Municipalities have long been sites of neoliberal policy experimentation and contestation. Since the onset of the 2008 recession, the local state has come under new pressures to privatize social services and reduce the costs of public administration, often through seeking wage and benefit concessions from unionized municipal workers. For proponents of neoliberalism, states ought to be limited to securing the institutional preconditions for a competitive market and, once established, remolding state practices in order to ensure market rule. New fiscal constraints upon municipalities from national and provincial spending cuts have intensified competitive pressures and demands for austerity. Although municipalities have limited ability to generate revenue, they are often left to deliver services formerly provided by other tiers of government, such as social welfare, infrastructure and environmental protection.

As such, municipal governments, especially in the larger cities, have often borne the brunt of neoliberal restructuring and efforts to reassert the power base of the capitalist classes. Regardless of the social costs, local public policy increasingly reinforces conditions favourable to capital accumulation. These policies include cost-cutting measures aimed at so-called administrative efficiencies, cuts to public services, state subsidies to private capital and attacks against labour. In short, municipal neoliberalism can be understood in three ways: as an uneven process of political and economic restructuring in a matrix of multi-scalar institutional relationships with other levels of government; as an urban policy regime promoting local processes of marketization, public-sector austerity and flexibilization of work relations; and as a process of internationalizing the local economy.

The devolution revolution

Under Section 92(8) of the Constitution Act, municipalities are essentially creatures of provincial governments, which have the capacity to create, modify or eliminate a local government at will. Provincial governments also determine which powers a local government is entitled or obligated to exercise. Unlike the federal and provincial scales of administration, municipalities lack the power to implement a broad range of tax measures such as income, corporate, sales, resource and import taxes. Municipalities are also limited in their ability to incur debt.

Consequently, they find themselves increasingly unable to meet their fiscal requirements in the context of devolution and withdrawal. For some three decades, provincial and federal governments sought to “solve” their own budgetary impasses by shifting the costs of social and physical infrastructure downward onto lower tiers of government. Federal involvement in urban and municipal affairs has fluctuated over time. Although the federal government has no constitutionally prescribed municipal powers, almost all of its decisions affect municipalities in one way or another. However, except for some grants, bilateral agreements and emergency relief, the federal role in municipal affairs over the last 40 years has generally revolved around ad hoc agreements. There is a complete absence in Canada of a national policy for cities or for urban funding of crucial infrastructure, transportation, housing, immigration and poverty.

Municipalities are overwhelmingly dependent on property taxes to raise revenue outside of federal and provincial transfers, from which monies they must provide for general government administration, social assistance and health services, social housing, fire, policing and so forth. As a result of dwindling transfers to municipalities, the 1990s saw renewed calls for greater federal involvement in municipal affairs, particularly that related to revenue transfer. However, the federal government has continued to limit its role to providing one-time fiscal injections rather than long-term intergovernmental planning boards.

Merger mania

In 1995, with the replacement of the Canada Assistance Plan by the Canada Health and Social Transfer (CHST), a significant decrease ensued in provincial transfers in the realm of social assistance, post-secondary education and health care funding. The new block funding replaced the previous 50/50 cost-sharing arrangement with a combination of cash and tax points transfers that were frozen at 1995 levels for the next five years, significantly eroding service level provisioning due to inflation and population growth. This unilateral devolution of social welfare provisioning not only cut and decentralized federal funding, it also led to an erosion of national enforcement standards as provinces, often via municipalities, looked to further shed a broad range of services. While municipal funding received a brief influx in the early 2000s, the period since the election of the Harper Conservatives has seen the continued erosion of initiatives aimed at rectifying decades of divestment.

For municipalities, reduced funding and transfers to the provinces had significant implications, though many were themselves implementing policies which reinforced the dogma of neoliberalism: tax cuts, less government, less unionized labour, fewer regulations, more private-sector investment. This was exemplified by the policies of the Mike Harris Conservatives in Ontario. But while the “slash and burn” legacy of the Conservatives is notorious, the municipal dimensions are perhaps less well known. Controversially, the Conservatives undertook a series of municipal amalgamations that reconfigured the municipal political economy. When Harris came into office there were 815 municipalities in Ontario and by 2001 only 447. At the same time the number of municipal councillors was reduced from 4,586 to 2,804, while the number of school board trustees fell from 1,900 to 700.

This ongoing restructuring of Ontario municipalities involved a massive devolution of program spending and responsibilities onto municipalities such as social services, public school services, nonprofit housing, roads, public infrastructure, long-term healthcare, childcare, shelters, children’s aid societies, ambulance, fire and police services, waste collection, as well as public health and transportation. Following the federal government strategy, the downloading of responsibilities by the Harris government onto municipalities occurred without an equivalent transfer of funding or matching fiscal supports. Amalgamation was overwhelmingly rejected by urban social movements, trade unionists and the general public across Ontario municipalities. But this did little to deter the Conservatives from amalgamating communities. The Conservatives argued that amalgamation was in the interest of all Ontarians as it would lower costs, remove barriers to investment, enable private-sector job creation and increase the political coherence and economic efficiency of municipalities.

The movement away from shared-cost provincial– municipal funding shifted the burden of revenues coming from general income and corporate tax revenues applied at the provincial level to the narrower base of municipal property taxes. Amalgamation of cities did little to reduce the costs of public administration, rather it led to wide-ranging cuts to public services, lower service levels, labour strife and recurring budgetary shortfalls. For municipalities, then, territorial boundaries were remade and responsibilities for delivering services increased despite the absence of an equivalent transfer of administrative powers to raise revenues. What resulted was a structural deficit that set in motion a period of permanent austerity. This is a legacy that continues today, not only in the explicit form of the Rob Ford fiasco, but across Canadian municipalities.

