Dans la foulée des réformes municipales  

The Choices of Ontario


Andrew Sancton

Professor and Chair

Department of Political Science

The University of Western Ontario

London, Canada N6A 5C2

le 20 avril 2001

Hôtel Marriott Château Champlain, Montréal

 This paper is concerned with Ontario's choices since the Harris government came to office in 1995. The starting point for any analysis of the Harris policies is its 1995 election platform, The Common Sense Revolution (CSR). This document was uncharacteristically vague with respect to the future of Ontario's municipal government. There was certainly no hint that, if elected, the Harris conservatives would sponsor more municipal change in a few short years than the province had ever experienced before. The CSR promised only that Aany actions we take will not result in increases to local property taxes; that regional and municipal levels of government should be rationalize[d] avoid overlap and duplication that now exists; and that we will sit down with municipalities to discuss ways of reducing government entanglement and bureaucracy with an eye to eliminating waste and duplication as well as unfair downloading by the province.(1)

I have fully described elsewhere the Harris policies for municipal amalgamation.(2)

Between 1995 and 1 January 2002, the number of municipalities in Ontario was reduced from 815 to 447. This paper is about the two other major changes the government implemented in how Ontario's municipalities operate: 1) local services realignment; and 2) the property-tax system. Each will be discuss in turn.

Local services realignment

The Who Does What story has been well told elsewhere.(3) The basic problem for the Harris conservatives was that they did not have a plan to reconcile their CSR pledges relating to: 1) personal income tax ; 2) property taxes; 3) education; and 4) municipal government. They promised a thirty-percent decrease in provincial personal income taxes combined with no increases in property taxes. Their pledges relating to education clearly involved a dramatic increase in provincial controls over school-board spending and taxing.

In its megaweek announcements of January 1997,(4) it appeared that the government's primary objectives were to remove education costs from the residential property-tax bill and to eliminate the authority of school boards to levy taxes. In May, the government retreated on its first objective: to respond to widespread concern about having municipalities cover fifty percent of all welfare costs, it stated that the municipal social-welfare share would be reduced to twenty percent but that there would be a provincial residential property tax for education to raise half the amount formerly raised by school-board taxes on residential property. Taxes on non-residential property for education would remain at current levels but areas with tax rates above the provincial average would see their rates reduced over time.(5)

In terms of simplicity and clarity for the ordinary taxpayer, this decision was disastrous. Property taxes would still be levied by two different kinds of governments (municipal and provincial rather than municipal and school board) but now the proportion of municipal taxes going to pay for welfare B a cost over which municipalities have no control B would be significantly higher.

Within the Greater Toronto Area, the welfare situation turned out to be even more complicated. Since the number of welfare recipients was disproportionately higher within the megacity than within its suburbs, Toronto would have faced significant tax increases and suburban areas, tax decreases. Attractive as this was to many of the government's supporters, it was unacceptable to important allies within Toronto, notably David Crombie and the Toronto Board of Trade. On August 6, 1997 the government announced that welfare costs would be pooled:

Historically, the heart of the GTA -- Metro -- has faced a greater demand for social services than other parts of the GTA. In 1994, welfare caseloads in Metro were 50.4 per 1,000 population, compared to 24.3 in Durham, 16.8 in Peel, 16.5 in York and 9.8 in Halton. That is because the GTA is really a single catchment area for social and health services. People who need services cross municipal boundaries to get them. Historically, people with lower incomes have tended to move to the core, where public transportation is more convenient, social services are more readily available and low-cost housing may be easier to find.(6)

At one point it appeared that the proposed Greater Toronto Services Board (GTSB) would be the mechanism through which this pooling would take place. The obvious problem, however, was that, if all the welfare money flowed through the GTSB, it would look like a huge operation, certainly like another distinct tier of local government. Since there was virtually no opportunity for sub-provincial decision-making relating to welfare, there was no point in turning the GTSB into the GTA welfare authority. The result, however, for GTA-taxpayers is that there is absolutely no relationship between the amount of money that the new city of Toronto or the regional municipalities spend on welfare and the actual cost of delivering welfare within their respective territories. It is the cost of welfare within the GTA as a whole that is the relevant factor. This might be good public policy, but it is hardly an example of the reduc[ed] government entanglement promoted by the CSR.

