Contemporary Issues in Canadian Federalism Series: The Role of Municipalities in Federalism (TRN5-V38)

Transcript: Contemporary Issues in Canadian Federalism Series: The Role of Municipalities in Federalism

[Video opens with animated CSPS logo.]

[Ji Yoon Han appears full screen.]

Ji Yoon Han: Good afternoon, and welcome to this event on the Role of Municipalities in Federalism. Thank you for joining us. My name is Ji Yoon Han, and I'm a Research Associate at the Institute for Research on Public Policies Centre of Excellence on the Canadian Federation. This event is the fifth in a series created through a partnership between the School and the Centre on Contemporary Issues in Canadian Federalism. I'll just say a few words to introduce today's discussion, connecting it to the themes presented in the first four events, and then we'll pass it over to the moderator. Let me start by acknowledging the land from which I'm talking to you is the unceded traditional territory of the Kanien'keháka. I recognize that we all work in different places, and therefore you work on a different traditional Indigenous territory. Please take a moment to consider the original peoples of the land you are on.Thank you.

So far in the series, we've held four events on various contemporary issues in federalism, such as the fundamentals of fiscal federalism, and the relationships with Indigenous peoples. All our events have been turned into condensed podcasts that can be listened to on irpp.org. If you haven't listened to our past events, I encourage you to do so.

Throughout the series, we've explored federalism with a focus on provincial, territorial, and federal governments. Within this context, our speakers have talked about the division of responsibilities and how each level of government has strengths and weaknesses. In our event on economic development and infrastructure, Herb Emory talked about the challenges of financing infrastructure. How funding considerations shouldn't just stop at building infrastructure, but also needs to include the cost maintenance. He brought forth the question of who would be responsible for paying for the maintenance.

Today we talk about municipal governments and the role they play within the context of federalism. Municipal governments interact with their constituents the most in their day-to-day. Our speakers will talk about the challenges they face in carrying out the responsibilities to their constituents, while they grapple with limited funding capacities and governance challenges.

Now, for the main event, I'll pass it over to our moderator for today, Tomas Hachard. Tomas?

[Hachard appears full screen.]

Tomas Hachard: Thank you, Ji Yoon, and thank you everyone for joining us. Like Ji Yoon said, my name is Tomas Hachard. I'm an independent public policy researcher. My work focuses in particular are intergovernmental relations and the role of municipalities, both here in Canada and around the world. I'm also the former Manager of Programs and Research at the Institute on Municipal Finance and Governance. But most importantly for today, I am the moderator for the great panel that we have for you today. So, we have an exciting event planned for you, with two great experts on municipalities and federalism.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: But before we get to the main show, I'm going to share a bit of logistical information to optimise your viewing experience. We recommend that you disconnect from your VPN, or use a personal device to watch the session when possible. And please note that we have simultaneous translation available, as well as real-time translation of communications for this event. These services are available through the web diffusion platform,

[Tomas Hachard appears full screen.]

Tomas Hachard: and you can refer to the reminder email sent by the School to access these options. We'll be taking questions from the audience today, so if you have any questions for the panel, please go to the top right corner of your screen and click the chat button and enter your question there. Even if you don't see your question appear in the chat, please don't worry, it is getting to us, and we'll get to as many questions as we can after the presentations and a short Q and A between myself and the panelists.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: As I mentioned, we have two outstanding speakers today, each with unique expertise on the role of municipalities in the Canadian Federation. First, we have Enid Slack, who is the Director of the Institute on Municipal Finance and Governance. And we also have Kennedy Stewart, who is Professor at Simon Fraser University's School of Public Policy and the former Mayor of Vancouver.

So, we're going to proceed in the following manner. Enid is going to get us started by taking us through an overview of the responsibilities of municipal governance, the challenges they face in carrying out these responsibilities and their limited revenue sources. Kennedy is then going to talk about his personal experience during his time as Mayor of Vancouver, and go through a case study that highlights the intergovernmental relationships municipalities cultivate. We'll then move to a discussion of the issues raised during the presentations, and we'll take questions for panelists. And as I mentioned, we'll make time for questions from the audience as well.

So, again, it is my pleasure to introduce Enid Slack. Enid, over to you.

[Enid Slack appears full screen.]

Enid Slack: Thank you very much, Tomas, and welcome everybody today. Thank you for the invitation to present on the role of municipalities in Canadian federalism. So much of the time in Canada, when we talk about federalism, we're talking about the federal and provincial governments.

[Split screen: Enid Slack and Enid's title slide, as described.]

Enid Slack: So much so that I wrote recently wrote a paper where I referred to municipalities as the forgotten partners in federalism. So, thanks to IRPP for remembering municipalities in this series that you're doing on Canadian federalism.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, what I would like to do in the time that I have with you this afternoon, is provide a bit of a background on what municipalities do, and how they pay for it. I know there's a varied audience here, and some will know more than others but I thought I'd start with a basic understanding of what municipalities do. Then I want to talk a little bit about whether they're fiscally sustainable or not, and what we know about that. Then turn to some of the existing challenges that municipalities in Canada are facing, and some of the future challenges that are coming down the road, and what that all means for their continued sustainability. Often I stop my presentations here but it's a bit of a negative. There's a lot of challenges. So, I want to add some opportunities at the end and be positive in talking about the need to clarify federal, provincial, and municipal roles and responsibilities, and how to improve intergovernmental relations.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, let me start with some background, and I think you all know this. Under the Canadian Constitution, powers are divided between the federal government and provincial governments. Municipalities are not recognized in the Constitution except to the extent that they are the responsibility of the provinces. And that's why we often hear people say municipalities are creatures of the province. In other countries, it's not necessarily the case. Places like South Africa, Brazil, municipalities do have original powers in the Constitution. But that's not the case in Canada.

[A statistical graph is shown full screen. Text on slide as described.]

Enid Slack: There are about 3,750 municipal governments in Canada. Yes, I said about, because we don't actually know the number, because there's no one source of data in this country on local governments. These numbers are collected province by province.

So, what do municipalities do and how do they pay for it? This slide is from Statistics Canada, it's based on GFS data, Government Finance Statistics data,

[Split screen: Enid Slack and slide, as described.]

Enid Slack: which is what is used by the IMF and the OECD. The breakdown, unfortunately, is not the greatest to understand what municipalities do. But let me just say some of the things that they do. Transportation, of course, is one of the biggest expenditures, and that includes roads and transit, and sidewalks and streetlights and bike lanes, et cetera. They provide environmental services, so that would be water; sewers; solid waste collection and management, and disposal; Policing; fire; parks; recreation; cultural facilities; health services in some municipalities; social housing planning and development. And in Ontario, municipalities pay for a portion of social and family services.

Again, this is not the greatest graph because it is for all of Canada, and there are differences across the country. As I mentioned, social services are costs shared in Ontario at the provincial and municipal levels. Ambulance is similar in BC, we were just talking about TransLink which is not on the city of Vancouver's books, but is a regional body. So, there are differences across the country. Again, each province has its own legislation dealing with municipal governments, and so there are going to be some differences.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: This shows the distribution of municipal revenues in Canada for the last 10 or so years. The main sources of revenue are property taxes, which accounts for over 40% of municipal revenues; user fees, which are around 20%; and intergovernmental transfers.

[A statistical graph is shown full screen. Text on slide as described.]

