by Jean-Guy Finn
Originally printed in the Telegraph Journal, November 8th, 2023
The government of the province must end the present nibbling and commit to see a new municipal fiscal regime. Without a fitting fiscal regime, the full benefits (to taxpayers, to local communities and to the province) of local governance reform will not be achieved. We will all lose and, above all, good governance will suffer.
In its November 2021 white paper, the New-Brunswick government announced a comprehensive reform of local governance; organization, structure and municipal financing. The planned reforms would be implemented in two distinct phases. In the first phase, the government would deal with municipal organization and structures. It would then, in a second step, proceed to look at ways to finance the redesigned local governance regime. However, based on the calendar presented in the white paper, measures relating to municipal financing and taxation (the fiscal framework) would only be undertaken in a government subsequent mandate, i.e., beginning in 2025.
As the white paper was being released, we flagged the problem associated with such a timeframe as it presented a real risk reform of the fiscal components could fall by the wayside. Unfortunately, such a scenario is now occurring. It means the benefits of the profound structural changes successfully carried out by former minister Daniel Allain in the last two years are unlikely to be fully realized.
While not perfect, the legislative, administrative and regulatory initiatives implemented during the first phase of the reform process have significantly contributed to address some of the most glaring weaknesses of local governance as we have known it over recent decades. Municipalization over most of the provincial territory largely fixes the perennial local democratic deficit. Bringing the total number of local governance entities down from 340 to less than 90, and grouping them under 12 regions/regional service commissions (RSC), confronts fragmentation which has afflicted local governance for years. The enlarged mandate of the regional service commissions offers more opportunities for inter-community collaboration. It has the potential of reducing costly duplications while allowing for better sharing of the cost of infrastructure and equipment. Regional service commissions also provide a more modern planning framework, one that transcends purely parochial perspectives. As a result, future provincial land use policies and related provincial planning initiatives will likely be more effectively and efficiently deployed across the province.
It is clear a number of municipalities (more than a dozen) born out of recent boundaries realignment are not viable as they suffer from insufficient fiscal capacity and population. This is not without consequences when attempting to design a new fiscal municipal framework. Thankfully, the vast majority of the present municipalities can count on a tax and population base that make them capable of existence and development as governing entities. Yet, at this time, local governance is still lacking a clear set of municipal fiscal rules. No one knows for sure what changes are being contemplated in provincial-municipal fiscal relations. In regard to taxation and financing, municipalities must currently deal with a series of ad hoc and incoherent measures which have the effect of compromising several objectives of local governance reform as stated in the white paper. Multiple transitory budgetary envelops, used at the discretion of the minister of the day, are no substitute for permanent and predictable fiscal arrangements.
In order to realize the full benefits of the major structural reforms recently implemented in communities across New Brunswick, the provincial government must move rapidly to address the uncertainty and the incoherence surrounding municipal financing and taxation. It can’t just pick those reform components which work to its advantage while ignoring the financial considerations associated with the creation of the new governance model. Revised municipal financing and taxation arrangements must provide for more financial autonomy at the local level, both in municipal governments and in regional service commissions. The confidence between residents and elected officials rests on the transparent use of public resources. Indeed, the golden rule of sound public finances stipulates the government that spends, or causes spending, must be the one that raises the money. Such principle, when wisely applied, serves both transparency and accountability.
There are different ways by which to make local governments more autonomous financially. In the New Brunswick context, however, the simplest way to achieve such an objective, while maximizing transparency and accountability, would be through a tax room transfer. Property tax represents a sure and steadily growing revenue source. Since the 1960s the provincial government has derived an important share (approximately $500 million currently) of its total revenues from property taxes. Such distribution of property taxes dates back to a time when the provincial government had much more limited revenue options. In the other Canadian provinces, property taxes are reserved almost exclusively for local governments. Municipal fiscal autonomy would be significantly improved should the provincial government move (partially or entirely) out of the property tax field and transfer to local governments the vacated tax room. Such a transfer must be based on a clear distribution of responsibilities between the province and municipalities and take into account the uneven distribution of property tax value across the province. It will require the institution of an equalization program aimed at addressing unequal fiscal capacity between municipalities and at preserving the principles of the Equal Opportunity (EO) program. For an equalization program to be credible and widely accepted, it must be constructed in such a way that it is easily understood and based on objectives, verifiable, and data. The more credible the program, the less susceptible to challenges it will be.
A property tax room transfer doesn’t mean municipalities could not demand access to other sources of revenue. Local governments could, for example, legitimately claim a share of the cannabis sale tax revenues as they are the ones that have to deal with the extra costs of enforcing regulations regarding the sale and use of the product.
Regional service commissions (RSC), first created under the Alward government, were inspired by the Report of the Commissioner on The Future of Local Governance (Finn 2008). RSCs were billed in their debut as suitable inter- community agencies, structurally separated from the provincial government and with distinct municipal leadership. Funding by participating municipalities would ensure local community control. Regrettably, in a short time, RSCs have mutated into very different constructs, which are now positioned in a way not expected in relation to municipalities. While RSCs’ boards of directors are made up of elected municipal officials, their duties and mode of operation are largely dictated by the provincial government. Furthermore, the province has chosen to gradually redirect to RSCs part of its historical annual grants to municipalities. As presently constituted RSCs stand as adjuncts to the provincial government. Some argue they serve as convenient vehicles by which the province indirectly download certain responsibilities to local communities without having to deal with the financial implications. Such a modus operandi ultimately leads to overly complexed governance, diminished transparency and blurred lines of accountability. RSCs now constitute an integral part of local governance arrangements. This must be reflected in a future municipal fiscal regime. Municipalities must exercise more leadership in relation to RSC operations and have better control over their financing.
At this time, it is obvious local governance reform is very much incomplete. In fact, it is only half done. We are not aware of any plan to reform municipal financing and taxation, the present provincial government being content with fragmentary measures. Yet, governance issues cannot be dissociated from fiscal ones. Financing and taxation initiatives cannot continue to be introduced piecemeal, to buy time or to appease apprehensions. The government of the province must end the present nibbling and commit to see a new municipal fiscal regime. Without a fitting fiscal regime, the full benefits (to taxpayers, to local communities and to the province) of local governance reform will not be achieved. We will all lose and, above all, good governance will suffer.
Jean-Guy Finn is the former Commissioner on the Future of Local Governance