The government's service-realignment policies have made municipal government more costly and complicated rather than less so. In theory, the increased costs to municipalities - for welfare, social housing, ambulances, and public health - are offset by the fifty-percent reduction in the funds needed from residential property tax rates for education. Why did the government not simply impose mandatory spending and taxing constraints on school boards while increasing provincial regulation? Such a policy would indeed have accomplished the government's educational objectives. But the service realignment, from the government's point of view, did involve significant political and financial benefits: 1) by eliminating provincial welfare (and social-housing) administrators and provincially-employed land-ambulance drivers (where they existed), the size of the provincial civil service was significantly reduced; 2) while the government took on new financial burdens for education, school boards remained as the main employers and no new provincial employees were added; 3) since municipal social-service administrators were generally paid less than provincial ones, there were financial incentives to assign the integrated system to the municipal level and financial disincentives to provincialize it.(7)

Who could possibly have predicted a few years ago that in 1998 Ontario would have a provincial property tax for education and that municipalities would be paying twenty percent of all welfare costs (not just short-term general welfare assistance)? No commission of experts, no party task force, and no document remotely connected to the Common Sense Revolution ever suggested even the possibility of any of these outcomes. But such policies enabled the government to increase its control over education and reduce the size of the provincial civil service. Welfare and other services were added to the municipal property tax because the government had promised to reduce personal income taxes, not property taxes. Service realignment was driven by the CSR but the CSR said nothing about what service realignment actually produced.

The big issue in provincial-municipal relations in Ontario today is the extent to which local service realignment has in fact been revenue-neutral. The issue is especially highly contested in relation to the City of Toronto. The City claims -- without producing any documentation explaining its case -- that since 1998 it has been forced to absorb $276 million in additional costs (including $47 million in 2001) resulting from local services realignment. The province, on the other hand, has released an audit from Deloitte & Touche purporting to show that the City has lost only $141 million from local services realignment between 1998 and 2000 inclusive ($111 million of this loss was reported as being in 1998). In the absence of any further explanation from the City, the only conclusion is that the province has presented its case more effectively. Table 1 (at end of paper) shows that, according to Deloitte and Touche, the net costs for LSR in 1999 as being $15 million (the same amount was projected for 2000).

Property taxation

The only reference to property taxes in the CSR is this: We will work closely with municipalities to ensure that any actions we take will not result in increases to local property taxes. Both the Golden task force(8) on David Crombie's Who Does What panel(9) recommended a new assessment system based on the value of a property in its current use. The distinction between this system and market value is that the former attempts not to take account of any value brought about by a potential future use of the property. In short, it attempts to eliminate speculative value. Both Golden and Crombie recommended that municipalities be given the authority to levy different tax rates for different classes of property. The main object of this recommendation was to enable municipalities to reduce massive tax-burden shifts among different the different classes. Without such authority, single-family homeowners would have been hit especially hard.

During megaweek in January 1997, the government announced that it was accepting the Crombie and Golden recommendations because of a desire to make the system fair, clear, more consistent, and more accountable. Finance minister Eves claimed that because previous governments had not acted on this matter thousands of homeowners and businesses are paying more property tax than they should be.(10) What he failed to point was that thousands were paying less than they should be. The government's basic problem on this issue from then on was that introducing the new assessment system inevitably meant higher taxes for many taxpayers. Each one would consider the CSR promise on property tax to have been violated. Dealing with such people was an enormous political challenge that has not yet been overcome. Mr. Eves also failed to point out that he was in fact introducing market-value assessment, not assessment based on value in current use.

