œmeaningful” participation, and Martin is of course sympathetic to this.
If the consultation conundrum can be solved, and given Mr. Martin’s proclivities it will be solved in a way that maximizes both participation and the range of policy options on the table, there still remain considerations of policy delivery. Here Ottawa has such problems that implementation issues will certainly circumscribe and probably dictate the nature of the pol- icy that will be decided. What are the delivery alternatives?
One is to create a ministry. This would be provocative to provincial gov- ernments, but perhaps Martin’s talents for persuasion and consensus-building could overcome this. Yet a department needs programs to run, and municipalities’ needs are extremely diverse. Even were the new prime minister able to set a couple of clear priorities, municipal issues typically cut across normal policy areas, involving a degree of ”œhorizontali- ty” that exceeds those found in the cases of homelessness or the children’s agen- da. It is for precisely this reason that the FCM rejects confining municipal issues to a single ministry: the big cities, in particular, don’t want their concerns isolated within a traditional depart- mental ”œsilo.”
Another possibility is to create a ministry that departs from the ”œmunicipal” category, but which allows a broad range of municipal problems to be targeted. The current infrastructure programs do this in some respects, but the provinces are heavily involved in trying to bend the priorities of local governments toward their own preoc- cupations. A long-shot alternative would be a Department of Sustainable Development. Here, Ottawa’s shared environmental jurisdiction would con- fer some extra leverage in determining projects, while the category has enough flexibility that spending could meet needs ranging from big-city urban transit to brownfield redevelop- ment in declining cities to water and sewer provision in small towns. This would not be for the short term, how- ever. The current infrastructure pro- grams are set to run until 2007, and while they could be rolled into the new departmental budget, the need for consultation, staffing and organiza- tional design dictates that a New Deal built around this option would take a long time to materialize.
We could return to a Ministry of State. But re-creating the old Ministry of State for Urban Affairs (MSUA), which existed from 1973-79, would entail difficulties. Introduced with much fanfare, the Ministry in the end did little more than commission a lot of academic research. The various ministers of state for urban affairs found that they had little clout with their Cabinet colleagues. Municipal leaders soon realized that the real action still lay with the provincial gov- ernments and with relevant federal departments such as Transport (air- ports and ports), National Defence (military installations) and Finance (depreciation allowances on urban office buildings for income-tax purpos- es, for example).
Apart from the provincial resist- ance, which led to the dismantling of Urban Affairs, there is the new recog- nition that municipal problems are not just urban problems. They involve shrinkage and decline in municipali- ties throughout much of the country as well as explosive growth in the met- ropolitan areas. Urban Affairs had no real budget ”” another problem. This could be solved in two ways.
One would be to arm the responsible minister with strong prime ministerial mandate letters. These, sent to other ministers, could dictate that they develop policies to solve particular problems that arise in municipalities. The responsible minister could chase progress. Ministers in other line departments would need to be pressed hard to re- allocate resources, but the process seems to have worked homelessness initiative.
Another possibility would be to allocate some loose money to the responsible minister. Armed with a half-billion dollars or so the minister could work to entice his or her col- leagues to produce inter-departmental ”œshared cost” programs. This is untried, though, and likely to be messy even were the operation formal- ized in a Cabinet committee on municipal affairs which included the most relevant ministers.
Indeed, the FCM position is that there should be ”œa Cabinet Committee on Urban Issues to be led by a Minister as Chair to develop an urban strategy” and also ”œa Cabinet Committee on Rural Affairs, led by a Minister as Chair to develop a rural strategy.” This position is not inconsistent with the con- clusion of the Liberal caucus Task Force that a designated minister be given ”œresponsibility to coordinate the Gov- ernment of Canada’s efforts in urban regions and to provide a ”˜voice’ for the urban regions in Cabinet.” But this all takes time, and there is no suggestion in Martin’s public pronouncements that he is prepared to take this route.
As well, all of the above arrange- ments require some measure of direct delivery by Ottawa and of program- matic negotiation with both munici- palities and provincial governments. This is not likely to satisfy Martin, who sees pressing problems, albeit ones with potentially deep financial impli- cations. The simpler way to proceed is through the tax system. This, of course, was a favourite delivery system of Martin when he was in Finance (if not always of the department itself). Working this way is very fast. It pro- vides pure cash, which can be used by diverse municipalities according to their priorities, and which certainly is what every municipal government seeks. There is no need for friction with the provinces, as long as these governments agree not to make a cor- responding cut in transfers to munici- palities. There is no big bureaucratic machine to create. Best of all, there are no decisions to make!
One easy thing is to remit to municipalities 100 percent of their GST payments. This would now cost on the order of $500 million per year. Unfortunately, this was one of Jack Layton’s promises when campaign- ing for the leadership of the NDP; how- ever, it is also a longstanding demand of the FCM. The other tax measure would be to deliver to municipalities a portion of the federal tax on gasoline. Martin is already committed to this, as part of a ”œnew fiscal partnership” with cities. In May 2003, he stated that if municipal leaders indicate that this is their prefer- ence ”œthen we will act on that sugges- tion.” Another promise kept.
On the delivery side, then, all indi- cations are that Martin will move through the tax system. This means that he can move fast, with calculable (and limited) commitments, and proceed to his priorities. Martin has many top pri- orities. What he does will be dictated by the need to finally choose among them.
We have argued that the municipal dossier poses particularly diffi- cult challenges. The constituen- cy involved is universal ”” almost all of us live in munici- palities ”” but awfully diverse, with issues that vary most notably by region and municipal size. The issues involved in the file are multiple, and they cut in complex ways across the func- tional organization of the federal government. Ottawa lacks imple- menting capacity, and must negotiate with municipalities and the watchful provincial governments. The potential resource commitment in open- ended programs would be huge.
Faced with these problems of poli- cy choice, organization and money, we can make some simple predictions. Martin will deliver a quick infusion to each and every municipality through the tax system (making a special deal with Mr. Charest if necessary). And he will continue to consult, even as other problems and priorities begin to press upon him and his government.
