10/12/2011 09:06 EDT | Updated 12/12/2011 05:12 EST

What's So Bad About Municipal Bonusing?


Until the 1970s, municipalities in Ontario were involved in a free-for-all competition to attract business and industry. They offered tax breaks, free land, free infrastructure, utilities or services, housing -- whatever it took to get a plant or office to open within their boundaries. A lot of small Ontario communities were able to attract businesses that way, and many got major industries.

Of course, the local taxpayers paid for these benefits, but the towns subscribed to the theory that eventually the extra jobs and tax revenues coming into the municipality would pay for the up-front largesse through increased revenue across the community. The plants would bring jobs, which would translate into new homes and property taxes, and the increased population would create a demand for other businesses such as retail stores, restaurants, and the service industry, themselves creating new jobs.

For a while, that system worked. Then the provincial government stepped in and said the practice wasn't fair. All municipalities, the province decided, should compete on a level playing ground: bonusing of this sort was made illegal in the Municipal Act.

That was more than a generation ago. Since then, the Auto Pact has become defunct, the Canadian dollar has risen too high to offer the economic benefit that once attracted U.S. firms, and many factories closed in North America and reopened in Asia, creating massive unemployment. Consumer buying trends have shifted from quality products to the least expensive on the big-box store shelf. Wages, especially in unionized plants, have escalated to uncompetitive levels compared with Asian workers. It's a different, more challenging world today.

Ontario's municipalities outside the already-congested Greater Toronto Area have few tools or benefits to attract new businesses. The GTA has the benefit of a large workforce, widespread transportation network, and proximity of suppliers. How can a small community located 100 or more kilometres away on a two-lane highway compete?

It can't. It can try to sell itself on its charm, its appearance, its vaguely beneficial "lifestyle" -- but none of these can compete with the lure of a tax moratorium or free, serviced land; the attractive offers of yesteryear. Is charm worth more to a company than easy access to the transportation network? Or lower taxes? Not likely. For most firms, the bottom line rules decision making. Charm simply doesn't have a place in the accounting.

Many of the plants that were built in small communities in Ontario through the boom years of the '60s have since closed. Those communities are suffering from increasing unemployment, confounded by increased costs for services and infrastructure. In some, a few remaining plants struggle along. Closures loom in others. And for all of them, the tax base shrinks while municipal expenses continue to rise. Homeowners shoulder greater burdens every year to maintain existing services, making the cost of living there perilously expensive.

In Collingwood alone -- a mere 120 km north of Toronto -- a carpet plant, an automobile hose plant, an automobile wheel plant, a playground set manufacturer, a seatbelt manufacturer, a pottery manufacturer, a starch plant, a large furniture maker, and a massive shipyard have all shut down since the late 1980s. All of them offered solid work at good wages. In their place, the town has seen two decades of growth in big-box retail, franchise and hospitality sector businesses -- all at, or close to, minimum wage -- but nothing on the scale of any of these lost industries.

Collingwood is typical of the situation across southern Ontario. It oozes small-town charm, it has four-season amenities, a beautiful downtown, clean air and water and an administration eager to work with business -- but it can't offer even a minor a tax break to keep existing businesses from closing, or to attract new companies to relocate there.

If the province wants to keep its 400-plus smaller municipalities alive, it needs to re-open the debate on bonusing. Municipalities should be able to choose for themselves whether they want to carry the costs of bonusing to attract new business.

It's a far more cut-throat and competitive environment today for municipal economic development than it was in the '70s, but the province's policies have not changed with the times. That has to change.

Municipal issues were not in any party's platforms in Ontario's recent provincial election, but I expect municipal organizations will advocate strongly for them to be debated in the next legislative session. Municipalities not only demand change, they need it.