City Revenue SourcesPrevious sections have outlined a number of pressures forecast on the City's operating and capital budgets, and capital expenditure requirements over the next ten years. The City's challenge over this ten-year period will be to balance deferred lifecycle maintenance and unmet growth infrastructure needs with a desire for ongoing programs and new initiatives. Expenditure requirements are increasing as well; therefore, revenue sources to fund these requirements must be identified and established. Property Taxes Property taxes are an ineffective method for continuing to fund the bulk of services that municipalities deliver. Most experts agree that property taxes are an ineffective method for continuing to fund the bulk of services municipalities deliver because they:
Municipalities in Canada do not possess the authority to address the problems associated with property taxes and must, by law, continue to rely on these taxes as a primary source of revenue. Development Charges Development charges do not recover While available to offset growth costs, development charges do not recover these costs in full. For example, extensions of the City's arterial road network and transit service are constructed primarily to serve the needs of growth areas. These extensions, however, also benefit established areas. As a result, a percentage of these infrastructure costs must be deducted from the total project cost and collected from the existing tax base. This percentage varies from project to project. Recently, the Regional Development Charges bylaw was amended to address a significant shortfall in the collection of charges for roads and structures infrastructure. A review of the bylaw indicated that, under current rates, a portion of the funding necessary to support the capital program was being collected. An amendment that took effect August 1, 2002 increases rates to allow for collection of an increased share of the total estimated amount of capital required over the 20-year work plan. New revenue for 2002 and 2003 is estimated at $20 million. Development charges can be used as an incentive to implement Council policy. For example, fees may be waived to support objectives such as development of non-profit housing, mixed-use or intensification at transit stations, and development in downtown and urban growth centres. It is important to note, however, that shortfalls arising from these reductions must be compensated through property taxes. A significant shortfall in development charge revenue remains when these revenues are compared with the capital program costs of growth. The primary reason for this shortfall is the continuation of the discretionary discount for non-residential development. Although the recent amendment resulted in this discount being reduced on a city-wide basis, the amount collected still represents less than half the amount required to support the capital program. The consequences of this shortfall in revenue has been a delay or, in some cases, a reduction in the scope of major capital projects. This has resulted in an inability to meet growth requirements. Development charges for the non-residential sector are not likely to recover the full share of development costs attributed to that sector. The charge that would be levied at the full theoretical charge would be so large that it would impede development and reduce job creation. A significant amount of development costs, therefore, will always be borne by the tax base. It should be recognized that the non-residential sector does pay a higher tax rate than the residential sector under existing property tax policy. Accordingly, new non-residential growth will provide substantial additional tax revenues to the capital program. Over time, a higher taxation level will offset the recognized shortfall of capital costs. The segregation of the property tax rate into a capital rate and an operating rate will facilitate this recovery of capital costs from new non-residential development. User Fees User fees also include utility charges such as water rates and sewer surcharges that are included on residents' water bills. Water rates are set at a cost per cubic meter and take in all costs associated with treating and delivering drinking water, including direct operating, administrative overhead, and capital costs. All operating, overhead, and capital costs of the City's sewer utility, including wastewater and stormwater collection and treatment, are recovered through a sewer surcharge. The sewer surcharge is calculated as a percentage of the water rate and is then added to the water bill. The 2002 increase in the water rate resulted in increased sewer surcharge revenue, which has been applied as contributions to the capital program to assist with large lifecycle maintenance and regulation-driven projects coming on-tream. Costs of growth-influenced capital projects recovered through development charges are exceptions to full cost inclusion for both utilities. The City has begun a process that will harmonize user fees. An overarching policy to address the foundation on which these fees are based must be developed and all fees reviewed. Transfer Payments Other Revenues |
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