For twenty years no Ontario government had been willing to force the implementation of market-value assessment, even though the concept was, in theory, at the heart of the province's property-assessment system. The main problem was that owners of older, under-assessed residences and commercial properties would face huge tax increases. This problem was especially acute within Toronto and that is why the city of Toronto had been one of the strongest institutional bulwarks in the fight against market-value assessment. The city's position, however, was potentially self-defeating because unfair assessment was one of the factors led to high taxes on newer downtown office buildings, taxes so high that they disadvantaged downtown Toronto in relation to the rest of the GTA and to other North American cities.(11)

By introducing assessment reform at the same time as the megacity and service-realignment proposals, the government dramatically reduced the visibility of the assessment issue. Inner-city opponents of the megacity were reluctant openly to link the two issues because such linkage would alienate potential suburban Metro megacity opponents who stood to benefit from changes in the assessment system. Indeed, the government's political tactics in relation to changing the assessment system, especially within Toronto, were nothing short of brilliant.

Once again, however, we must wonder about why the government did what it did. Running as a conservative candidate in central Toronto in 1995, Al Leach stated: my party and I will never support the imposition of MVA [market-value assessment in] Metropolitan Toronto.(12)

There was much confused debate in the legislature and elsewhere about the words market value, actual value, current value, and value in current use. The government ended up calling its system current value assessment. The tone of the debate is perhaps best captured in this exchange in the legislature on May 26, 1997:

Mr Monte Kwinter (Wilson Heights): My question is to the Minister of Municipal Affairs and Housing. Bill 106 amends the Assessment Act by adding the following definition: "`Current value' means, in relation to land, the amount of money the fee simple, if unencumbered, would realize if sold at arm's length by a willing seller to a willing buyer."
Minister, I have been a real estate professional, I have taught the course, and I can tell you that this definition is verbatim what the definition is for market value. Yet at our committee hearings, an official from the Ministry of Finance said there is a difference. I would ask you if you could explain to the House the difference between this definition of current value and that accepted by lawyers and by real estate professionals of what market value is.
Hon Al Leach (Minister of Municipal Affairs and Housing): Obviously both systems are value-based, and we've always stated that. It's a matter of how the systems are implemented. The 1992 version of market value assessment that was introduced by Metro and rejected by the NDP government had certain features which made it completely unpalatable to the citizens of Metropolitan Toronto, including myself. It called for assessments every four years; there are opportunities for lots of spikes -- a totally volatile situation.
The assessment system we're proposing calls for the assessment to be done on an annual basis with a three-year rolling average, which takes all the volatility out of the system. This is a system that will work well for Metropolitan Toronto. We've also put in aspects to protect seniors and the disabled and also to phase it in over eight years.

This exchange makes it abundantly clear that Acurrent value assessment is based on market value, and nothing else. By implementing it, the government was doing what other governments had tried and failed. Its policies in this regard were not in any way inspired by the CSR. For the government, however, the policy did have significant benefits: within Toronto it lessened the tax burden on downtown office buildings and on residential taxpayers in newer suburban areas of Metro and it increased the burden on many inner-city residents who would never vote conservative anyway. But, unfortunately for the government, things were not that simple.

When Toronto's new assessments were made public in February 1998 inner-city residences were not affected as negatively as had been expected, leading to accusations that there had been a deliberate effort to minimize the impact of the changes.(13)

Small commercial holdings along traditional shopping streets were another matter. Here there were examples of small merchants potentially facing tax increases of more than a thousand percent. Almost eighty percent of commercial properties within the new city of Toronto faced increases of more than a hundred percent.(14) Tax increases of this size for so many small businesses were in obvious conflict with the provisions of the CSR. It was the CSR that would prevail.

Four years after the announcement of the government's commitment to current-value assessment, we can still to this day watch the government twist and turn as it amends the new scheme to limit tax increases for some particular class of property owner. At least five separate government bills relating to property tax have been introduced after the passage of the initial legislation in early 1997.(15) There are new classes of property, new phase-in procedures, new bands of permissible rate ratios, new municipal limitations, and new deadlines: each amendment makes the system more complicated and more impenetrable for ordinary taxpayers. Every amendment the government has introduced has been designed to soften and/or postpone the impact of the system it sponsored in the first place. Both the initial policy and the subsequent changes have all been justified in terms of fairness to property-tax payers. The fact that the City of Toronto is forced in 2001 to levy huge tax increases on the owners of single-family residences, rather than spread the burden among owners of all classes of property, is the direct result of such amendments. While municipalities do have the right to levy variable rates for different classes of property, they cannot act to increase existing disparities. In Toronto, this means that residential taxpayers must bear a disproportionate share of new burdens.



