FCM ANALYSIS OF FEDERAL BUDGET 2007
March 19, 2007
:: Download complete document to print
The fiscal year 2007-08 federal budget (“Budget 2007”) was released today in Ottawa. This memorandum provides an in-depth analysis of budget commitments in relation to FCM´s primary advocacy objectives and key policy positions. This analysis will be enhanced and updated as the budget bill moves through Parliament, and as our questions are clarified by officials. Please note that our analysis of the budget confines itself to items related to or of interest to municipal governments only.
Analysis is grouped by FCM standing committee and key advocacy priorities:
1. Key Advocacy Priorities
2. Fiscal and Intergovernmental Arrangements
3. Municipal Infrastructure and Transport
4. Environment and Sustainable Development
5. Social Economic Development
6. Community Safety and Crime Prevention
7. Rural and Northern Issues
1. KEY ADVOCACY PRIORITIES:
a. Federal role in cities and communities
Budget Commitment
- "Canada´s New Government has committed to respecting roles and responsibilities by not spending in areas of provincial-territorial jurisdiction. In order to monitor progress, Government will report on the nature of federal spending in each budget."
- “The Government will continue to further clarify roles and responsibilities, and will explore with provinces and territories ways to formalize its commitment to limit the use of the federal spending power to ensure respect for provincial-territorial responsibility.”
- “New cost-shared programs in areas of provincial responsibility have the consent of the majority of provinces to proceed."
- “Provinces and territories have the right to opt out of cost-shared federal programs with compensation if they offer similar programs with comparable accountability structures."
Analysis
Federal investments in infrastructure, as well as many social investments such as housing, are included in the category “funding to provinces/territories.” This classification, combined with a future commitment to limit these types of federal expenditures legislatively, indicates that the government has defined its role in cities and communities very narrowly.
The opt-out clause could lead to some jurisdictions designing provincial alternatives to national infrastructure programs such as the gas tax transfer, or those that will be funded from the Building Canada Fund.
b. Fiscal imbalance
Budget Commitment
- "Budget 2007 restores fiscal balance with provinces, territories and municipalities by providing more than $39 billion over seven years in long-term, equitable and predictable funding for shared priorities."
Analysis
Given that our June 2006 report on the municipal fiscal imbalance showed that the estimated $60-billion infrastructure deficit is the key driver of the municipal fiscal imbalance, and Budget 2007 does not provide a real plan to eliminate this deficit, this budget can not credibly claim to have fixed the municipal fiscal imbalance. While the infrastructure investment contained in Budget 2007 is sizeable, the seven year commitment cannot contribute to the capital planning horizon of 15-20 years or more that municipalities require to retire the infrastructure deficit, and therefore does not provide a structural solution to the municipal fiscal imbalance. The fiscal imbalance test is simple: will municipal fiscal capacity match municipal responsibilities by 2014. If the answer is no, or we can´t say, then to suggest that the municipal fiscal imbalance has been eliminated is simply wrong.
c. Permanent Gas Tax, with escalator
Budget Commitment
- Four year extension, at $2 billion per year, of the existing Gas Tax Fund transfer, from 2010-11 to 2013-14 , for a total of $8 billion in new funding.
Analysis
FCM has been advocating for a permanent federal gas-tax transfer, with an escalator, and with expanded project eligibility criteria to include municipal initiatives for sport and recreational facilities, including social infrastructure, such as recreation and sport facilities, community centres, libraries, assisted housing and parks.
We are pleased that the gas-tax transfer has been extended for an additional four fiscal years at the 2009 level, but this is short of expectations of a long-term commitment. Furthermore, there is no escalator clause to protect the 2009 value over the following years (this is in contrast to the redesigned and expanded Canadian Social Transfer announced in this budget which includes a 3% annual escalator).
Achieving a permanent gas tax transfer, with an escalator, will continue to be one of FCM´s primary advocacy opportunities.
d. Public Transit
Budget Commitment
- The gas tax transfer, of which transit is an eligible project category, was extended by four years, at $2 billion dollars per year.
