A ‘Modernized Municipal Government Act’

The Municipal Government Act is like the concrete foundation to a skyscraper: functional, occasionally clunky, and certainly not the focus of attention; yet it provides the base upon which everything else is constructed. The building is Alberta’s system of local government, from our two largest cities to rural counties to summer villages where boats outnumber permanent residents. 

This summer, following the tabling of Bill 21 (Modernized Municipal Government Act) in the last stretch of the 2016 spring session, the government is taking the MGA on the road for further consultations on the proposed changes in cities, towns, and counties across the province before the bill is debated during the fall legislative session.

Last updated in 1995, the MGA is intended to provide stability, clarity, and structure to local governments, their relationships with the provincial government, and their interactions with each other and their citizens. In 2012, Alison Redford’s Progressive Conservative government announced a large-scale review of the MGA, and after nearly three years of consultations a list of consensus items (primarily administrative and procedural) was drafted and presented in the Legislature as Bill 20 in March 2015.

While the more substantive changes to the existing municipal governance framework proposed in Bill 21 are for the most part welcome and in some cases long overdue, on the whole the amendments are conservative of the status quo. Very few – if any – of the innovative proposals surrounding revenue generation and revenue-sharing, or a formalized financial arrangement between the province and municipalities, were included in the version of the bill tabled on May 31, 2016.

What, then, is the objective at the heart of Bill 21? Is its purpose really to modernize? Is it supportive of progressive change, maintaining the status quo, or attempting to strike a compromise? Were there other, more forward-looking options available? Submissions compiled in the MGA Workbook: What We Heard suggested, for example, that "municipalities should have control over energy development projects within their boundaries" and that "municipalities should have more power to use assessment, fees and levies, and taxes." These proposals were not represented in the final bill, and the most common refrains calling for "funding for municipalities [that is] sufficient, flexible, and reliable" and for "increased revenue for municipalities from the Province" were entirely absent, despite a heavy presence in early discussion papers on revenue sources, taxation, and other issues drafted in 2013 and 2014 by Municipal Affairs.

The most significant changes to the current act as set forth in Bill 21 can be grouped into three key themes:

1. Funding, Revenue, and Collaboration
2. Taxation and Assessment Processes
3. Accountability and Oversight

Municipal funding, revenue, and collaboration

In opposition, the NDP proclaimed a strong position in support of a new funding model for municipalities – one that would be sufficient to meet modern challenges, and one which was more stable and predictable than the current reliance on MSI grants and other piecemeal funding. What was not clear, however, was whether the NDP envisioned this model emerging through the revised MGA or via the City Charters process, through which any changes would be limited to Edmonton and Calgary.

In response to a 2012 questionnaire posted by the group Cities Matter, the NDP suggested that any legislative framework for cities should "identify the needs and infrastructure deficits of cities like Calgary and Edmonton," and that municipalities and the provincial government should "work together to design a new funding model (reflected in legislation) and discuss other opportunities, such as Big City Charters, that would give municipalities the tools they need to implement long term planning."

While the question is framed around cities specifically, the second point of the response alludes to a legislated funding model for municipalities distinct from any City Charter agreement. Yet this is not what emerged in Bill 21.

In September 2015, then-Municipal Affairs Minister Deron Bilous heavily implied that the updated act would include significant incentives for municipalities to work collaboratively to address regional issues, including revenue. "Funding is a great way to help incent that behaviour," Bilous said at the time. "Municipalities that work well together to provide services together will have the dollars to be able to do that. Those that don’t will find it much more difficult."

These incentives, however, were not spelled out. Even in the current version of Bill 21 there are no carrots for inter-municipal cooperation or regional revenue-sharing plans, only sticks: inter-municipal collaboration will be mandatory for all municipalities (yes, even tiny summer villages) yet revenue-sharing arrangements will continue to be voluntary. Neither the mandatory regional development plans and inter-municipal frameworks nor voluntarily-agreed revenue sharing are linked to any additional funding (or other goodies) from the province. Indeed, as it stands, the inter-municipal collaborative frameworks process is full of loopholes, not least of which is that all the municipalities in a region can agree that they have no issues that require collaboration and send off their "plan" for provincial approval.

The other gaping absence in the new MGA is a source of consistent provincial funding for municipalities. This gap remains despite many options being suggested in the written submissions and other public engagement tools – such as a legislated formula for provincial-to-municipal revenue sharing.

Another proposal suggested indexing the current Municipal Sustainability Initiative (MSI) grant to inflation, enabling municipalities to better budget their infrastructure spending. The problems inherent in relying on the MSI as a predictable source of revenue were underscored by the April 2016 provincial budget, which did not include a promised $50 million boost to MSI funding.

When the issue of a predictable, stable funding formula for municipalities was raised at the public forum in Edmonton on June 13, Assistant Deputy Minister for Municipal Affairs Meryl Whittaker stated that based on current debt ratios the majority of Alberta’s municipalities were not in any dire financial straits, and therefore the question of a different funding model was moot. However, Whittaker hastened to add that, as the current MSI agreements are due to expire at the end of March next year, predictability may be a part of that review.

The modernized MGA also eschewed any additional "own revenue" sources – such as additional tax-raising powers – despite concerns raised by cities, towns, and counties alike that property tax alone was insufficient, clunky, and often regressive. While early framework documents for the legislative review offer considerations of a number of new revenue tools, in the end none were adopted, and no scope was offered for their discretionary use. According to Assistant Deputy Minister Gary Sandberg, the province’s analysis of various revenue tools found them "too complex" and indicated that "many municipalities don’t access the tools they have."