Enid Slack: And you can see throughout this period from 2009 to 2020, the distribution of revenues is pretty similar. Things begin to change in 2020. Of course, this is during the pandemic. For the large cities in particular, transit fare revenues fell, that would appear in user fees. So, you can see that user fee revenues went down from about 23% of municipal revenues to 20%.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: At the same time, transfers, and these are federal and provincial transfers, went up from about 20% to 25%. So, if I were to do 21, 22, 23 and into the future, it's hard to know what that's going to look like. Will the federal and provincial governments continue to support municipalities after the pandemic is over? There are some other revenues, again, there are differences in the across the country. In Toronto, for example, which is governed by the City of Toronto Act from 2006, they're allowed to levy some other taxes, like a municipal land transfer tax, which they do. Vehicle registration fees, which they did for a couple of years, and then stopped. Municipal accommodation taxes, hotels and Airbnbs, for example. Billboard taxes. They can levy a commercial parking levy, which they're talking about now, but haven't done. And then taxes on alcohol, tobacco, and amusements. So, some other revenue sources available to Toronto.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, what are the roles and responsibilities of federal and provincial governments with respect to local governments? Well, as I said, in the Constitution the federal government has no role to play with municipalities. Local governments come under provincial jurisdiction. However, the federal government can spend money and it can spend money in municipalities, and it does.

So, for example, it provides transfers under the Canada Community Building Fund, which we used to call the Gas Tax Transfer. And it can create incentives through these transfers, and it can impose conditions on these funds. It is worth noting here that when we look at federal provincial transfers and compare them to federal municipal transfers, federal/municipal are largely conditional and largely for capital purposes. Whereas federal/provincial tends to be more of the unconditional variety.

The federal government has also engaged with cities and provinces through tri-level agreements, dating back to the 1980s. So, there were site-specific agreements. You may recall the urban development agreements that were targeting specific neighbourhoods doing economic development. They were used in Vancouver, Edmonton, and Winnipeg. There are also sector oriented agreements that implement national programs on homelessness and immigration, for example. These are through local governance entities, and these were done in a few large and medium sized cities.

But the provincial government has a much larger role to play when it comes to municipalities. They can create or dissolve municipalities. And I used to give this presentation in other places about the role of the province, and I used to say, create or eliminate municipalities. And in some countries that I went to, I got into a lot of trouble for saying eliminate, so I've used the word dissolve instead. But we've seen municipal amalgamations most recently in New Brunswick; in the 1990s in Ontario. And the province can create municipalities; amalgamate municipalities; restructure municipalities; even if the municipalities don't want that to happen. They can change municipal ward boundaries, which happened in Toronto in 2018, where the province reduced the number of wards from 44 to 25. This was appealed to the courts. It went all the way to the Supreme Court of Canada which ruled that the province can do this.

Provincial legislation determines what municipalities should be spending money on, what are their responsibilities, and what taxes they can levy. In all provinces, provincial governments stipulate that municipalities cannot run an operating deficit. They have to balance their budget on operating, which is true in most places around the world at the municipal level. Provincial governments restrict municipal borrowing: about how much municipalities can borrow; what are the debt limits? This doesn't apply to Toronto, but the rest of Ontario, for example, debt charges cannot exceed 25% of own source revenues. And of course, the province gives unconditional transfers based on formulas, and conditional transfers mainly for transportation, environment, and social services.

So, if we look at all three orders of government, and I've got a graph here of the share of all taxes, we can see that the federal government accounts for 45% of the taxes we pay; provincial government for 45%; and municipal governments for 10%. Now, I'd like to have a similar chart on expenditures, but I can only tell you that the federal government accounts for 29% of total expenditures of all orders of government, and provincial and local combined account for 71%. I can't break those two down. But I think it's clear that there is some evidence of a vertical fiscal imbalance. And local governments, by the way, own more than 60% of public infrastructure in this country. And I think you may have heard that in the previous session on infrastructure.

So, how do we summarize all of this? Well, when it comes to municipalities, the federal government has the money; the provincial governments have the powers; and the municipalities have the responsibilities. So that's a quick summary of the background.

So, the next question is, are municipalities fiscally sustainable? Well, at our Institute on Municipal Finance and Governance, IMFG, we've spent a lot of time looking at this question of the fiscal health of cities in Canada, and in other parts of the world. Back in 2015 we edited a book called, Is Your City Healthy: Measuring Urban Fiscal Health. And we found that prior to the pandemic, by and large, Canadian cities were fiscally healthy. Well, what do we mean by that? Well, they balanced their operating budgets, but as I told you before, they're required to do that by law. Property taxes, which is the main source of revenue to local governments, have not increased very much. Generally at or below the rate of inflation. Tax arrears are very small in Canada for the property tax.

[Enid Slack appears full screen.]

Enid Slack: And believe me, I've looked at property tax arrears in other countries, and they are very low in Canada. People pay their property taxes, by and large. And municipalities don't borrow very much. They generally haven't borrowed up to the allowable provincial limit.

So, by all these types of measures, local governments look fiscally healthy. But we concluded from the work we did that this fiscal health may have been at the expense of the overall health of municipalities. And by that I mean, we're seeing increasing evidence of declining service levels and deteriorating infrastructure. These are things that are harder to get measures of. We're starting to do a little bit of a better job, but we are seeing infrastructure deteriorating. So yes, we balance the books, yes, property taxes are low, but at what cost?

If we fast forward to the pandemic, there were added pressures on expenditures. So for example, social service expenditures; expenditures on public health; expenditures to improve IT, so people could work from home. A lot of these expenditures went up, some went down because people were not coming into the office. But there was also a decline in revenues, and particularly in the large cities. The decline in transit revenues really put a hole in their budgets. And so, local governments were facing operating deficits. And as I showed you in the earlier chart, federal and provincial governments came to the rescue. But the question remains, are local governments fiscally sustainable going forward?

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, I would like to talk about some of the existing and future challenges that municipalities are up against. I'm going to list five. There are many more, but I am time limited here, so I'm not going to go into more than five. Some of these are existing; some of them are short term; some of them are long term; some of them are future challenges. So, I'm going to talk about inflation and rising interest rates; the infrastructure deficit, which I started to talk about; climate change; the work from home phenomenon and online retail; and immigration and refugee settlement.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: Let's start with some of the macroeconomic issues. Inflation. And we can see a chart on inflation here. It's been going up, starting to come down a bit. But it means for municipalities that the cost of delivering services and infrastructure is going to increase. It has been increasing.

[A statistical graph is shown full screen. Text on slide as described.]

Enid Slack: We've already seen that in their budgets. It also means that citizens may be having more trouble making ends meet and will turn to local governments for more services. Rising interest rates will mean the cost of borrowing for new infrastructure will increase. These are existing challenges. We're hoping they are short run challenges, but they certainly are there for now.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: The second, the infrastructure deficit. This is a busy slide, no need to look at it all. It comes from the Financial Accountability Office for Ontario, and it's part of a review they did on municipal infrastructure assets in 2021. The key thing here is in the middle where it says that 55% of these municipal infrastructure assets were in a state of good repair.

[A statistical graph is shown full screen. Text on slide as described.]

Enid Slack: 55%. That means a staggering 45% were not in a state of good repair. And so the current infrastructure backlog in Ontario municipalities is about 52 billion dollars. What is that? That is the cost of bringing municipal assets that require capital spending into a state of good repair. Now, that excludes operating and maintenance expenditures, or repair, or replacement costs. And that's just Ontario.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, you can see the impact of this infrastructure deficit, and what it's going to be on local governments.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: We turn to climate change as the third challenge. And there are two aspects of climate change that are going to affect municipalities. The first is extreme weather events. We have certainly seen cities being impacted by flooding; ice storms; heat waves; tornadoes; and more. And these events result in major municipal cleanup and remediation costs. And of course, municipalities also need to consider measures to avoid approvals for building in locations at risk, like on floodplains.

