The Federation of Canadian Municipalities has issued its first report on the state of cities and communities.
It says cities and towns are better off these days because they now have access to a share of the federal gas tax and because of major federal stimulus spending.
But they say a lot of the federal money will dry up 2014.
The federation wants a fairer tax deal to take some of the municipal burden off the traditional property tax.
They say almost all new tax dollars are sopped up by federal, provincial and territorial governments, leaving little for cities and towns.
"Municipalities collect just eight cents of every tax dollar paid in Canada," the report said.
"Meanwhile, they build more than one-half of the country's core infrastructure; they pay the salaries of two out of three police officers; and they fund downloaded responsibilities for social services, immigrant settlement and law enforcement."
Municipalities are trying to expand revenues with a number of new taxes, on autos, on land transfers, and hotel rooms, but the money from these is small compared with the property tax.
Many of the financial programs designed to help cities and towns are described as short-term and unpredictable.
"As a result, Canada's municipal infrastructure deficit — which stood at $123 billion in 2007 — continues to grow," the report said. "Canadians experience this problem each day, in the form of crumbling roads, traffic congestion and boil water advisories.
"To solve these problems, we must reform municipalities' funding tools and reinvent their relationship with the other orders of government."
In his introduction to the report, federation president Berry Vrbanovic says 70 per cent of Canadians live in the country's 33 large metropolitan regions, which also account for about 90 per cent of population growth.
"A more diverse mix of revenue tools would enable these cities to better support new residents, workers and businesses using tax revenues generated by growth," he wrote.
He said property taxes are a slow-growing and regressive funding tool, ill-suited to meeting municipal needs.
It's time for new, co-operative partnerships among the different levels of government to spread out both the burden and the tax revenues, the report said.
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