Cover Story: The cash-crunch woes of rural municipalities
Sunday, December 4, 2011
Rural councils had to reinvent themselves after the massive municipal and property tax reforms of the 1990s. Today, they are still struggling to cope with rising service costs and less available cash to pay them, and are looking to Queen's Park for help
by MARY BAXTER
Last September, in Middlesex County's Municipality of Thames Centre, there erupted a dispute about council's decision to explore centralizing its road works in one main garage.
"We absolutely feel a new garage is totally unwarranted, unjustified and an extremely imprudent use of our tax dollars," wrote Jamie Payton in a furious letter to local media outlets. Payton, who farms cash crops, argued that closing his local garage in Thorndale would create a safety problem in the municipality's hilly, winding rural north end during winter. Police, ambulances and the fire department are only "as prompt as our snow plow's response time," he wrote.
"It's not about taking the service away from a rural area, it's about making the service better for the whole municipality," counters Jim Maudsley, the municipality's mayor. The current garages are old and can't store all of the municipality's equipment, he explains.
Moreover, the municipality has expanded its water department and environmental services. "We've got them jammed into these little garages in Dorchester and no place for inside storage which is mandated by the province for us to have." These could also be folded into a new, consolidated facility, he says, adding council hasn't decided on a location. (A June 13 2011 report to township council recommends the garage be located at the County of Middlesex's facility north of Dorchester).
The particulars might change, but farmers across the province are witnessing similar dilemmas in their municipalities. Consolidate and build new or patch and make do? Sell assets to cut costs or raise taxes?
Less available cash or the rising cost of services often drive the dilemma. Ever since massive property tax reforms and service downloads in the late 1990s, Ontario's rural municipalities have struggled with how to make ends meet while delivering the services residents and the province expect. And, with federal and provincial infrastructure programs winding down, the pressure to find fresh funds is increasing.
"We certainly have a good roads system," says Steven Byvelds, mayor of the Township of South Dundas and warden of the United Counties of Stormont, Dundas and Glengarry. The municipality has paved or surface-treated the majority of its 300 to 400 kilometres of roads within recent years with the help of the stimulus funding. But, after the funding ends, "how good can we keep it?" he asks.
Some rural municipalities are calling for new special infrastructure funding or new policies to stimulate local business. A growing number wonder, however, if inadequate provincial compensation for the difference between the residential tax rates and the farm and managed forest tax rates might be partially to blame for their cash-crunch woes.
The rates were introduced at the same time as the amalgamations took place in the 1990s. The farm tax rate replaces the farm rebate, introduced in the early 1970s. Under the rebate system, farmers paid municipalities the full residential tax amount for their farm property and later received a 75 per cent refund from the province. The farm tax rate eliminated the need for the reimbursement by making the taxation rate for farms 25 per cent of the municipalities' residential tax rate. The same rate is used for managed forests.
At the time the reform was introduced, the province reduced the education levy – enabling municipalities to capture more revenue by raising taxes without increasing the actual costs to residents – and added a new special community readjustment fund. The province assured municipalities the change was revenue neutral.
It wasn't, contends Bill Rayburn, chief executive officer, Middlesex County. Left out of the equation was the Ontario Municipal Support Grant, eliminated after the tax reforms. For Middlesex County, the difference between what was received before and after the reforms was more than $8 million. (See Figure 1.) "I was the first one, I think, to really sound the alarm bell provincially," Rayburn says.
He describes the push to reduce farms' municipal taxes as a "cheap food policy to help rural Ontario" and notes that under the former farm rebate program all Ontario taxpayers supported the policy because the refunds came from the province. With little or no provincial assistance to offset the new farm rate under the new approach, rural residents supported the policy on their own. "Basically, they were creating a system where farmers were paying for their own rebate through higher taxes," Rayburn says.
New provincial funding programs, such as one for public transit, don't pick up the slack because they are for the whole province and do not specifically offset the loss of the old farm rebate, he adds.