So, there's the impact of extreme weather events. And IMFG just released a paper last week on the impact on municipalities looking particularly at British Columbia and Quebec.

[Enid Slack appears full screen.]

Enid Slack: The second aspect is about GHG emissions, which are rising, and cities are a major source of these emissions. To limit the global temperature increase, we need to cut emissions by half over the next decade to reach net zero carbon emissions by 2050. And again, as I said, cities are a major source of these emissions. So, for cities, it means increasing the share of renewable energies; establishing cleaner transportation systems; retrofitting buildings and facilities; and implementing other measures. These measures are going to place a significant financial burden on municipalities.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: Work from home and online shopping. So, the work from home phenomenon began before the pandemic, but was certainly increased dramatically during the pandemic. And it's had a lot of impacts, but one of them is to potentially impact the commercial property market. And so we're seeing in some cities, particularly in the US, that commercial property values are falling. And by extension, commercial property taxes.

[Enid Slack appears full screen.]

Enid Slack: If commercial property values fall relative to residential property values, there will be increasing pressure on the residential property tax in the future. And I don't have to tell you, and Kennedy can wade in at some point, about how hard it is to increase residential property taxes. It's a very visible tax. People know what they pay, and it's very hard to increase it. But this work from home phenomenon and also online shopping, which has also reduced commercial property values, is going to affect the property tax base. Well, if it's a big question mark, what's going to happen in the future? Are people going to continue to work from home? Are they going to work from home part of the time? We don't yet know how this is going to play out. But there is a potential impact on the largest source of revenue for local governments, which is the property tax.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: And the last challenge I'm going to talk about is immigration and refugee settlement. And this chart showing the recent government commitment to increasing the number of new permanent residents to 500,000 a year.

[A statistical graph is shown full screen. Text on slide as described.]

Enid Slack: So, Canada's been increasing its immigration targets. People settle in cities: they need services; they need housing; they need public health; they need social services. And many of these costs are borne by municipalities, even though they don't have any say over how many people are coming to their municipalities. So, all these challenges will mean higher expenditures for local governments, and in some cases, lower revenues.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, I said it was going to be a little discouraging when I went through all these challenges, so let's talk about what the opportunities are going forward. What do we need to do? I will mention two things. One is to reconsider who does what, and the other is to improve intergovernmental relations.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, who does what? We need to clarify the roles and responsibility of all orders of government, but particularly the provincial and local governments. What do municipalities do best? What do provinces do best? Where can they work together?

[A statistical graph is shown full screen. Text on slide as described.]

Enid Slack: And what resources do municipalities need to fulfill their responsibilities? And I have to say, I was on something called the Who Does What Panel in Ontario in 1996. And we talked a lot about separating responsibilities, like the provinces should do all of this, and municipalities should do all of this. But these services that are provided are very intertwined, and the funding is very intertwined. And I don't think we can necessarily separate them. But we do have to clarify who's doing what and how we're paying for it. So, municipalities, why do we need to review who does what? Well, I think I've made the case that municipalities have inadequate revenue sources and insufficient fiscal flexibility to meet their responsibility.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, for example, in Ontario, we're using property taxes to pay for some of the social service costs that municipalities incur. Is that the best way to pay for it? Secondly, municipalities often lack the power to make decisions on their own. And thirdly, they're unclear on overlapping jurisdictions between orders of government, which leads to poorly coordinated programs and disputes over responsibility. And we see the blame game. You know, it's not our fault. It's their fault. This slide here is from a paper we did a few years back on clarifying responsibilities. And this slide shows how the costs are shared for different services in Ontario.

[A statistical graph is shown full screen. Text on slide as described.]

Enid Slack: And in the top row, you can see things that the local governments are largely responsible for in funding themselves, like fire; parks and recreation; libraries and culture; et cetera. But when you get to the bottom row, you see a lot of cost shared programs. So, ambulance is shared with the province; long-term care; public health; social assistance; and childcare. And so, we thought about all of these areas that where there's cost sharing, and thought about the question of, who does what and how do we pay for it?

[Split screen: Enid Slack and slide, as described.]

Enid Slack: So, we've done a series of papers on the municipal role in various areas. So papers on housing and economic development; climate policy; public health; policing; and we're continuing this series for another year to see what is the appropriate role for each order of government in these different areas, and then how to pay for it, and who does what.

[Split screen: Enid Slack and slide, as described.]

Enid Slack: And again, we have to think about, when we're clarifying responsibilities, improving intergovernmental relations. And here's a series of studies, and you'll see Tomas Hachard's name on many of them because when he was at IMFG, he authored these papers. And, as he noted in his introduction, this is one of his interests: Intergovernmental Relations, both in Canada and around the world.

Municipalities need to be directly involved in negotiations and agreements on issues that affect them. So, these are things like infrastructure; immigration; public health. But they're largely absent from Canada's system of intergovernmental relations. They're generally excluded from intergovernmental councils or committees, such as first ministers' meetings or ministerial tables. In the most recent paper that Tomas authored, he suggests ways to strengthen trilateral relations.

[Enid Slack appears full screen.]

Enid Slack: So, for example, through various types of trilateral agreements, and I talked about a few before, location specific agreements, like the urban development agreements that we used to have. Or policy specific trilateral agreements but also sectoral specific trilateral intergovernmental councils, or a general trilateral council, like the first ministers' meetings.

There's also an important discussion to be had about the revenue sources for municipalities. And that's the area that I work in the most. As we saw at the beginning of this presentation, municipalities are increasingly delivering a much wider range of services than they ever have, but they have very few sources of revenue to pay for them.

So, let me conclude by saying, by way of summary, that municipalities are on the front lines when it comes to delivering essential services, and we certainly saw that during the pandemic. But they have limited revenue sources. Municipal fiscal sustainability is being threatened by the existing and future challenges that I mentioned, but also many others. This means that in the longer term, we need to think about who does what, and how to pay for local services. And I think all three orders of government need to come together to figure this out. Thank you.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: Perfect. Thank you so much, Enid. We'll now go to Kennedy for his perspective. So, Kennedy, over to you.

[Kennedy Stewart appears full screen.]

Kennedy Stewart: Great. Thanks so much, and what a treat. I never <laugh> tire of hearing your expertise, Enid, and thanks so much for that wonderful presentation. And discouraging as it is, you did kind of pick it up at the end, which is great. So, thank you.

Before I begin, of course, I want to acknowledge I'm on the unceded territories of the Musqueam, Squamish and Tsleil-Waututh people, and thank them for their generosity to all of us who live on their lands.

My talk today is about what I'm calling End Run Federalism, or perhaps backdoor federalism. I'll leave you to figure out which title you like the best. And essentially it's - I'm thinking of the audience here who are federal civil servants from what I understand - and really what I want to talk about today is how you can better utilize municipal governments to make your bosses happy. How you can work with municipalities to get stuff done even in the face of provincial opposition. I'm going to use drug decriminalization as an example of this end run federalism, and then conclude with some lessons that you might want to take away from this example.

So, in terms of backgrounds, I'm trying to put myself in your seats, is that you face two scenarios in your everyday work. First, you are implementing a proactive initiative, such as outlined in your minister's mandate letter. So, perhaps somebody on this on this call, on the Zoom meeting, read in the minister's mandate letter that, hey, you've got to legalise cannabis. So, that's a proactive measure that comes out of politicians' heads, and you have to make that happen. And then you have to think through, well, how do I make that happen?

