Canada needs to implement user fees to pay for aging municipal infrastructure – the municipal free ride is over

Canada’s roads, bridges, wastewater treatment centres and sewer systems are over the hill. In the next 10-15 years, Canadian cities will face some seriously expensive bills. But what is the best way to fund needed infrastructure? For many reasons, the best solution is one that municipalities are most reluctant to implement: user fees.

In a ground-breaking report released today by The School of Public Policy, authors Philip Bazel and Jack Mintz make the case that Canadian cities will simply have to expand the use of user fees.

The authors explain that, besides using general taxes and debt financing to fund infrastructure development, municipalities have a heavy dependence on inter-governmental transfers. “In the last 50 years, the portion of municipal revenues provided by federal and provincial transfers has increased from under 30 per cent to roughly 45 per cent,” the authors state.

No wonder, since transfers from other levels of government allow municipalities to maintain a low tax rates for their constituents. But citizens, (often the wrong citizens), will ultimately pay the price through provincial or federal income taxes. Moreover, this approach results in unpriced infrastructure access and over-usage. The authors argue that Canada needs to move toward more optimal pricing for infrastructure. Instead of costs falling on taxpayers, governments need to start charging citizens for the use of the infrastructure they value through user fees.

“If governments moved toward more optimal pricing for infrastructure, a more efficient allocation of resources would prevail” the authors stress. “Commuters would make wiser choices between housing and commuting costs, which would be less subsidized, thereby reducing urban sprawl. And governments would make wiser budgetary and tax-policy decisions, trading off infrastructure demands relative to demands for other municipal services,” concluded Mintz today.

The report can be found here.