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 and although 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 favors 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 rural 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.  This addresses some causes that impact on the infrastructure deficit but still favors those with high assessments because of the education requisition proportion.  A larger proportion needs to be based on population as it has the most direct impact on all infrastructure requirements.  We are suggesting however, that the MSI program funding criteria not change as that would impact on the expectations of those that would receive less from a funding formula change; that it 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 its direct impact on infrastructure.

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.

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.