Threshold too high
A component of a formula used to calculate provincial funding transfers under the Ontario Municipal Partnership Fund (OMPF) perpetuates the problem, says Vanessa Bennett, treasurer, United Counties of Stormont, Dundas and Glengarry.
According to the Ontario Ministry of Finance website, the component "provides funding to municipalities with limited property assessment due to a significant amount of farmland and managed forest properties."
It works on a sliding scale. For example, municipalities where the two land types comprise five per cent or less of the tax base receive nothing; those where the two comprise 10 per cent of the tax base would receive an amount matching the taxes generated; and those where the two account for 20 per cent or more of the tax base would receive the maximum three times the amount the tax base generates. (See Figure 2).
Bennett says the thresholds marking when funding kicks in and when it increases are too high. "In 2008, there were only 75 municipalities that received any kind of funding out of over 330 municipalities that had farmland." Her municipality didn't receive funding that year, a loss she calculates at $4.4 million. A report that her county helped produce calculates that the affected municipalities lost a combined total of more than $200 million that year.
"We've been hammering at this, as have many other municipalities" since provincial downloading occurred, says Bennett.
About a year and a half ago, municipalities banded together to address the issue. Last August, during the Association of Municipalities of Ontario conference in London, the Eastern and Western Ontario Wardens' Caucuses broached the issue with Dwight Duncan, the province's minister of finance.
Their goal was to obtain a commitment to review and change the funding formula. That didn't happen – "partly because of the province's fiscal position and also recognizing that the province has made the commitment to upload social services costs between now and 2018 off of the municipal property tax," says Gary King, secretary-treasurer of the Eastern Ontario Wardens' Caucus and CAO of Peterborough County. "He essentially didn't agree with us and he wasn't prepared to make any adjustment."
The Eastern Caucus is working on another study to make its point. "We're going to demonstrate that OMPF and the current funding mechanisms that are in place are not adequately addressing the financial needs of rural municipalities," King says.
He notes that a recent decision to transfer social services back to the province from municipalities will help to create some more room for them, but it will be of greater benefit to urban rather than rural municipalities. For Peterborough County, the shift will save $4.5 million in expenses between now and 2018; in the same time period, it will save the City of Peterborough $24 million.
Grants understated
In a Sept. 20 e-mail, Scott Blodgett, senior media relations advisor, Ontario Ministry of Finance, writes that a recent internal review of the impact from the elimination of the former rebate program concluded "that the provincial calculations were both accurate and reasonable." Blodgett also warns that "materials presented by some municipalities" only reflect one component of the Ontario Municipal Partnership fund and therefore "significantly" understate the "level of farm-related support the province is providing to municipalities."
In 2011, rural farm communities will receive more than $324 million through farm-related OMPF grants. "In fact, the OMPF Rural Communities Grant alone will provide almost $160 million this year, contrary to the $50 million municipalities have identified," Blodgett writes.
King acknowledges there are several components used to calculate the total OMPF grant, which the province gives to municipalities without conditions on how to spend it.
These address items such as social programs, assessment equalization, rural communities, stabilization and police services. But if the money is used to pay for something like rural policing, then "how can you suggest that same amount of money is then available to spend on infrastructure? You can't spend the same dollars twice."
In a Sept. 21 letter to Dwight Duncan, Middlesex Warden Joanne Vanderheyden, chair of the Western Wardens' Caucus, added another request to the list: a short-term funding program to help rural municipalities address their growing infrastructure deficit.
Randy Hope, Chatham-Kent's mayor, agrees there is a need for more funding for rural municipalities, but he questions whether municipalities should focus exclusively on obtaining better compensation through the OMPF fund. "I would like the government to also look at agriculture and its added-value propositions (like food processing), because that way I can generate employment," he says. "And, if I can escalate my growth and distribute my tax base even further, then for less money I get more."
There are other initiatives the province could take to stimulate rural economies, he adds, pointing to changes in policies concerning the redevelopment of brownfields – former industrial properties – to make the properties more attractive to investors who, in turn, would create jobs.