Very little of what the Harris government has done in relation to municipalities owes its origin to the CSR. The impact of service realignment on municipalities resulted indirectly from the CSR. Once in office, the government decided that it could only accomplish its CSR objectives in relation to education by eliminating the authority of school boards to levy property taxes. Given that the CSR also called for income-tax cuts, the government's only alternative was to let the municipalities take over tax room vacated by the school boards in return for taking on increased funding responsibilities, especially for welfare, social housing, and ambulances, items that heretofore had been deemed by everyone as functions that should remain in provincial jurisdiction.

Any incoming government would have had to confront issues relating to property assessment and the Greater Toronto Area. Since most members of the old Toronto city council were seen by Harris conservatives as irresponsible spenders who used the city's huge tax base as a source inexhaustible funds, the attraction of merging them with a more numerous group of sympathetic suburban politicians must have been obvious. Similar attractions could well explain other aspects of the government's policies. The same people who elected the Toronto city council elected school trustees who, from the government's point of view, were the most notorious examples of spendthrift school boards. Removing the taxing authority of all school boards did more harm to the Toronto school board than to any other: its tax base had been so strong that it could maintain the province's highest per-student spending levels without needing any provincial grants. Compounding the government's frustration was the fact that voters in Toronto's trendy older neighbourhoods paid low taxes due to outdated low assessments. The spending decisions of their elected representatives at both the city council and the school board were then passed on disproportionately to owners of high-rise apartment buildings (and indirectly to their tenants) and office buildings. Such property owners were, of course, more likely to be supporters of the government than the homeowners in the older neighbourhoods. The fact that these homeowners are in 2001 facing tax increases in the 20-percent range is surely no accident. 



Social Assistance


National Children's Benefit


Child Care


Public Health


Social Housing


Children's Aid Societies


GO Transit


Property Assessment


Transit - Operating and Capital


Provincial Offences


Gross receipts Taxes


Managed Forests / Conservation Lands Rebate


Farm Tax Rebate


Loss of Municipal Support Grant








Source: Deloitte & Touche, Final Report: Audit of the Financial Impact of Local Services Realignment, City of Toronto, November 13, 2000, Appendix 1


1. Progressive Conservative Party of Ontario, The Common Sense Revolution (Toronto, 1994).

2. Andrew Sancton, Merger Mania: The Assault on Local Government (Montreal and Kingston: McGill-Queen=s University Press for the City of Westmount, 2000).

3. Katherine A. Graham and Susan D. Phillips, A>Who Does What= in Ontario: The Process of Provincial-Municipal Disentanglement,@ Canadian Public Administration, 41-2 (Summer 1998), 175-209.

4. Ontario, A>Who Does What= Reforms: Announcement of Package for the Week of January 13, 1997.@

5.Ontario, Office of the Premier, News release, AWho Does What: A New Partnership for Taxpayers,@ May 1, 1997.


7. The Crombie AWho Does What@ Panel recommended continued municipal administration even though it favoured one-hundred percent provincial funding of welfare assistance. See letter from the sub-panel on social services to the Honourable Al Leach dated October 11, 1996, p.4.

8. Ontario, GTA Task Force, Greater Toronto: Report of the GTA Task Force (Ontario: Queen=s Printer, 1996), pp.87-96.


9.Letter from the sub-panel on assessment and property tax reform to the Honourable Al Leach dated August 20, 1996, p.2.

10. Ontario, A>Who Does What= Reforms,@p.117.

11.For a discussion, see Ontario, Greater Toronto, pp.100-10.

12. Quoted by John Barber in AUrban life at risk with property-tax bill,@ The Globe and Mail, April 8, 1997, p.A6.

13. Kim Honey, AMany councillors suspect provincial foul play after downtown residences receive low assessments,@ The Globe and Mail, February 26, 1998, p.A12.

14. Jane Armstrong, ATax cloud stuck over small businesses,@The Globe and Mail, March 11, 1998, p.A8.