Provincial Government Downloading Mess

Ontario Premier Dalton McGuinty and his Liberal government are fast running out of time if they have any serious intention of straightening out the provincial downloading mess left behind by the previous Progressive Conservative governments. 

The McGuinty government is well into its third year in office, with only 18 months to go before the next provincial election, Oct. 4, 2007. But so far little has been done to ease the unfair financial burden downloading left on the backs of municipal governments and property taxpayers. The recently announced 2006 provincial budget was a big disappointment to many in the municipal sector who hoped the province would announce plans to begin “uploading” social service and health costs back to the provincial government.

Instead, the budget has a little medicine for some symptoms of downloading, like the shortage of municipal money to keep roads and other existing hard service infrastructure facilities in good repair. So there’s money for municipal roads and bridges in this year’s budget, as well as the promised additional funding for public health and land ambulances promised earlier by the government.

But there was no cure for the basic problem, “the ongoing burden of downloaded provincial costs,” said Association of Municipalities of Ontario (AMO) president Roger Anderson.

An AMO media release recalled the previous Conservative governments downloaded “billions” of dollars worth of provincial health and social services costs onto the property tax base. “The policy was fundamentally wrong when it was introduced and it must be corrected,” said the organization that represents almost all of Ontario’s 445 municipal governments.

AMO has been ringing the alarm bells about provincial downloading, changes to Ontario’s assessment system, and the impact on property owners in the form of higher property taxes since 1997, when the whole related boondoggle began. But consistently through the years the great minds at Queen’s Park either haven’t been listening or haven’t got the message; or, if they’ve finally got it now, there’s nothing much substantive they can do about it because the cost of turning back the downloading clock and all that goes with it would be so high. The McGuinty government hasn’t got that kind of money and never will – not in this term anyway – because it promised not to raise taxes. That promise has already been broken once. One more time would be political suicide. That leaves only one other faint-hope possibility, but I’ll get to that later.

First, let’s turn the Ontario political clock back to the spring of 1995 when former Premier Mike Harris and the Conservatives swept to power on the right-wing, fiscally conservative platform they called “The Common Sense Revolution.” It promised to reduce provincial spending, balance the budget and eliminate the deficit, and cut provincial taxes. The CSR was short on details about exactly how this would be done. There was certainly nothing in it that indicated the scope of the changes in store for municipalities and property taxpayers. It promised only “any action we take will not result in increases to local property taxes.”

Kind of has a hollow ring to it now, doesn’t it?

The Harris government started downloading provincial services onto municipalities in a process officially called Local Services Realignment. Municipalities were ordered to take on a greater share of the cost of such things as social assistance, public health, land ambulances and public housing. Some provincial highways were also downloaded. Downloading was supposed to be offset by the province taking half the cost of education off the municipal property tax bill. Harris promised on his “pinky” at an annual AMO convention the whole process would end up being “revenue neutral.”

But it never was, and it still isn’t, even with the help of additional property tax revenue generated by Current Value Assessment, which is what the Harris government called the reformed property assessment system it put in place with several pieces of legislation from 1997 to 2000. It also created the Municipal Property Assessment Corporation (MPAC), a non-profit, provincial Crown corporation harshly criticized just recently by Ontario Ombudsman Andre Marin.

Property assessment, putting a value on various types of property for taxation purposes, has long been a provincial function. Assessment rolls compiled previously by provincial assessors, and now MPAC, are passed on to municipal officials for use in the calculation of property taxes. In theory, at least, increased property assessment does not have to result in higher taxes. Much depends on how much municipal government needs to raise from taxation to meet their annual expenses. If municipal costs don’t go up, neither should municipal property taxes. There’s even a theoretical possibility taxes could go down if new development brings new assessment value and more taxpayers into the municipality.

But the reality of the last eight or nine years in Ontario is something much different: Huge increases in municipal budgets and steadily increasing property taxes. The fact that reality often coincides with huge increases in the assessed value of properties understandably makes a lot of people think that must be where the fault lies, and they get riled up. And when the Ombudsman investigates and says thousands of property taxpayer complaints about problems at MPAC are justified, those suspicions are confirmed.

Sure enough, MPAC and the Current Value Assessment system are part of the rising property tax problem because both are seriously flawed. But they’re not the root cause of it.

Lots of people who know about such things would agree the property assessment system was long overdue for an overhaul by 1997. There were a lot of inequities in the old system, resulting in some property owners not paying their fair share of taxation, while others paid too much. In fairness to the former Conservative governments, they picked up and ran – or more accurately, stumbled – with a political hot potato previous governments dropped. But they must have also thanked their lucky stars at the time to discover, no doubt with the help of bureaucrats in the Finance Ministry, a way to conceivably keep their “revenue neutral” downloading promise. There had to be a lot of buried property assessment-taxation treasure out there, just waiting to be dug up and put to good use. How could they resist? Of course the potential for greatly increased property taxes was played down when the Fairness for Property Taxpayers’ Act was passed in 1998.

So Current Value Assessment became one of the tools in the “tool kit” the Harris government gave municipalities to help them cope with their massive new, downloaded responsibilities.

Trouble is it didn’t work. The Tories went back to the Legislature with amendments several times in hopes of getting it right. But you only have to be a property owner on fixed income faced with staggering increases on your property assessment and taxes, to know they failed. Meanwhile, downloading has never been revenue neutral and property taxes are still going up.

The root cause of the problem is not current value assessment, though it clearly needs rethinking, or the MPAC, which obviously needs a major shake-up; the root cause is provincial downloading and the fact too many costs and services that rightly belong at the provincial level are still being paid for by municipalities and the property tax base.

The original blame for the downloading debacle belongs to the former Tory governments of former Premiers Harris and his successor Ernie Eves. But why, after three years in office, hasn’t the McGuinty government done more to fix the problem?

In a word, the answer is money, “billions” of worth of costs and services the province would have to upload off the property tax base and find other, provincial sources of revenue. Where would the money come from? Not from increased provincial taxes because the McGuinty government tied that hand behind its back to win the 2003 election. It got untied once, but it won’t happen again.

McGuinty’s only hope is that $28 billion shortfall in annual transfer payments he keeps saying the federal government owes Ontario. What do you suppose are the chances Canada’s new and apparently hard-nosed Conservative Prime Minister, Stephen Harper, will want to bail Ontario’s Liberal government of that particular political problem, when previous federal Liberal government turned a deaf ear?

Looks like municipalities in Grey-Bruce and the rest of Ontario are stuck with downloading, and property taxpayers stuck with higher taxes, for a long time to come yet, at least until after the next provincial election. And then who knows what foolish promises politicians will make to win it.

Originally published in The Sun Times in 2006.

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