- The new seven year, $8.8 billion Building Canada Fund (BCF), which incorporates and extends the funding and objectives of existing infrastructure funds, such as the Canada Strategic Infrastructure Fund (CSIF), the Municipal Rural Infrastructure Fund (MRIF) and the Border Infrastructure Fund (BIF), includes transit as an eligible project category. The historical average annual expenditure of municipally focused infrastructure funds has been approximately $1.1 billion. BCF will provide an average of $1.25 billion.
- "Budget 2006 proposed a non-refundable public transit tax credit for the cost of monthly public transit passes starting July 1, 2006. Budget 2007 proposes to strengthen this measure on two fronts:
-
- "Several transit authorities have developed proposals for the introduction of cost-per-trip electronic payment cards. Budget 2007 extends the eligibility for the public transit tax credit to accommodate electronic payment cards if the cost relates to the use of public transit for at least 32 one-way trips during an uninterrupted period not exceeding 31 days.
- "There may be instances where low-income individuals are unable to afford the financial outlay associated with purchasing a monthly pass. Even though they are regular transit riders, they may purchase a series of weekly passes. Budget 2007 will extend eligibility for the public transit tax credit to accommodate weekly passes where an individual purchases at least four consecutive weekly passes."
Analysis
Budget 2007 does not make a substantial incremental investment in transit and certainly does not provide a long-term vision or plan for transit in this country.
The extension of the gas tax provides an important short- to medium-term enhancement of funding currently available to transit. The BCF does not represent a significant incremental investment in infrastructure beyond historical expenditures. Furthermore, the BCF does not target any funding specifically to transit, putting transit in competition with other priorities such as water and wastewater systems, highways and rural infrastructure for funding allocations within the BCF program.
The expansion of the public transit tax credit will be a welcome step in rewarding transit riders but falls short of FCM´s long-standing request for a tax exemption for employer-provided transit benefits, which is one of the most effective ways of using the tax system to promote transit use.
The National Transit Strategy called for a new investment of $2 billion annually in transit that is in addition to a permanent extension of the existing $2-billion annual commitment to the gas tax and the existing historical funding for infrastructure programs. More importantly, it also called for new funding to be integrated with a predictable, permanent plan for transit that includes tax measures, research, a link to land use and transportation planning, and setting accountability targets against which to measure progress and value for money. A true National Transit Strategy will continue to be a key advocacy priority of FCM.
2. FISCAL AND INTERGOVERNMENTAL ARRANGEMENTS
a. GST Visitor Rebate Program
Budget Commitment
- Budget 2007 proposes a new Foreign Convention and Tour Incentive Program that will replace the Visitor Rebate Program. This program will provide GST relief in respect of certain property and services used in the course of conventions held in Canada and the accommodation portion of tour packages for non-residents, as outlined below.
Analysis
These provisions restore the GST rebate to some of the activities previously eligible under the GST Visitor Rebate Program that was abolished last year. FCM has expressed the concerns of many Canadian communities that are reliant on U.S. visitors (tourists and business travellers) that the full impact of the abolition of the Visitor Rebate Program was not assessed prior to eliminating the program, and that the economies of these communities could be significantly affected. These new provisions, by restoring part of the Visitor Rebate Program, particularly targeting convention travelers, will mitigate some of the potential negative effects of eliminating the full Visitor Rebate Program.
b. U.S.-Canada border measures
Budget Commitment
- Budget 2007 proposes to increase the travellers´ exemption to $400 from $200 for returning Canadian residents who are out of the country for 48 hours or more. Increasing the 48-hour exemption will make it more convenient for travellers to clear customs and will reduce the amount of processing at the border.
Analysis
This provision will contribute to a streamlining of border processing for those travelers entering or re-entering Canada at land-border crossings, which will facilitate cross-border travel and trade, to the mutual benefit particularly of cross-border communities. Given the uncertainties and risks of the Western Hemisphere Travel Initiative, any move, no matter how small, by the government to facilitate cross-border travel and trade is welcome. This is a small but worthwhile step.