Chatham-Kent also struggled for years with dwindling funding. "In 2005, the knife was going to be put to us and everybody was frantically trying to figure out how, without huge increases to our tax base, we were going to manage it," Hope says. In 2008, the municipality was out more than $16 million, according to the eastern Ontario report. It appealed to the province and was successful. Last year, it received $23 million from the fund.Hope credits this success to educating the province on the municipality's unique circumstances. "When you look at the community of Chatham-Kent, we're 2,400 square kilometres and we have a lot of farmland in the 23 communities that we represent," he explains. "We run into more difficulties in this community because we have one of the largest drainage schemes in the province of Ontario. We have over 85 bridges and 13,000 culverts that exist in this community and 3,353 kilometres of roadway."
He describes the OMPF fund as "that added gift that relieves the tax pressure." But additional funding comes "at the whims of government." To address the problem properly, policies have to be set to help grow rural communities, he says.
Worse off after amalgamation
Andrew Sancton, a political science professor at the University of Western Ontario and director of the university's local government program, notes that, as a result of tax changes and downloading, rural municipalities may not have as much revenue after all of the amalgamations took place. Just about every municipality in the province has a complaint about not being as well off as they were prior to amalgamation, he says.
"But I just don't think it's very productive or likely to lead to beneficial results to go to the province and say this is how much money we're losing now compared to 13 years ago," he says. There are infinite ways to make the calculations "and all kinds of assumptions that you have to make about what happened and what didn't happen." Instead, he says, "it's probably time to just ask for a total reassessment. But assessment's the wrong word because it relates to tax re-evaluation of the whole provincial/municipal financing system."
Bette Jean Crews, past-president of the Ontario Federation of Agriculture, supports the rural municipalities' efforts. They've done what they can to increase their tax base and cut corners, she says. "Now they are going after making it right."
She notes that sometimes the way this issue is presented, "you get the impression that the farm rate is the problem." She stresses that the problem isn't to do with the farm property tax rate but rather the transfer of funds from the province to the municipalities.
There is research behind the rate, she points out. "As a farm, I use the roads to move my equipment, and that's about it. We don't have any public sewer, water, lighting. My soybean fields really don't require policing services – although a lot of that is provincial now and maybe fire services or some of it . . . but it's not like you get a lot of fires in farm fields."
What may be needed, she says, is a way to distance and downplay the farm rate's percentage connection to the residential rate. (In Ontario, all of the property tax class rates are established as a ratio of the residential rate). "Let's just call it the farm rate," she says. "It's a subtle argument: when you take away that connection, then you take away that fear that the municipality is losing out."
She would also like to see agriculture's contribution to the province examined and longer-term policies developed around that.
Costs mounting
At Thames Centre, there is a sense that all the players feel the issue is more to do with how the money should be spent rather than whether there is enough of it from the province.
Maudsley acknowledges that another $700,000 or $800,000 "would make decisions easier." The costs of other municipal services are mounting. Policing for this year will cost Thames Centre $1.5 million and its policing component in this year's OMPF grant is $251,000. Yet centralizing road works reflects "a philosophy of how you provide the service to your residents," he explains.
Efficiencies will be gained. "The way it is now sometimes we are doing triple hauls of salt and sand." There's the cost of maintaining hydro and heat for two garages. "Right now we're washing out on the side of the garage," he adds. "I don't want to talk about the salt that's getting washed off a truck but I just think there's items of our work that could be brought to 2011 standards." Adding a salt shed in the "far reaches" of the municipality is always a possibility.
Rayburn says it's tough to link chronic underfunding to a growing willingness of municipalities to consolidate services: "This change happened in 1998 and most of them have moved past it." But an argument can be made for how taking a significant amount of money out of the system can lead to thinking differently about the delivery of public service. "It certainly did in our case. We had to reinvent ourselves in 1999 and become very hawkish." It made the "‘nice to haves' for rural Ontario and for the people we serve disappear rather quickly." Grants to the University of Western Ontario and to area hospitals ceased. Core services became the focus.
"We had to circle the wagon so to speak." BF