Finance Committee on April 24th, 2020

[The Chair, Liberal, Wayne Easter]

Mayor Hurley, did you want to add to that?

[Mike Hurley]

For us right now, the immediate need is for our vulnerable populations, our homeless population. We are not getting any support for them from the federal government. Although we hear there's support out there, we haven't been able to see any of it brought our way. Our vulnerable population is exploding, both the homeless and those in danger of being homeless. We alone will not be able to carry the burden of looking after those people for a long period of time, so we need the federal government and the provincial government to assist us in providing the much-needed help for those populations. That would be the immediate ask, outside the wage subsidy so that we could bring our employees back.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

On that question of infrastructure, I think it's important—this goes to SARM and the Federation of Canadian Municipalities as well—to have them ready to roll out when the time comes. I know how the last one worked is a concern.

We'll turn to Mr. Morantz, and then on to Mr. McLeod for five-minute rounds.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Mr. Chair.

Thank you for all the presentations. It's been very interesting. I am extremely familiar with the fiscal box that municipalities find themselves in, as the former chair of finance and infrastructure under Mayor Bowman in the city of Winnipeg. At the risk of sounding like Bill Clinton, I feel your pain.

Mr. Karsten, I think Mayor Hurley raises an interesting point regarding opening up the wage subsidy to municipalities. Why not take that approach as opposed to a direct subsidy mirrored on the per capita distribution structure of the gas tax?

[Bill Karsten]

Certainly our position all along has been that municipalities should qualify for that, to be perfectly frank. We brought that to cabinet ministers and to the Deputy Prime Minister. Certainly that was brought up at cabinet, and we were disappointed to hear the Minister of Finance and the Prime Minister say that municipalities would not qualify, but that would still not cover all the losses we're facing.

Certainly in Halifax, as I alluded to, we've let go 1,500 people right now, but that's just casual and part-time workers. As we get deeper into looking at our budgets and looking at all the financial losses we're facing, other things are going to have to go.

You come from a municipal background and thank you for that work. This whole crisis certainly exposes something we've been talking about—and I'm sure Mayor Bowman has been talking about—for a number of years, and that is the outdated fiscal framework we are all in.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

You just beat me to my next question. For years, we've been advocating for a new deal for municipalities. When I was on council certainly that was a major ask, and I'd appreciate hearing your comments on it.

It's been decades now since municipalities have been asking for new taxation authorities in decision-making and more autonomy over their expenditures. If this had been done years ago, do you think municipalities would be in a better position today to weather this storm?

[Bill Karsten]

Certainly that's hindsight. My simple response would be yes. It's never too late to have that conversation.

In reality, Marty, the framework is fundamentally misaligned with the modern role that municipalities play, and that has increased in the last four, five, six or seven years. When we're through this, make no mistake, our local leaders will be ready for those tough conversations, of course without opening the Constitution, if that's at all possible. However, today is not the day for that conversation.

I can't stress enough—and I've been in this municipal world now for 16 years—that this is a crisis. When we talk about not knowing what we're going to have to cut two months from now, it is not about the revenue loss in and of itself. It's not about the financial crunch. It's all about the loss of the ability to know what we have to do next. It's going to eventually have to result, unfortunately, in a loss of essential services.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

Thank you, Bill.

Along that line, I think it's important for people to understand that municipalities must have a hard balance in their budgets. They can't simply start running the money printing press like the federal government can, or even run deficits. When revenue drops like these take place, the effect is immediate, so I appreciate your coming here today and making these points.

I have just one quick question, if I may, Mr. Chair.

Mr. Karsten, on the path forward, does the federation have any thinking going on, planning or policy around opening up the economy again once we get on the other side of this?

[Bill Karsten]

I alluded to the fact—and we're so very grateful for it—that we have a direct line of communication with Deputy Prime Minister Freeland. We try to meet via conference call once a week with her and/or with Minister of Infrastructure Catherine McKenna. We've certainly talked about what Mr. Easter talked about just now with regard to making sure we have the programs ready to go. We can be major partners in the recovery, certainly through infrastructure and other means, so that conversation is also under way, but it's not our priority today as much as the financial crunch and the crisis we're in.

[Marty Morantz, Conservative, Charleswood—St. James—Assiniboia—Headingley, MB]

I understand. Thank you.

