THE BLOG
09/03/2011 10:03 EDT | Updated 11/03/2011 05:12 EDT

Election Raises Concerns for Ontario's Municipalities

To absorb costs, the province either has to cut services or raise taxes. Maybe both. The gloomy economic reality means that most provincial funds for local projects will dry up after the election while the debt gets tackled. That's more money municipalities have to get from local property owners.

Two questions about the aftermath of the upcoming provincial election are on the minds of councillors in most of Ontario's municipalities: will there be downloading? And will there be another round of infrastructure funding?

Downloading provincial services onto municipalities was done under Conservative Premier Mike Harris in the late 1990s. The widely unpopular policy forced local governments to pick up many service costs and fund them through property taxes, generally offsetting any gains from Harris' cuts to income tax.

Although a Liberal government under Dalton McGuinty was elected in 2003, the province has been slow to resume the costs. After eight years, municipalities still carry $1.5 billion in downloaded expenses. McGuinty's government has picked up about $500 million to date, and promises absorb the rest by 2018.

Tim Hudak, the Conservative leader and frontrunner in several polls, has promised not to repeat the downloading imposed by Harris, but has not committed to McGuinty's plan to absorb the remaining $1.5 billion. That has municipal governments worried. Downloading remains a nightmare, since it has come at a cost to their own local services and infrastructure.

The big problem is, of course, money. Under McGuinty's leadership, the provincial deficit now tops $14 billion. Government spending rose from $64.3 billion in 2003/04 to more than $115 billion -- an increase of over 80 per cent. Costs for health care, education and unionized public sector employees climbed dramatically in those years. And those costs continue to spiral upwards.

To absorb the remaining downloaded costs, the province either has to cut services or raise taxes. Maybe both. The gloomy economic reality means it's likely that most provincial funds for local projects, events and services will dry up after the election while the debt gets tackled. That's more money municipalities have to get from local property owners.

On the heels of that comes the question about another round of federal-provincial-municipal infrastructure funding expected in 2012. Under these programs, each level of government picks up a third of the cost. Much of the municipal share will be under debenture to take advantage of the funding opportunity.

The programs have been popular across Canada because they allow municipalities to afford large scale projects that might have been deferred or cancelled for lack of money. With much of our aging infrastructure in need of repair or replacement, municipalities are keenly aware of how important these programs are.

Municipalities can't fund local infrastructure, rebuilding and expansion without greater and greater property tax hikes or higher development charges. They have no other source of revenue. Unlike the province, by law municipalities cannot run deficits, although they can borrow money and -- as most have -- sink into debt that way.

But another P3 funding round requires the province to come up with its share of the money, likely around $500 million. So where will it get that money from? The provincial government is broke. Again: unpopular tax hikes and service cuts are the only two tools they have.

Of course, the province can always refuse to participate, which means municipalities either have to pay more for their share, or continue to defer projects until more funding is available.

Neither leader has committed to funding a future P3 round. That uncertainty makes it difficult for municipal leaders to plan their 2012 budgets.

No party has yet emerged as the clear champion of municipal interests. But until these questions are answered, municipalities will continue to fret over the outcome of this election.