The second scenario that you'd face in your everyday work is you're responding to an emerging issue. That's something that's not in your mandate letters, it's not dreamed up by your minister. It's something that's happening to the environment that you have to deal with. So that could be Covid; or climate change; or truckers' convoys; or salmon lice; or housing crises. It's everything that's thrown your way in your ministry that you have to deal with. And I would say that 10% of what you do is proactive, and about 90% of what you do is reactive. So, those are the things that, when you're looking at your to-do list, most of those things would be connected to one of those two types of activities. But the bottom line is, whether it's proactive or reactive, you have to get stuff done for your minister, and think of creative ways to bring change.

So, I've never been in provincial government, but I was in the House of Commons for seven years as an MP and have served as Mayor for four. And prior to that, I was a Professor and I'm back at Simon Fraser now, but specialized in local governments. So, from my perspective, sitting in the House of Commons looking at that beautiful stained glass for seven years, Ottawa is a very theoretical place. And what drives that home to me is when MPs will be making speeches about stuff, and they'll go, this initiative is going to cost 20 million dollars, whoops, I mean 20 billion dollars. And you'd never hear that in a local government. It is that, much of what's being spoken about is theoretical, you're often talking about sweeping policy reforms. For example, we're going to make sure all reserves have water by the end of our mandate. Again, sweeping policy, big promises. You're often talking about regulation or expenditure. Those are a couple of your starting points, and you're at 10,000 feet - you're thinking of the entire country, and often the world.

At the provincial level, it's kind of half theoretical, half practical. You do have your 10,000 foot view from thinking of your province, but you do deliver some direct services, so you actually are on the ground. Municipalities are all practical. Occasionally we'll talk about world peace or something, but mostly you're arguing about service delivery and how to best use the scarce dollars that Enid outlined so well. So, you're constantly under fire at the municipal level, especially in larger cities, I would say normally you're working 60 hour weeks. But in things like when Covid hit, completely unexplained unanticipated disasters, that level of work goes up considerably. And often you're kind of winging it, because the federal and provincial governments haven't worked out what they're going to do yet. But you have to deal with, hey, what do we do to get PPE to our frontline responders? Feds and province are kind of talking about how that happens, but meanwhile, you're scrambling to try to get masks on cops and firefighters. We don't get the luxury of the theory at the municipal level. And, I would say that municipalities are an under-utilized resource for federal policy makers, and those who implement federal policy.

So, let's talk about municipalities as willing, but under-utilized partners. First of all, my experience is, federal and provincial governments are rarely good friends. And they're often adversarial. They often see each other as adversaries. If you look at the latest health agreement where the provinces were demanding so much for so long, and then the Feds just came in and said, here's your money, take it or leave it, kind of thing. Not a lot of hugging and backslapping going on at any of these meetings. Actually, I had one provincial health minister brag to me once how he had never met with his federal colleague, and held that up as a point of pride. So, there is also personal divisions between these ministers, and really, I would say honest collaboration between those two levels of government is rare.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Kennedy Stewart: It's only when one side can force the other to do something that something happens. On the other hand though, municipalities are desperate to take help from anybody <laugh>. They have so many problems to deal with all the time, if you can come up with any idea that will help them deliver, to solve a local problem, then they'll take it.

[Kennedy Stewart appears full screen.]

Kennedy Stewart: Now, municipalities used to be really scared of provincial governments. I would say they're less scared now. Enid's slide showed about the distribution of a municipal budget, and most of it is property taxes, followed by user fees. But it used to be that operating budgets, direct grants from federal and provincial governments, used to make up - mostly provincial governments - made up a much larger portion of the municipal operating budgets. And that really scared municipalities because they were worried that that money would disappear if they displeased the province. But now, for example, the city of Vancouver, it must be under 10%, is direct money from the province, probably less than that. So, you're not really scared of the province anymore. They may <laugh> say, either destroy the local government <laugh>, they may eliminate the local government,

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Kennedy Stewart: but that's not going to happen. So really, you can be a bit more brash as a municipal government because you're not as worried about provincial punishment. They might say mean things about you, but they're not going to use the nuclear option very often.

[Kennedy Stewart appears full screen.]

Kennedy Stewart: So, in the past when a lot more money came from the province, if the Feds gave money directly to municipalities, the province could just get it back by cutting the municipal grants. They would just take that money away. And so then the question is, well, what's the point? If you're a federal government, why would you do that? But that's not really the case anymore, and the provinces can do really very little to fiscally threaten municipalities.

So, I know that the federal departments will often cooperate with non-governmental organizations. But I would say, increasingly, municipalities would be a better option because they actually do have quite a lot of entrenched power and quite big workforces that can actually deliver. But to do this, to make municipalities your partner or to woo them over, you're going to have to use your imagination. So, I'm going to walk you through a case study which is about drug decriminalization here in the province of British Columbia, really my take on how that came to be. And then hopefully that will trigger your imagination as to how you can get stuff done for your minister by cooperating and working with municipalities.

So, here in British Columbia, we've had a massive spike in illicit drug related deaths. In 2013 we had 334 of these types of deaths. But in 2022, province-wide, that spiked to 2,272 deaths in the province. So that is a death rate, which is a terrible phrase but that's what it's called, a death rate from 7.2 deaths per a hundred thousand to 43 deaths per a hundred thousand British Columbian residents. And if you saw this in any other area, you would think it's catastrophic. I do, with drugs, but it's a very difficult stigmatized topic to talk about. So, that's 12,000 deaths over a 10-year period, with the average age of death being 44, so now these illicit drug related deaths are now the biggest killer of young people in British Columbia, and increasingly Alberta, Saskatchewan and Ontario.

Kennedy Stewart: Coming back to British Columbia, despite the well-documented proof of these increases in deaths, the province of BC seemed very reluctant to act in any kind of big way. Their initial response, there was a state of emergency declared - a public health emergency - in 2016, and then a massive distribution of Narcan or naloxone, whatever you want to call it. So, if you run into somebody that's overdosing then you would hit them with naloxone, and then they would come back to life and then go through the hospital and recover. That seemed to be the biggest way that the province was dealing with this. But what we were seeing increasingly was, of course, all fire services who are the main responders to overdoses, were just getting crushed.

The suicide rates of firefighters that were responding was skyrocketing, as was sick leave and frankly just leaving the job entirely because in my municipality, but increasingly in small ones across the province and in rural areas, firefighters, the bulk of their job is basically responding to these overdoses and deaths. Just to give you an example of this, practically every Monday morning when I was Mayor, I would get an email that came in to tell me how many people died the previous week from illicit drug overdoses. And these emails would tell me how many resuscitations had been undertaken by the fire department, and these are mostly under counts.

So, for example, one week would be 14 deaths and 150 resuscitations, and the next 10 deaths and 120 resuscitations: 12, 11, 2, 5, 6, like every week this would come in. And then we'd have between 100 and 200 hundred resuscitations by the fire department, which was just devastating to think these are real people. Why it was hard for frontline responders is they would actually save somebody's life once, twice, maybe up to 10 times. And then that person would die on the 11th time. So, they've created a bond with this person that they've saved and then the person is dead.

So, that is not the federal or provincial view on I would say the biggest public health disaster, one of them anyway, in Canada's history. But at the municipal level, it's very real. And I was the head of a big city. But when this is happening in small municipalities - you're a mayor with a clerk and a thousand residents - it is completely overwhelming, especially when your firefighters are volunteers.