3. MUNICIPAL INFRASTRUCTURE AND TRANSPORT
a. Infrastructure Funding (gas tax, infrastructure programs like CSIF and MRIF)
Budget Commitment
- A Building Canada Fund (BCF), with spending allocated among provinces and territories on an equal per capita basis. This will support investments in the core national highway system, large scale projects such as public transit and sewage treatment infrastructure and small scale municipal projects such as cultural and recreational facilities
- Providing each province and territory with an additional $25 million per year, for a total investment of $2.3 billion over the next seven years, to support investments in national priorities throughout the country. These investments include trade-related infrastructure like gateways, roads, highways and other transportation facilities
- Bringing the total federal investment in the Asia-Pacific Gateway and Corridor Initiative to $1 billion to ensure that Canada can take advantage of economic opportunities in Asia.
- Renewing the Government´s commitment to construct a new border crossing at Windsor-Detroit.
Analysis
The Building Canada Fund (BCF) is an amalgamation and slight expansion of existing infrastructure programs (i.e. CSIF, MRIF, BIF) into one new infrastructure investment envelope. The new fund is expected to be allocated among provinces and territories on a per capita basis. The new BCF, worth $8.8 billion over seven years represents an average funding commitment of $1.25 billion per year, which is a slightly increase over the historical funding level for these programs of $1.1 billion.
Clearly, with a seven year commitment, this approach does not deliver a long-term investment strategy for infrastructure that FCM discussed with both Ministers Cannon and Flaherty. Infrastructure financing is by its very nature a long-term proposition with 20-, 30-, or even 50-year time horizons. The budget falls far short of this target.
The additional $25 million per year per province and territory responds to our recommendation that the federal government retain a capacity outside of the gas tax and infrastructure programs to fund nationally-significant projects, such as the Olympics, at their discretion.
It should be noted that Budget 2006 committed top-up funding for MRIF and CSIF. This topped-up funding has been rolled into the BCF. It is unlikely that agreements can be negotiated with the provinces and territories on the new BCF until the end of the year. FCM will be monitoring and working with the government and its officials over the next several months to ensure that the BCF allocation and design principles are responsive to municipal needs.
b. Rural, remote and northern infrastructure funding
Budget Commitment
Analysis
Traditional tripartite arrangements for funding infrastructure, in which the federal, provincial/territorial and municipal governments each contribute one-third of the cost of new infrastructure, limit participation by rural, remote and northern communities, which are unable to raise sufficient revenues to cover their one-third share. In addition, strictly per capita funding distributions place many of these communities, with their limited population bases, at a disadvantage.
Renewal of rural infrastructure programs must reflect the needs of Canada´s smallest and most remote communities. Programs must incorporate flexibility in eligibility and application criteria and recognize their limited revenue-raising capacity for large-scale projects. Support for local capacity building is also needed in these communities.
This budget has replaced MRIF and rolled it into one investment envelope called the Building Canada Fund. It will be important for FCM to advocate a recognition of the unique needs of rural, remote and northern communities when this new fund is designed.
c. Recreation and Sport Infrastructure
Budget commitments
- Building Canada Fund
- "Encouraging youth participation in Canadian heritage sports with $1.5 million over the next two years in the new Canadian Heritage Sport Fund”.
Analysis
The Building Canada Fund provides $8.8 billion in funding for, among other things, investment in cultural and recreational facilities.
FCM´s position is to support the development of a long-term fund dedicated to recreation, parks, open spaces and cultural facilities to provide for the rehabilitation and development of the infrastructure that supports healthy living. As such, the continued inclusion of recreation and cultural infrastructure for funding within this funding envelope (as it was under MRIF) is welcome. However, because the BCF will enable many other types of investment, recreation and cultural investments will have to compete for funds against other infrastructure projects that may be more visible, such as road repairs.
This is why a dedicated fund for recreation and other infrastructure supportive of healthy living, which municipal governments could access directly, is what is needed. Unfortunately, this is not provided for within this budget. FCM urges this commitment to be a first step in developing a dedicated fund for recreation, parks and open spaces and other infrastructure supportive of healthy living.
d. P3s
Budget Commitment
- Establishing a new federal office to identify and implement opportunities for public-private partnerships in infrastructure.