One possibility is that any real consideration of additional tax-raising powers or other alternative revenue sources will be deferred to the City Charter negotiations, meaning the biggest cities in the province may have access to revenue that their smaller counterparts will not. Already mid-sized city Red Deer is demanding to be included in any new deal for the big cities, arguing that it faces the same challenges as Edmonton and Calgary.

Edmonton Mayor Don Iveson, in his reaction to the provincial budget, stated that "Budget 2016 reminds us that the current roller coaster approach the Province takes to funding isn’t effective and makes long-term planning difficult for us. This puts even greater emphasis on our City Charter discussions and the need for more sustainable, predictable sources of funding for infrastructure and a longer-term view to how we solve complex issues."

Taxation and assessment

Despite some contentious discussion of potential inter-municipal pooling of linear tax revenues, the new act contains few substantive changes to linear property tax: it proposes streamlining of assessment processes (which at present awkwardly overlap both municipal and provincial authority), but no redistribution or sharing of linear tax revenues, and no mechanism for municipalities to collect property taxes owed in arrears after a pipeline or well has been abandoned – an increasingly common scenario in the current oil slump.

While industrial tax assessment will be centralized, the system for exemptions will not: machinery and equipment will continue to be assessed at 77% of its market value, a "special tax benefit to encourage investment," according to the MGA review website:
"There will be no change. These special tax benefits are an important part of how Alberta encourages investment. At this time, it makes sense to maintain these benefits to grow our economy."

That there continues to be a need to incentivize the resource industry by not placing too many "burdens" on them is arguable given the current economic context and falling investment in oil and gas development. However, this seemingly small clause obscures the many other layers of incentives and subsidies already offered to the resource sector, and fails to acknowledge the need to "incentivize" other industries if Alberta is to diversify its economy.

Other agricultural property tax and farm residence exemptions were also a main focus for the new act, yet again the changes were mainly administrative, not transformative. They also heavily emphasize this language of "stability" and "incentive." The updates propose to grant the same exemption from property tax to urban farm residences as currently enjoyed by their rural counterparts, and will seek to clarify definitions and triggering processes for agricultural land that is awaiting development. All of these proposed changes appear necessary and presumably helpful. But on the question of changing the rate at which farm land is taxed the new act opts to keep the status quo, citing a need to maintain "stability" for those in the farming sector.

Although the assessment rates were last reviewed in 1994, and many stakeholders expressed concern that these rates do "not reflect technological, economic and market-related changes" underway in the agriculture sector, no changes to this system are recommended in Bill 21: "There will be no change. Farmland will continue to be assessed using agricultural productivity rates. Maintaining the current rates provides stability for Alberta’s agriculture sector."

Yet, other property tax changes were explicitly linked to "addressing competitiveness and fairness" in taxation. Establishing a 5:1 maximum ratio between non-residential and residential tax rates, and the splitting of non-residential into various "sub-categories" will enable some municipalities to create a small business property tax rate – one which the province clearly feels will encourage growth in that sector. At the same time, this feels like a political bone tossed to the loudest voices: not content with the 1% reduction in the small business income tax rate, small businesses are already up in arms over the increase to the provincial minimum wage and the potential impacts of the carbon levy to be introduced in 2017.

Accountability and oversight

The new MGA proposes to set out a mandatory training program for new elected officials (the content of which has not yet been determined) in addition to the code of conduct requirement established through last year's Bill 20. The biggest win for accountability, however, is the move to extend the authority of the Alberta Ombudsman to include municipalities: the ombudsman will be tasked with investigating complaints related to fair process on the part of municipal governments as it currently does with the province and its departments and agencies. It is not yet clear whether this extension of jurisdiction will also include the application of the Public Interest Disclosure Act to municipalities, despite the two processes sharing the same Ombudsman. Currently the PIDA is under legislative review so this may be a possibility, and would have significant implications for transparency.

Conclusion

The NDP government inherited the MGA review in progress – the essential scope and framework for what was under consideration was already firmly in place following the compilation of consultation feedback and written submissions in mid-2014 – and, arguably, preferred options for resolving many of the issues on the table were clearly set out by the previous government in the March 2014 Speech from the Throne. So, the majority of these items did not change substantially from the PC position drafted between 2012 and 2015.

Following the first reading of Bill 21 in the Legislature, Wildrose Opposition critic for Municipal Affairs Pat Stier prophesied, "This is the largest Act in Alberta [this claim is under dispute, as it may more accurately be the second-largest], and there is much room for the NDP to slip up if they choose ideology over common sense."

In my reading, there seems no danger of that: unless that ideology is small-c conservatism. The Modernized Municipal Government Act contains few policy changes that appear to be generated solely by the NDP. Like the 2016 provincial budget, Bill 21 is ultimately an attempt to balance multiple competing interests, including big cities, rural counties, industry (resource, development, and agriculture), and small businesses. The fact that there are no clear winners or losers emerging from the new framework suggests that this balance is mostly right. But the loss here is one of potential – for a truly transformed municipal framework that equips Alberta’s towns, cities, and counties with the tools they will need in a rapidly changing economy.

As the MGA roadshow continues through July, we can only hope that these solutions emerge in the final version.

Photo credit: Jeff Wallace under a Creative Commons licence. 

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