So, I started to get more active on this. I was elected at the end of 2018. In 2019 I was looking for a task force on what to do here. But in November 2019, I saw that a new federal cabinet was being sworn in. And so, I had my MP's pin, so I went to Ottawa on that day to access the halls to run into ministers. And I ran into Patty Hajdu, who was just appointed as Minister of Health in November, 2019. And we talked a bit about this, what to do. I didn't hear much. But then the overdose deaths began to spike as Covid started to come in to hit us hard as well. That's because of the physical distancing and other measures we had to take. So, the minister called me in the summer to explore what perhaps we could do about this. And then called again and said it would be legal for us, as the city, to apply for a federal health exemption to decriminalize drugs. That would be within our own boundaries, and we could do it without provincial approval.

So, her civil servants had done the work to review this. Both review the legislation around health exemptions, done all the legal footwork beforehand, before she approached me as this being one possible policy solution. So, of course, I jumped on this. I put a motion forward to council a couple months later in November, and we submitted our application to Health Canada by March 2021 with our final application in May 2021. The province was playing this very weird game where they had said they were in favour of decriminalization, but only if it was a national initiative. They would not do it on their own turf. But they panicked when we put ours in. When the city of Vancouver put in our application for decriminalization, they panicked, and then they put in their own application for a province-wide exemption a year later November, 2021. And it was eventually approved by the new Minister of Mental Health and Addictions, Minister Bennett, in May of 2022.

So, this has now come into force. It's been into force for not quite a couple of weeks yet. And we have a new tool to fight this terrible scourge of illicit drug related deaths in the province. And maybe it'll work, maybe it won't work, maybe it'll do a little something, but at least we are trying something new. And it was all about developing relationships with the municipality, the federal civil servants doing a bunch of work that my civil servants could never do, because we don't have the capacity. And then coming to us with a proposal. It did entail some risk for the minister, Minister Hajdu who is no longer Health Minister, and me, who is no longer Mayor <laugh>. So, there are prices to pay for these types of things. But that's the way the ball bounces.

Kennedy Stewart: So, large municipalities, and here's some lessons from this, are powerful allies mainly because we're elected in the same areas where there are federal seats. So, if you think, there's six federal seats within the city of Vancouver, there's probably 25 at least within the jurisdiction of Toronto, large cities are important to political parties because of the number of seats that are at stake. That's an important thing to know that we can gain access to Ministers; the Prime Minister; Deputy Prime Minister; because they're worried that politically, and mayors are attuned to this, the desire to get reelected and understanding their own political power. Municipalities are desperate to solve our local problems, but we have very little policy capacity.

So, at the city of Vancouver, we do not have an economist. We don't have policy teams. Our IGR teams, intergovernmental relation teams, are good but they're junior. They're not expert lobbyists. They would not have the funds to go to Ottawa and lobby. There's very little capacity to proactively pitch innovative policy solutions. We don't have time to sift through federal statutes, this is even the big cities, and we really don't have time to figure out the granting streams. It was interesting when I would meet with ministers, the first thing we'd get with the Deputy Minister sitting beside the Minister is an outline of the funding possibilities that are there. And my eyes would glaze over, but I would say, we need money for this thing, and then the federal deputy minister would figure out which stream that would fit into. For example, I needed funding for the Vancouver Art Gallery here. I went to a bunch of ministers, didn't know where this would fit. Finally, we got 25 million out of a green building fund. I would've never guessed to apply to that, but the federal civil servants figured out how to help on that particular area and many, many others. So, really a lesson is to go to the municipalities with proposals that are already built to succeed, that follow on either your proactive or your reactive mandates.

Small municipalities have really very little capacity at all. I mean, even as a larger municipality, I find it difficult to talk with - there's 21 municipalities in metro Vancouver - it's very hard for me to go talk to, say, Port Coquitlam that has 65,000 people because it's the mayor and the manager and the clerk, but really no policy staff. So, not much capacity for policy innovation at those small levels. But if I'm doing something that Port Coquitlam sees, they will copy our policy. So, for example, on ride hailing which was very unpopular in British Columbia, the taxi industry was pushing back against it. We brought ride sharing into Vancouver first, everybody was mad at us, and then they all adopted the same policy that we had. So, if you can make some movement within one municipality within a region, you'll probably get others copying the policies.

The most professional staff we have are planners and engineers, but you don't want them doing drug policy. Engineers are great at what they do. Planners are great at what they do, but they're not policy experts. And often the policies you get really reads like it was designed by an engineer <laugh>. For example, we had a road pricing proposal that was just politically totally untenable. And engineers know how to do it physically, how to put cameras in and that type of stuff, but they don't have the political eyes on this about how to make things happen.

In terms of the large policy changes that you might see, for example, Enid's ideas for different types of funding. You can go through the Federation of Canadian Municipalities for this, but you have to remember, the Federation of Canadian Municipalities is largely controlled by smaller municipalities. And often there's tension between the smaller, less populated and the more populated municipalities. And the FCM tends to miss granular stuff because, by nature, they're a large association.There is the Big City Mayor's Caucus, however, which well, didn't really do tonnes until Covid. And then basically that became a kind of a go-to place for senior ministers, when they would pull us together, the Big City Mayors, to talk about everything from CERB to transit bailouts to any other thing that was happening to us under Covid. So again, FCM, great place, a very powerful lobby group when it comes to large scale policy change, mostly around funding. But the Big City Mayor is probably a more effective subgroup when it comes to policy change. If you get the Big City Mayors on board, then you're usually in pretty good shape as a minister when you're trying to sell this to cabinet.

So, that's it for me. I'm really happy that you've <laugh> a chance to listen to this. I'm looking forward to hearing your questions. Thanks so much.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: Thank you, Kennedy. And yes, we will jump into some questions, and just as a reminder to everyone, feel free to send in your questions for either Kennedy or Enid, or both. And they will be routed to me, and we'll get to as many of them as we can.

[Tomas Hachard appears full screen.]

Tomas Hachard: Before we get to that, I have a few questions for the two of you. And I wanted to start Kennedy, maybe by jumping off from, it's a really interesting case study you presented, and I thought it was interesting the way you spoke about the relationship development that is important as part of the federal municipal intergovernmental relations.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: And from my own research, I think if we simplify things a bit, there's sort of two poles of intergovernmental relations that you can have. There can be sort of very open-ended ongoing conversations, whether it's at an intergovernment table, or through MOUs. And there can be very policy specific, project specific relations or projects that get involved that the municipalities and other governments get involved in. And I was hoping maybe to start with you, and then Enid can jump in, if you can speak about the separate value of each of these. And as I said, I was interested in terms of, if relationship development is as important in part to have, if you're then going to be able to do a project, maybe speak to sort of how each of these can help with that piece of it as well.

[Kennedy Stewart appears full screen.]

Kennedy Stewart: Okay, so I think both are important. I do think that big scale policy change is important. And that's where the Federation of Canadian Municipalities comes in. They're a very important tool for building consensus among municipalities and then presenting proposals to the federal government for approval. Most of those are money asks, I would say. So, give us more money for transit. Give us more money for infrastructure. Give us more money. So, you can kind of anticipate what they're going to come up with. So, I don't know on those ones - it just requires the federal government to make a decision on whether they're going to fund this stuff or not. You usually get good return for your money, like good value for your money. But it's the individual policy stuff really that I think that if the folks on the call here are working for individual ministers, it's the individual policy that I think perhaps can shift things forward,

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Kennedy Stewart: less standard things forward, not the big money ask, but actual policy change, whether it's regulation change or is...So, I would think of how do you develop those relationships?

