Who Pays for Municipal Governments? Pursuing the User Pay Model

It is undeniable that the goods, services, and privileges that municipalities provide are vital for Canadians’ well-being and that municipalities are facing increasing pressure to provide more infrastructure and services to more Canadians at a higher level of service. In order to provide this infrastructure and these services, however, municipalities have to increasingly find a way to pay for them. The key challenge then becomes, how do cities pay for these services and infrastructure? How do cities raise enough revenue to deliver these high-quality public services that will attract and retain businesses and residents in a way that does not undermine their competitive advantage and that is fair, accountable, equitable, and within their authorities? As it turns out the answer to this question is “wherever possible, charge.” That is, where possible, the direct users should pay the cost of providing municipal services. The rest of this chapter will outline what are the two main funding choices, property taxes and user levies, for Canadian municipalities and why. If the choices for municipalities for its own source revenues are between property taxes and user levies, what are these instruments? If the choice then is between user levies and property taxes, what has been the take up of these revenue instruments by municipalities in Canada and what might be driving these decisions? Finally, which revenue tool is preferred and why, using the principles tax fairness, tax accountability, and tax equality? In essence, it boils down to establishing a strong link between expenditures and revenues, leading to a preference for user levies.