- In the case of large projects seeking funding from the Building Canada Fund, and the national fund for gateways and border crossing, proponents will also be required to demonstrate that the option of undertaking the project as a P3 has been fully considered.
- P3 federal office will “oversee the assessment of P3 options for projects seeking funding from federal infrastructure initiatives”.
Analysis
Given the complexity of P3s, the experience and expertise required to effectively manage them, and the need to consider these proposals on a community by community basis, the federal government must avoid imposing one-size-fits all requirements. To the degree that it wishes to encourage P3s, the government should focus its efforts on providing best practices and supporting capacity building. It is too early to determine what “overseeing the assessment of P3 options” will entail for municipalities.
Above all, the government must recognize that the cure for Canada´s infrastructure needs does not start with a blanket embrace of P3s but with a federal commitment to provide stable, long-term financial support to municipalities. P3s must not distract from, or diminish in any way, the importance of that commitment.
4. ENVIRONMENT AND SUSTAINABLE DEVELOPMENT
Budget Commitment
- Budget 2007 invests $4.5 billion to clean our air and water, reduce greenhouse gases, combat climate change, and protect our natural environment. Initiatives to ensure a cleaner, healthier environment include:
- Supporting major clean air and climate change projects with provinces and territories through the $1.5-billion Canada ecoTrust for Clean Air and Climate Change.
- Providing a performance-based rebate program offering up to $2,000 for the purchase of a new fuel-efficient or efficient alternative fuel vehicle.
- Introducing a new Green Levy on "gas guzzlers."
- Providing $36 million over the next two years to help get older polluting vehicles off the road.
- A new National Water Strategy.
- A commitment to working with the provinces on tougher, more stringent regulations and controls to address municipal wastewater effluents.
Analysis
Canada´s municipalities share with the Government of Canada and the provinces and territories a commitment to improving environmental performance and protecting the health of Canadians. Cities and communities coast to coast to coast make significant contributions to Canada´s environmental objectives everyday. Initiatives large and small provide a daily showcase of innovation in environmental management.
Municipal wastewater effluents
With respect to municipal wastewater effluent, respondents on a recent FCM survey overwhelmingly recommended the establishment of a dedicated infrastructure fund to ensure municipalities can meet the new requirements. In addition to providing support for capital infrastructure investments, it was also recommended that the strategy establish clear, consistent and enforceable standards and introduce a program to build capacity within municipal governments.
The Budget indicates a commitment to working with provinces on “on tougher, more stringent regulations and controls to address municipal wastewater effluents”. There is no mention of a dedicated infrastructure fund to assist municipal governments in meeting these new requirements--this is the fiscal imbalance in action.
Clean air and climate change
Although municipal governments can make a significant contribution to cleaner air and reduced greenhouse-gas emissions, current efforts are largely independent and uncoordinated, without an overall plan or design. Much more could be achieved with national coordination and within a national plan. A true “Made in Canada” approach to clean air and climate change would involve all orders of government in a nationally coordinated effort, with roles appropriate to their capacities. This would create synergies and leverage the role and potential of each.
Today´s budget represents a first step towards addressing the challenges of climate change and clean air in Canada. Initiatives such as ecoTrust and ecoEnergy, combined with performance-based rebates for fuel-efficient vehicles, will help in reducing emissions from the transportation sector. Furthermore, announcements related to renewable fuels and technology will help Canada maintain its competitiveness, security and prosperity, and should contribute to reductions in greenhouse gas emissions and air pollutants.
However, while FCM is encouraged by these announcements, much more remains to be done. Municipal governments have not been recognized as partners in climate change and clean air action, and as a result municipal government actions continue to be ad hoc, and without strategic direction.
FCM is seeking dialogue on a national clean air and climate change plan that clearly identifies the roles and responsibilities of all orders of government, and ensures these responsibilities are supported with appropriate and sufficient resources.
FCM believes there is a clear opportunity for the federal government to adopt an integrative and strategic approach to climate change and clean air. And, as the order of government closest to the people, municipal governments must be seen as partners in developing and implementing this approach.
5. SOCIAL AND ECONOMIC DEVELOPMENT
a. Immigration
Budget commitments
- "Improving the Temporary Foreign Worker Program with a $51 million investment over two years".