Well, at the local level, you should encourage your mayors to actually go and meet ministers if they can. But also for ministers to reach out, starting with the large municipalities in the province, and then you'll start to get a bit of a buzz. The provincial officials may not like that too much, but they can't do anything about it, so I think it's probably worth the risk. There are also gatherings of city managers across Canada, provincially or nationally, and those are also a good place for probably civil servants to go to the wine and cheese places, to build up relationships at those meetings. But the relationship can help a lot. If you have some trust that's developed, and again, municipalities are desperate to get stuff done, so it won't take much to build trust with them.

Tomas Hachard: Right. Enid, did you want to jump in on that as well?

Enid Slack: Well, I agree with Kennedy that you really need both. I mean, you need the sector specific, location specific agreements to deal with specific issues, we talked about immigration and refugee settlement, or public health.

[Enid Slack appears full screen.]

Enid Slack: But I think you also need the more open-ended engagement, not just to ask money, but to understand the challenges that municipalities face on an ongoing basis. And these are going to change over time. I listed some, those will increase, some will hopefully go away. But I think the three orders of government need to talk about the issues, problems and challenges that are likely to arise. And we don't know what they are yet. So, you can't have a table on a specific topic if you don't know what the topic's going to be. And I think there needs to be an understanding that when the national government does something, it affects municipalities. So, if it increases the number of people coming to Canada, for example, it has to understand that there are costs to the municipality of doing that.

But what local governments do, also affects the country. And the federal government, some of their housing policies, or land use planning may affect the climate, and climate change issues. So, I think this general understanding of what's facing municipalities, and the end run around the province, Kennedy, and I may debate that.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Enid Slack: I think at the end of the day from what I was saying earlier, the provinces have a lot of powers over municipalities still, in terms of what they can do. And so I think sometimes you can't do an end run. You need to include them to get the powers you need. And governments change, right? Sometimes the feds will get along with the province and sometimes they - I think everybody needs to be at the table to sort this out.

Tomas Hachard: That makes sense. I guess jumping from that, about the power of the provinces, and I did find it interesting, Kennedy, your comment about how that has slowly shifted over time in terms of the revenue sources that the municipalities have. There was an interesting survey I saw recently. There's a survey called the Municipal Barometer, and it surveys municipal officials across the country and around a number of different issues. They did a recent set of questions that were around revenue sources, intergovernmental relations, and what was interesting about that, and jumping, Enid, from what you were saying there about the powers of promises, but also what your presentation showed about the sort of limited revenue sources. When they were asked, and these are mayors and councillors, when they were asked about the preferred choice for how to increase revenues, the overwhelming preference was to get more grants from the provincial and federal governments rather than having access to other new own source revenues, whether that's at the big side of things and income tax and a sales tax or even development charges and those options.

So, I was hoping to ask both of you a question around this. So, Enid, I thought you could speak a bit about that division, about when grants are most appropriate, when the own source revenues are most appropriate, especially given the challenges that you laid out, that municipalities are going to be facing. Kennedy, I was really interested also after, is maybe you can speak about, as you've noted, what you see as a trend where municipalities are less afraid of the provinces, and they're less reliant on the revenues. I'd be interested in your perspective as to maybe why there still seems to be a preference for grants over own source revenues in terms of collecting more, and whether you see any issues with that.

So, I'll start with Enid, and we'll go to Kennedy.

Enid Slack: Okay, thank you. So, I may not have the same view as the people who were surveyed in the barometer survey because it's easy for me to sit here and say, well, I think municipalities should raise their own revenues and be accountable for those revenues. If they decide what they're going to spend their money on, then they should be responsible for raising that money. And there's a certain accountability there that, that I kind of like. But I don't have to get elected, so I don't have to worry about raising taxes.

[Enid Slack appears full screen.]

Enid Slack: But even in my world, with more own source revenues, there are justifications for transfers from federal and provincial governments. There are many, I don't want to spend too much time on this but let me talk about three.

The first is an economic efficiency argument, which is based on externalities. So, services that a particular municipality provides, the benefits of those services may spill over municipal boundaries. So, for example, I'm in a municipality, I want to build a road. I'm not interested in the benefits to people outside of my municipality, because they're not paying for it. I'm only interested in the benefits inside my municipality. And so I may not provide the amount of road that is needed overall if I'm just looking at my own municipality. So if, say 30% of the benefits of that road spill over the municipal boundary, there may be a role for the provincial government to come in and subsidize 30% of the expenditures. There may be benefits that extend beyond provincial boundaries, in which case there would be a role for the federal government to fund a certain percentage of the municipal expenditures. Now, there may be other ways to do that. Kennedy talked about tolls, in the road example there may be other ways, but to the extent that services have benefits that spill over municipal boundaries there is an externality and there's potentially a role for transfers.

The second rationale is based on equity. And here I'm talking about horizontal equity. So, the idea is that each municipality in a province should be able to provide an average level of service, a standard level of service, by levying an average or standard tax rate. Some municipalities may not be able to do that. Their costs may be higher, their needs may be higher, or their fiscal capacity may be lower. So, we're talking here about an equalization grant, basically, that is an unconditional grant based on the fiscal capacity, and in some cases, it might be based on the expenditure needs of municipalities. I believe six provinces in Canada have provincial municipal equalization transfers. We did a paper at IMFG on this as well.

A third rationale is to close the gap between the revenues that can be raised at the local level, and the expenditures required to cover the assigned local responsibilities. And this is sort of a vertical fiscal gap, I was talking about the horizontal fiscal gap before, this is a vertical gap. And it may arise because local governments are assigned more responsibilities than they can finance from the revenue raising powers that they have at their disposal. So, to close that vertical fiscal gap, you get an unconditional grant, and that would be appropriate. So, those are reasons why you might see federal and or provincial transfers to municipalities. There are other reasons. There may be political reasons. I'm not going to go into all of the other reasons, but those are three.

But keep in mind that particularly conditional transfers do distort local decisions, they're meant to do that. So, if I'm funding, as a federal government, 30% of your expenditures on something, I'm going to encourage you to make expenditures on that function, not on another. And so there's less local autonomy in that case. The other problem with transfers, of course, is they're not stable and predictable. And, Kennedy, you know that. <laugh> They can be high one year and go down the next, and municipal expenditures go up sort of in a smooth kind of way over time. But the grants don't always, and when grants are cut back, municipalities have to scramble to raise property taxes or user fees to make up the difference.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: Kennedy, thoughts?

Kennedy Stewart: Well, my first thought was, what's something that a cabinet member never wants to hear? Congratulations. You're the new Minister of Municipal Affairs, <laugh>, because basically, your job is to manage municipalities. And when there's a lot of them, 3,500, that is a big job, and you're rarely going to get approval from municipalities. And every time you go to their annual conventions, you're absolutely going to get hammered by them because you're not doing enough. So, from my experience, provincial governments see municipalities as kind of a necessary evil that they have to manage, rather than partners. Not all. For example, Premier Gordon Campbell, way back when, didn't see municipalities that way because he was a former Mayor. I think Mike Harcourt was the same.

[Kennedy Stewart appears full screen.]

Kennedy Stewart: So, those with municipal experience may see municipalities differently. But many that don't, see them as adversaries. And that makes it very difficult to sit down and have a talk about something. Maybe that's another angle to look at, if you're trying to win municipalities on side, is to see what their relationships are with the province.