Consolidating municipal neoliberalism beyond the Great Recession

Consistent with the steady retreat of the federal government from the municipal arena, especially with respect to direct revenue transfers, the Conservatives have shown limited interest in moving beyond piecemeal injections of funds into urban infrastructure and services. The two most important initiatives have been the Building Canada Infrastructure Plan and the Gas Tax fund. The former provides $40 billion for municipal infrastructure over 2007–14, yet this covers less than 2 percent of outstanding national needs. The latter provides Canadian municipalities with $2 billion annually and has been indexed to inflation since 2013. Between 1989 and 2009 federal expenditures per capita in constant dollars fell at an average annual rate of 0.3 percent as the retrenchment of local support continues. By 2014 general federal transfers to municipalities will represent only 1.6 per cent of total municipal revenues.

Considering the dilapidated state of Canadian municipalities’ social and physical infrastructure, ongoing tax cuts by federal and provincial governments is disconcerting. It is estimated that 82 per cent of municipal infrastructure across Canada has been exhausted. More than half of all municipal roads are displaying advanced deterioration, 40 per cent of pumping stations and storage tanks are in decline, with new federal water regulations expected to add some $25 billion over 20 years, and more than 30 percent of underground pipelines require replacement. Canadian municipalities now face an infrastructure deficit in the range of $125 billion, with combined provincial and federal infrastructural deficits more than double that amount.

Other levels of government have partly recognized the urban fiscal impasse but have done very little to address it in a fundamental way. Thus pressures for Canadian municipalities to find cost-savings have been growing. Under neoliberal policymaking, the privatization and contracting-out of municipal assets, services and employment has been put forward as a means to restore budgets. But studies of outsourcing and privatization across Canadian municipalities suggest that the privatization of formerly public-sector jobs – and of private-sector involvement in urban transport and infrastructure projects – has correlated with more expensive and lower quality services and reduced public oversight. Additionally, there is a wealth of evidence to suggest that the outsourcing and ensuing re/deregulation of public services is jeopardizing the health and safety of communities as cost-cutting and profit-maximizing measures take priority. In any case, one-time fiscal injections from privatizations will not overcome the underlying fiscal constraints of Canadian municipalities, which continue to receive only nine cents of every tax dollar collected in the provinces.

Toward a radical municipal agenda

Municipalities’ current reliance on property taxes is unsustainable in the long run and merely shifts the burden of responsibility for infrastructure and social well-being away from capital and from one generation to the next. Breaking the cycle of austerity and retrenchment that has characterized the last four decades of municipal neoliberalism will require the development of initiatives that propose alternative funding and institutional arrangements. This will necessarily be premised on an alternative political vision which challenges the continued reliance on tax cuts as a substitute for a pay raise and attempts to spur private-sector-led economic growth. A first imperative is simply to raise revenue to counter decades of federal and provincial offloading of services and responsibilities and provide consistent and secure funding, which could begin to redress decades of underinvestment and neglect across Canadian municipalities. This would entail reversing the continuous cuts to corporate and personal income taxes since 2008, and raising the GST back to 7 percent, with dedicated funding to municipalities. A progressive municipal agenda also needs to consider a broader range of options for mobilizing revenues, especially if the aim is to reduce or eliminate user fees for many services. Internationally, the heavy reliance on property taxes as the major source of revenue is rare. Canada’s local governments receive over 95 percent of their own-source tax revenues from property taxation, whereas the Organization for Economic Cooperation and Development (OECD) average is 36 percent. The Nordic countries, Germany and Switzerland, for example, receive over 90 percent of their tax revenue from income taxes,

Other levels of government have partly recognized the urban fiscal impasse but have done very little to address it in a fundamental way. Thus pressures for Canadian municipalities to find cost-savings have while Hungary and the Netherlands collect between 50 and 75 percent of local revenue from various sales taxes. The same is true in France, Japan, Korea and the US where sales taxes comprise about 20 percent of local revenue. There is no natural law dictating that local governments be exclusively dependent on the property tax. A multiplicity of revenue streams is needed to ensure diversity, balance and stable, long-term funding to Canadian municipalities. While this is not the place for a detailed examination of the pros and cons of various revenue sources and financial tools, some ideas include an employer payroll tax, high-occupancy lane and highway tolls, land-value capture, parking space levies, municipal sales taxes, downtown congestion fees, corporate and municipal income taxes, hotel levies and an increase in development charges. Since the federal and provincial tiers of government possess the major powers of taxation, they have a responsibility to ensure that the needs of municipalities can be met by appropriate fiscal capacities. But municipalities cannot resolve issues related to climate change, public transportation, housing, wastewater and so forth on the local level alone. These challenges require developing new coordinated state planning capacities with, at a minimum, dedicated funding to launch a national transit strategy, a national clean water fund, community development strategies in self-governing northern and Aboriginal communities, and long-term municipal funding for social and physical infrastructure. There is also a need for more thinking about anticapitalist alternatives to the market imperatives of capitalist urbanism. “Rights to the city” campaigns are raising new demands such as free public transit, public spaces that are explicitly anti-commercial, universal recreation programs and many others. But only new organizational capacities will make such ideas politically viable. Making the case for an expanded public sector challenges private capital accumulation as the engine of economic growth in opposition to the prevailing orthodoxy of neoliberalism, while raising a set of demands for non-commodified labour and services. This means expanding the redistributive role of the state and also taking the lead in ensuring access for all to housing, public transit, community centres and other public goods and services.

In the absence of organized municipal political parties, trade union and community activists must fill that void. Our challenge is to move left of social democracy or risk increasingly becoming an impediment to rather than a catalyst of a renewed urban politics that challenges the decaying state of Canadian municipalities.

This article appeared in the July/August 2014 issue of Canadian Dimension (Politics in the City).