Provincial Income Tax Transfer Payment

The infrastructure deficit of Alberta municipalities is difficult to determine but it continues to grow as does long term municipal debt. This results from growth pressures in the province making it more difficult to fund required new infrastructure let alone maintain existing infrastructure. Adding to this pressure is that according to a 2012 AUMA submission to the Federal Infrastructure Round Table, Alberta municipalities were already responsible for 54% of the infrastructure in Alberta in 2006-07 but were only collecting 10% of the tax dollars in Alberta.

Municipalities have limited revenue sources with the major one being property tax. This source is reaching its capacity in many urban municipalities. Smaller urban centers are forced to dissolve and become part of their surrounding rural municipality hoping for a better financial future. The fact remains that the citizens of these municipalities continue to be responsible for the heavy debt loads that they come to their new municipality with and are still faced with enormous infrastructure deficits that will remain their responsibility as rural municipalities do not have the means to absorb this burden.

A transfer payment of an additional 1% of provincial income tax would be predictable sustainable funding for municipalities and improve their long term planning processes. This funding would increase and decrease with the state of the economy and therefore would not force the province to look for cuts during economic downturns. Although this form of funding is new for Alberta, it is not a precedent in Canada.

There is a need to ensure the viability of all municipalities in the province. A straight per capita allocation of the transfer payment will not provide adequate funding for those municipalities with a smaller population base. Although the scope of their projects may be less, the dollars required for these projects is a significant burden on these municipalities. In addition, they have less opportunity to take advantage of economies of scale because of the smaller project scope.

It is one thing for a municipality to decide freely whether or not they are viable or whether they should dissolve, but it is tragic to think that this decision is not made without the heavy burden of financial restrictions weighing in as the biggest factor. All communities, especially smaller ones, provide a sense of community and pride for those that live within it and those that live within the surrounding area.

Providing a base level of $500,000; $750,000; $1,000,000 or even $1,500,000 on an annual basis would allow these smaller municipalities to plan for larger projects over a period of time, to get them completed and to maintain manageable debt levels.

Instituting this transfer payment would allow for the elimination of some grants that are on an application basis and which many times are awarded to municipalities with the best grant writers.

Some suggest that the province remove the requirement for municipalities to collect the school tax to create more room in the property tax system, this will just add cost for all Albertans as the province would need to set up and implement its own redundant system to collect school taxes.

Although there may be inequities in the property tax system that benefit some rural municipalities, especially when it comes to power and pipeline taxes, and a redistribution of these revenues appears to make sense, this will place additional strain on those rural municipalities who rely on these funds. Additionally, such a redistribution would do nothing to ease the infrastructure deficit of Alberta Municipalities. More dollars in total are needed to mitigate the deficit not merely a redistribution of the same inadequate pool of funds.

In some cases a forced redistribution may be detrimental to intermunicipal relations. Many relationships with our urban neighbors have improved vastly over the past years and to suggest anything that may cause a regression in this area would be discouraging. Furthermore, it is difficult to conceive of the province wanting to step in and cause this type of forced redistribution as they prefer, and rightly so, for municipalities to recommend solutions that are mutually beneficial.

The current MSI system allocates funds based 48% on population, 48% on the education requisition and 4% based on kilometers of roads. We are suggesting that the MSI program be made a permanent program and that it be funded at $1.4 billion annually as originally set out and that a new transfer payment to municipalities needs to be instituted based on population to encompass the population impact on infrastructure.