And I think the reason why the survey may have said, oh, please don't give us any more of our own revenue raising powers, is because municipalities don't have policy advisors or economists on staff. When you have so much stuff coming at you every day, everything from off-leash dog parks to <laugh> earthquake preparation, really, your policy analysis is done in the room, at the time, and you whip through the pros and cons of something that, whether you want to go get it proactively or whether you're reacting to an offer. And one of the things would come up is, if you're going to get a slice of the sales tax, then you would have to set the rate, and that would be bad for your re-election possibilities. But if you had economists and proper policy advice, they would definitely say, no, no, no, no, take this, this is a good thing, because then you don't have to increase your property taxes so much.

So, I do think that if this is something that the provincial or federal governments wanted municipalities to take, either just do it to them, or try to build up some allies. Here in Vancouver, we won the FIFA World Cup, and I came out and said that we wouldn't spend more than 5 million dollars locally to host that. I did that proactively without telling the province, so then they were on the hook for paying all the rest of it. Then there was this little mechanism where we could, if the municipality requested it, we could put on a hotel room tax that needed to be approved by the province. And the province asked us to do that. We did it. And now we have a hotel room tax which is a new revenue source that I would hope would come to the municipality permanently, but we'll see what happens.

So again, to get stuff done, sometimes you've got to be aggressive. And even though you try to tell the province things, often the communication channels are not great. So, give them a heads up before you send out the press release. But other than that, there's not a lot of negotiation beforehand, often.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: That's interesting. We have some good questions from the audience coming in, so I'm just going to ask one more, Kennedy, to you first, coming off of what you said there, I think your point is very interesting about municipal capacity and how that actually affects, in some senses, for what municipalities may ultimately believe is reasonable to receive from terms of revenue raising capacities, or anything else. Your presentation was really about utilizing municipalities, how the federal government can utilize municipalities. I suppose setting aside the question of increasing municipal capacity, and how that would happen, but taking municipal capacity as it stands.

You spoke a little bit about how to engage municipalities. Can you speak a bit more about how the federal government can engage with municipalities meaningfully, both given the capacity that they have and don't have? And also, you did mention there's a lot of that fragmentation. And I'm curious on that from a perspective as well as almost how the strengths of each order of government and what is it that each order of government can bring when you have that relationship, given where municipalities are right now?

[Kennedy Stewart appears full screen.]

Kennedy Stewart: I would say a tremendous strength of the federal government is the ability for policy analysis and designing incredibly detailed and effective policies. That is not a strength of municipalities. So, I was just thinking about gun control, how <laugh> the federal government just announced out of the blue, I think Bill Blair did this, they were going to ban handguns and then they got in trouble and they said, well, we're going to get the municipalities to do it, with no consultation with us beforehand. You know, I'm for that, so I said, absolutely 100%. But when we got down to the details of how it was going to happen, there were none. Nobody had thought it through more than, from what I know, and I was on board for this, how it was going to happen.

So, I would say if I was going to do that again, if is to work with the municipality, one or two would be fine prior to the announcement. And then the municipalities could say with confidence how this would roll out, but don't have the municipal staff do it. Have the federal staff understand the provincial statutes; the local government acts; and all that kind of stuff. So, that's what I would say. If you want to get stuff done, the provinces aren't cooperating, you want to go through a municipality, then do the work beforehand. Even having joint tables, having municipal staff working with federal staff, is a big resource strain for municipalities because it takes them off of other files. And the other thing that federal governments have is a luxury of time and the ability to bring in a lot more resources if they need them. Municipalities really don't have that option. Federal governments could provide grants to municipalities to hire in consultants or something. That's one way around it. But that's what I would say is it should be worked through in a legal way that you could put it in a motion to council is the best way to do it,

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Kennedy Stewart: rather than having me doing it at one o'clock in the morning for the council meeting the next day, and that's often what happens.

Tomas Hachard: Right. Enid, did you want to jump on that? I have a couple audience questions here as well for you if you want?

[Enid Slack appears full screen.]

Enid Slack: <Laugh> oh, <laugh>. Well, I'll just say quickly Kennedy talked before about some of the Federation Canadian Municipalities and the Big City Mayor's Caucus and provincial associations and there's rural associations and urban associations. But we haven't talked much about regional governance structures. And so where municipalities can come together in a region, that would really help. And we saw this during the pandemic in the greater Toronto and Hamilton area where there were tables where, voluntarily, people came together for the region to speak for the region. And I think that's another route that would be interesting to take.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: I'm going to jump to the audience here. There's two questions that are slightly related, in the sense that they're both about inquiring about the direct relationship between municipalities and federal government. The first, and Enid, you already spoke to this a little bit, so I'll leave this to you whether you want to say more about it. The question is, overall, would you say direct conditional funding to municipalities by the federal government is a good thing?

But the second question that's related to that that I'll throw in as well, is someone's asking about your thoughts on the impact of an increased direct municipal federal relationship on the provincial relationship, or in other words, does a direct municipal federal relationship distort the provincial relationship in a negative way?

So, Enid, I'll start with you if you have anything further to say on the direct conditional funding or the other question, and Kennedy, you can jump in on either one after.

Enid Slack: Okay. Thank, thank you for that. Thank you for both those questions, I will address the first one on conditional grants to municipalities. I think the second one is more of a political question, and so we'll leave that to the former politician.

On the conditional grants to municipalities. I try to provide a rationale for that. So, if we're looking at transit, and I know the federal government is interested in transit, one could argue that if we have good transit systems in our major cities that will increase productivity.

[Enid Slack appears full screen.]

Enid Slack:  And that's important for the whole country. There is an externality there that affects the whole country. So, I could see a role for the federal government providing it would have to be conditional funding, but that it's spent on transit. I guess the question is how conditional; what conditions; how much interference; and municipal decision making. You know, we can certainly debate that. But there is a role for that kind of funding.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: Kennedy, did you want to jump in on the second question here, which is, I'll just repeat it for your sake, whether the impact of an increased direct municipal federal relationship on the provincial relationship, and whether the direct municipal federal relationship would distort provincial relationship in a negative way?

[Kennedy Stewart appears full screen.]

Kennedy Stewart: What was popping into my mind when you were talking about this is political cycles. We had a provincial government here, a minority provincial government in 2017, so you never knew when that government was going to go down. When I was elected in 2018, I was the first independent mayor in 30 years. We have parties out here in Vancouver, had them since the thirties, but I had no colleagues <laugh>, so, my ability to build coalitions was limited, so I always had to think about that. Of course, we had a federal minority government, too. And so, you don't really have time for long negotiations under those circumstances, you kind of agree on something quickly and jump at it and worry about whose nose gets out of joint later, otherwise you won't get anything done.

Now, in situations where you have a majority, on a city council that's stable, you have majority provincial and federal governments, maybe that's the time to do longer term thinking. But especially when you throw a pandemic on top of those conditions, maybe that's where you opt for a quicker action.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Kennedy Stewart: I don't really know what happened with decriminalization, it's interesting because Premier Horgan was not really for it. It was suggested by the federal level, but now we have Premier Eby who is probably more sympathetic. There's also those kind of personalities too, but that is definitely something we're scoping out before you jump in. I think the mayor, whoever you're dealing with, probably your first good point of contact, will tell you that, oh, I don't want to do this because this thing, it'll cost me this. And also maybe you want to try a couple municipalities, if you're going to trial run something and you got 3,500 to pick from. So, you're going to find somebody that's <laugh> going to move ahead with something that you want to do.