- "Creating the Foreign Credential Referral Office with a $13 million investment over two years."
- "Dedicating $34 million over the next two years to help Canadian educated foreign students and skilled foreign workers stay in Canada as permanent residents."
- "$3.3 billion, part of the Canada Social Transfer (CST), to support youth and housing, as well as programs for legal aid and immigration and refugee settlement."
Analysis
FCM´s position is that the federal government ought to increase its funding for settlement services and do so as part of a long-term strategy developed in consultation with municipal governments. Effective and appropriate settlement services are essential, so that newcomers have the support to gain the skills necessary to participate in and contribute to our communities. The consequences of inadequate settlement services are significant, both for newcomers and municipal governments, which currently step in to fill the gap.
FCM supports the recognition in this commitment that part of the solution to attracting and retaining immigrants lies in ensuring that the credentials of newcomers are recognized so they can find and retain employment. It is unclear, however, how the Foreign Credential Referral Office will be coordinated with the Canadian Agency for Assessment and Recognition of Credentials, which was earmarked for development with $18 million dollars in budget 2006.
Moreover, many other supports for settlement are required beyond credentials recognition. Language training, affordable housing and other measures to ensure the communities where newcomers arrive are welcoming as possible are critical to the successful settlement of newcomers. This budget is largely silent on these issues. These are often the areas where municipal governments step in to fill the gaps, a vital but unfunded mandate.
It is unclear how much of the $3.3 billion dollars will be allocated to immigration and refugee settlement. Other items, such as legal aid, youth, immigration and refugee settlement, are all itemized and all are all important on their own.
b. Affordable Housing and Homelessness
Budget Commitments
- “$3.3 billion to support youth and housing, as well as programs for legal aid and
immigration and refugee settlement”.
Analysis
All Canadians, regardless of income, deserve to live in decent, affordable housing. FCM has advocated for the development of a long-term national housing strategy to address the lack of affordable housing that exists in communities across Canada, as evidenced by growing numbers of homeless individuals and families.
FCM has also advocated for federal efforts on homelessness to be maintained and coordinated in the long term with a national housing strategy.
This budget only references housing in the aforementioned “$3.3 billion dollars” commitment.
However, it is unclear what portion of the $3.3 billion dollars will be allocated for housing, as compared to the other items such as legal aid, youth, immigration and refugee settlement, which are all important on their own.
Moreover, as no detail on this money was provided in the budget, it is unclear whether it is new money or money not yet dedicated to a specific purpose. In either case, there is no commitment in this budget to work with provincial/territorial and municipal governments to tackle the critical issue of affordable housing and homelessness.
c. Arts and Culture
Budget commitments
- "Budget 2007 provides support for activities and projects that engage Canadians in their communities through the performing and visual arts and in the expression, celebration and preservation of local culture. Eligible events will include festivals celebrating heritage, arts, culture through dance, music, drama and re-enactments of local historical events. An investment of $30 million per year will be made” (pg 98).
- “Budget 2007 provides $5 million per year to hire summer interns in these museums”.
Analysis
FCM recognizes the importance of arts, culture and heritage in contributing to the quality of life in our communities.
This funding commitment is a start, and FCM looks forward to working with the Government of Canada to promote arts, culture and heritage in our communities. Not mentioned in this budget is support for much-needed investment in heritage properties.
d. Support for Aboriginal People
Budget Commitments
- "Extending and improving the Aboriginal Skills and Employment Partnership through the provision of an additional $105 million over five years".
- "The Minister of Indian Affairs and Northern Development and the Federal Interlocutor for Métis and Non-Status Indians will work with First Nations leadership to move forward an action plan to accelerate the resolution of specific claims".
Analysis
FCM recognizes that investment in the skills development for aboriginal people is part of what is needed to ensure their success, both on reserves and in cities and communities across Canada. As such, the extension of the Aboriginal Skills and Employment Partnership is welcome.
FCM recognizes that the challenges that may arise between municipalities and First Nations could be averted through a more efficient and timely settlement of land claims and is pleased that this budget recognizes the need to act as expeditiously as possible towards this end.