The next COVID-19 crisis? Canada’s cash-strapped cities

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Since the new coronavirus arrived in Canada, changing everything in its path, much of the focus has rightly been centred on national health and economic matters.

The federal and provincial governments have laid bare the devastating financial consequences that fighting the pandemic are having around the country. Less attention, however, has been focused on the impact that the lockdown is having on cities and municipalities.

At least, until now.

This past weekend, Vancouver mayor Kennedy Stewart sounded a major alarm, suggesting his city was at risk of going bankrupt unless the federal or provincial government bailed it out to the tune of hundreds of millions of dollars. This, from a city that has a property-endowment fund that was close to $6-billion in 2018 (and is likely worth far more than that now) and owns 700 properties around town.

But we’ll put that aside for a moment.

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There is no question that the response to the pandemic has put cities in dreadful positions. Local governments collect about 12 cents on every dollar taxed in Canada, and more than 80 per cent of the money cities and municipalities amass goes toward services, operations and maintenance. Less than 20 per cent goes toward infrastructure projects. In other words, if cities need to reduce costs, citizens will feel and see it in a way they won’t with cuts at the provincial and federal level.

Mayors have been complaining for years that the current tax-revenue-sharing system in Canada doesn’t work. They rightly believe they are burdened with an outsized responsibility to citizens, given the very real limits to their revenue-raising abilities. A once-in-a-generation economic calamity, therefore, would place a disproportionate hardship on cities and municipalities and limit their ability to cope for any length of time.

That is precisely what we are beginning to see happen. Mr. Stewart, for instance, says that Vancouver could lose $189-million in revenues and fees this year and an additional $325-million in unpaid property taxes, among other things.

So there’s little question that Vancouver faces a critical situation. But it’s really no different than the one that looms before most major Canadian cities. We just haven’t heard the likes of Calgary’s Naheed Nenshi or Toronto’s John Tory start musing about bankruptcy. And there are likely many mid-sized municipalities and villages that are, on a per-capita basis, in even worse shape.

Clearly, this is a matter that the federal and provincial governments are going to have to address in Stage 2 of their pandemic response. (Stage 1 was addressing the public health crisis and building a social safety net for millions of suddenly out-of-work Canadians.) Cities will need help. But they are also going to have to make sacrifices – big ones.

Cities like Vancouver can’t expect to just sit on billions of dollars in real estate holdings (with significant cash assets) and cry poor at the same time. These represent contingency funds, and a pandemic qualifies as a contingency worth raiding the coffers for. Cities may not want to sell land now, at significant discounts, but they do need to put forward some kind of cost-cutting plan of their own.

Vancouver, for instance, has budgeted more than $700-million in capital projects for the coming year, financed over time with a $297-million payment this year. Maybe all or most of those initiatives can be put on hold. Across Metro Vancouver, billions of dollars have been budgeted for transportation projects. Maybe they, too, will have to be delayed indefinitely so the money that was to be used for them – including funding from the federal and provincial governments – can be diverted instead to city coffers to help them avoid plunging into the red.

And it should be said that the city isn’t allowed to actually run a deficit, anyway. Vancouver, like most cities and municipalities in Canada, are subject to laws that prevent them from doing so. It would be a mistake for provincial authorities to rescind or relax those laws in the face of this fiscal emergency; it would be better to help them out, even if it means further increasing the size of provincial and federal deficits, to keep them operational and in the black, however negligibly.

Cities and municipalities represent a critical network of communities that keep Canada connected and functioning. Their health is vital to the future economic success of the country. But for as much vital work as they’ve done in the past, municipal governments need to do their part now, too.

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