Tomas Hachard: Great. Another question here is for either of you. I'm wondering if the speakers could share their thoughts on the role of upper levels of government during times of failure at the municipal level. And I would add my own spin on that is, I suppose failure can mean two things when I read this. Failure can mean if there's a sort of fiscal failure of some kind or with a bailout that's necessary. But failure could also mean, there's all our conversations sometimes of other municipalities are in the way of some sort of policy solutions that need to happen at the provincial level.

So, I'll throw both those definitions of failure out there and you guys can answer the questions.

[Enid Slack appears full screen.]

Enid Slack: Well, I'll address the fiscal issue. In the municipal acts or local government acts in each province, the province is on the hook when a municipality goes bankrupt. And they come in as the supervisor for the municipality to get their situation back in order. So, there is a role for the province there. They have to do that, when there is a failure in the budget.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Kennedy Stewart: I was thinking of municipalities are usually better at blocking things than they are making things happen. So that's where I would think when we're thinking of failure.

[Kennedy Stewart appears full screen.]

Kennedy Stewart: For example, I know I'm talking a lot about drugs today, but when they did cannabis legalization, municipalities of course were affected because we had to license all these cannabis stores. And the city of Surrey said, we're not providing any licenses to any stores. And so the carrot with that was supposed to be a transfer of some of the revenues to the municipalities, which the provincial government has never done. They've just held all the revenues and never sent them the municipalities way, despite an agreement to do so. I do think that municipalities may do this in order to leverage something else out of the senior levels of government, too.

So, if a municipal government is blocking something, I would think maybe some incentives are worthwhile? Maybe that's when you use a one-time <laugh> conditional grant or unconditional grant to kind of woo the municipality over to compliance, or then moving to some kind of penalty. I think it's rare that you'd see the provincial government come in and replace municipal government or individual officials. And it's really hard to get rid of municipal officials. Councils can't do it themselves. You have to go to court, and so provinces might think of tinkering with those laws a little bit because some municipal politicians do atrocious things and still stay in office.

So, government policy at the local level is one thing, but individual activity is another. And that's something that the provincial government should look at a little more, but try to woo them over first. <Laugh>

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Enid Slack: <Laugh>, if I can just jump in. The notion of local governments failing is an interesting one because, would you ask the same question, what if provincial governments fail? Should the federal government come in? Local governments are elected. They're governments that are elected by the people. So, this notion that it's okay to come in <laugh> and change what they're doing, but it isn't at the provincial level. It was an interesting question.

Kennedy Stewart: Through the pandemic, I did a survey right at the beginning, of my constituents, of the residents, and I said, how many of you aren't going to be able to pay property tax this year?

[Kennedy Stewart appears full screen.]

Kennedy Stewart: 25% of them said they couldn't, because there were no federal programs then. Then I started to run that up the flagpole and say, holy crap, this'll be catastrophic for us if we lose basically all of our user fee income, as well as 25% of our property tax revenue. As it was, we still had to lay off 18% of our employees. Many, many municipalities did massive layoffs through Covid, and without strikes. Which I think is - nobody wants to talk about Covid anymore - but it was like a traumatic thing for municipalities in more ways than one. But again, the senior levels didn't seem as interested in listening to the frontline, basically, which can be problematic, and hopefully we can learn lessons from that as we go forward.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: A last question here from the audience and Kennedy, I'll throw this one to you as I think your experience both at the federal municipal level might be useful here. We've been talking about federal, provincial, municipal relationships. The question here is, how do you see the role of municipalities in improving relations with the Indigenous governments and communities, with which they share territory? And the second part of the question is, how do you see the division of responsibilities between the pillars of government when a municipality's action could have an impact on these Indigenous governance or communities?

[Kennedy Stewart appears full screen.]

Kennedy Stewart: Oh, that's such a great question. So, when I first became mayor, my staff and I did a stakeholder map. And the three local Nations: Musqueam, Squamish and Tsleil-Waututh were at the top of that, even over the province, for us. So everything that we do, and it's a little different in British Columbia because we don't have treaties - these are unceded territories and so we took reconciliation very seriously. So, everything we did, major policy change always started with me talking to the Nations first, even before we talked to residents to see where they were. So, SkyTrain expansion at the University of British Columbia, the very first map that was generated, I went to the Chief of the Musqueam, Wayne Sparrow, and I said, what do you think? And he was not keen on one station location, so we went back and altered it. And so, they are at the core of everything. And, in fact, it gives you leverage over the province, especially in British Columbia's case, because they have significant ability in the court. So, it is my number one relationship, so no Olympics unless they're signed off by the First Nations. So, essentially, on large policy decisions, they had a veto, which that was self-imposed, but I think it's increasingly going to be the case.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: That makes sense. Enid, do you have anything to add on?

Enid Slack: No, I thought that was a great answer and I think Vancouver's a good model, so thank you.

Tomas Hachard: And I guess we only have a few minutes left. Enid, I'll throw one last question to you that I have, which is, you spoke a lot about the challenges going forward from municipalities and we're coming out of major economic, major Covid crisis, and this inflationary crisis. These can seem like potentially things that we have to help municipalities through as they are potentially, hopefully, are short term crises. But maybe can you just with the last couple minutes here, talk about the longer view and maybe the more structural challenges or opportunities that policymakers should be focusing on, assuming that we will get out of this inflationary period, and that Covid will truly be behind us at some point.

[Enid Slack appears full screen.]

Enid Slack: Well, those are assumptions. I assume we will get out of the inflationary period at some point. I'm not a macroeconomist, so I don't want to say for sure. Whether we'll get out of the Covid impacts is another story, because of course the whole transit fare revenues and transit ridership is coming back very slowly, and may not come back. I think it goes back to what I was saying about the structural problems. What should municipalities be doing, and then how do we pay for it? And municipalities do a lot of different things. They do things that are pretty much providing things with private good characteristics, like water and things we can charge user fees for. The property tax is good for those services that have collective benefits where we can't identify the individual beneficiaries. We can't exclude those who don't pay, as we can with user fees. So, there we have a property tax.

But if municipalities are getting into redistributive services, like social services and public health, the property tax and user fees aren't the way to go. We need to think more about income taxes. And then if they're providing services that cross municipal boundaries, I talked about transfers. So we need to come up with a model. Once we figure out what we think municipalities should be doing, I think we then need to come up with a model of, well, user fees will work here; property taxes will work here. We may need income taxes or sales taxes, and transfers.

And so, I think we have to think in those terms of, so much of the way municipalities work goes back to legislation from the 1800s, and local governments don't look like that anymore. Back then it was roads and water and a few little things. We're talking about such major expenditures at the local level. It can't be property taxes, user fees, and transfers. I think we need to think about how this whole system is structured and what needs to be done.

[Tomas Hachard, Enid Slack, and Kennedy Stewart appear in video chat panels.]

Tomas Hachard: Well, that's great. I think that's a really great note to end it on. I just want to thank you, Enid, thank you, Kennedy, for your presentations and for the discussion here, I found it really interesting. I hope everyone in the audience found it as interesting as I did.

[The CSPS logo appears briefly, thenTomas Hachard appears full screen.]

Tomas Hachard: Your feedback is very important to us. And so I invite you to complete the evaluation that you'll receive in your emails in the next few days. The School has more events to offer you, and I encourage you to visit their website to keep up to date and register to all future learning opportunities. So, once again, thank you Enid. Thank you Kennedy. Thank you everyone in the audience. I hope you all have a wonderful day.

[The CSPS logo appears on screen.]

[The Government of Canada Logo appears and fades to black.]