Academic journal article Canadian Journal of Urban Research

The Fiscal Impact of Urban Growth on Municipalities

Academic journal article Canadian Journal of Urban Research

The Fiscal Impact of Urban Growth on Municipalities

Article excerpt

Abstract

In this paper, panel regression analysis is used to examine the fiscal impact of urban growth on per-capita or per-household expenditures of providing municipal services in the province of Ontario, Canada. Three variables are used to measure growth: households, population and assessment. Using a panel data set for 68 municipalities, we find that for the most part, urban growth has no effect on per-capita or per-household expenditures. The policy implications of these results are discussed.

Keywords: Urban economics, municipal finance, taxes, urban growth, municipal expenditures

Resume

Dans ce papier nous utilisons les techniques de regressions avec donnees de panel afin d'analyser l'impact fiscal de la croissance urbaine sur les depenses, par personne ou par famille, attribuees a la provision de services municipaux dans la province de l'Ontario au Canada. Nous utilisons trois variables afin de mesurer la croissance: les families, la population et revaluation. Avec les donnees de panel sur 68 municipalites, nous trouvons, en grande partie, que la croissance urbaine n'a pas d'effet sur les depenses. Les implications sur les politiques sont aussi discutees.

Mots cles: Economie urbaine, finance municipale, taxe, expansion

Introduction

Local municipal officials, be they elected or staff, tend to be growth-oriented based on the belief that urban growth results in incremental revenues that exceed incremental costs that then allows the municipality to either decrease taxes or to make investments in new capital projects. A common refrain by elected officials is that in the past, because of growth, taxes were kept low and now, if there is little growth, taxes will have to increase. For example, with the 2009 recession, some of Ontario's fastest growing municipalities such as York Region were finding the debt cost to finance the past growth to be problematic and asked the Province to raise its borrowing limit in order to provide the infrastructure needed for the development. Critics of growth, such as Tim Gray of Environmental Defence, cite such examples as evidence of the non-sustainability of growth. However, other fast-growing regions, such as Mississauga, did not face the same problems because they required developers to pay the infrastructure costs up front. The higher costs therefore were due to the method of financing and not growth itself (1)

The above-mentioned municipalities are somewhat typical of the approach used by various municipalities to finance capital infrastructure. Where a capital asset has a long lifespan, debt financing is commonly used to apportion costs to future generations who are the beneficiaries of the capital asset. However, in cases where benefits accrue to new developments, be they residential or non-residential, development charges and front end cost-sharing agreements are commonly used. In some cases, municipalities use a mix of revenue sources such as a self-imposed percentage of the capital cost financed through operating costs. The approach taken is often dependent on whether the development is an infill or on the urban periphery. When there are positive spillovers to adjacent communities, municipalities will cost share with the neighbouring municipality or apply for funding from upper-level governments. It should be noted that other variables, such as infilling versus green development and housing density, also affect the fiscal impact of growth.

Regardless of the method of financing capital assets, municipalities must also consider their aging infrastructure, especially given the shortfall in maintaining that infrastructure. The Federation of Canadian Municipalities identified the municipal infrastructure deficit as $123 billion in 2006 and predicted the shortfall to exponentially increase if not properly managed to close to $2 trillion in 2067 (Mirza 2007). The estimates are consistent with estimates by other groups such as the Canada West Foundation and the National Research Council of Canada. …

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