Those are my questions, Mr. Chair.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

Next is Mr. McLeod and then Mr. Poilievre.

Pierre, you wanted to raise a point earlier. I didn't see you. Are you okay to wait until your turn?

Okay. We'll go to Mr. McLeod, then.

Michael, you're on.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

Thank you to all the mayors for their presentations and to everybody who has presented today. I did five terms as the mayor of my small hometown in the Northwest Territories, so I appreciate all the concerns that have been raised and the recommendations.

I also want to welcome Minister Wawzonek and Shaleen Woodward. Thank you for joining us today. I thought the presentation was very informative, and I appreciate it.

l have a couple of questions.

As the minister knows, we in the north are living through some very uncertain times. The last thing that people in NWT wanted was greater uncertainty, but unfortunately we now have the issue that Dominion Diamond Mines is filing for insolvency protection.

Minister, could you talk about some of the measures—I think you flagged the debt limit—the GNWT would like to see the Government of Canada provide greater certainty on, in the immediate future? What does the north need right now? That's my first question.

[Caroline Wawzonek]

Thank you, Michael.

I'll speak briefly to the mining sector specifically. I'm conscious of the time that you're under here for this round of questions.

The mineral resource sector right now hasn't been able to benefit from any of the measures that have been announced so far by the federal government. The companies, in general, are either too large or their corporate structure is such that they don't qualify; they're ineligible. Right now, we have some industries that have actually taken steps to send their workers home but keep them on the payroll. They've sent those workers home to their remote communities to protect them, to help protect our health care system, yet they haven't been able to access any of the funds, notwithstanding the fact that they, too, are facing serious constraints in terms of any revenue flow as well as continuing high costs. That's one more sector to look at. I know there are a host of asks coming, but that is one that hasn't been addressed yet, and it's one that impacts us significantly across all three territories.

Beyond that, there are the more general things. I know this was referenced a couple of times, but we're now seeing Internet capacity as being a huge issue. Some relief in that regard is helpful, keeping in mind again that there are high fixed costs in the north, high costs of living and high costs of doing business. Whether we take it from the perspective of addressing that at the cost front or whether we take it from the perspective of bringing more cash into the hands of the people or the businesses that are paying those costs, I think we're going to need that flexibility. Sometimes providing the flexibility to the individual community governments, or to provincial and territorial governments, in our case, will help us address those in ways that are actually the most targeted.

Thanks.

[Michael McLeod, Liberal, Northwest Territories, NT]

You mentioned that the GNWT had paused on regular business because of COVID-19. I think the federal government, for the most part, has done the same in terms of the budget that was supposed to have come forward on March 30. It has now been deferred.

As the NWT economy emerges from this pandemic and starts to look at next steps, I want you to talk a little more about what the federal government can do to assist in this recovery.

[Caroline Wawzonek]

Thank you for that.

There's really no end to the things that the federal government could do for us, to be quite frank about it.

When we put a pause on, we were in the middle of a budget session as well. Rather than push through a budget at the very tail end of our session and at the beginning of the COVID situation, we are right now operating on an interim appropriation. We are heading back sometime in the spring, likely under some sort of varied types of rules—as I know you're experiencing there as well—in order to recall our House and to pass an actual budget. However, where the projections we had previously were for a surplus, we're now going to be looking at likely some very different revenue projections.

There are two things I'd highlight there. One is around the process that we're going to have to go through. We do have a consensus government up here, so our system is a bit different from most of the other provincial and territorial governments across Canada. It's going to take some additional engagement and outreach for us to really bring back a measure of engagement with all the different stakeholders and indigenous governments, community governments, to help assure them that we are identifying what's going on on the ground across the Northwest Territories when we do come back.

In terms of the actual substance of what's happening, with the different revenue projections that we have now, as we try to see into the future as to how COVID-19 will evolve and how our response is going to evolve, there is really little doubt that we're going to need some fiscal flexibility. I think I heard someone earlier talk about putting some “skin in the game”. Quite frankly, the territorial government wants to be putting that skin in the game, but we're going to need some flexibility in order to do that effectively, given that our own source revenues right now are really being rather decimated.

Beyond that, it's the idea of looking even further, looking into the future of what we want our economy to be a year from now, two years from now or five years from now, and trying to see this as an opportunity rather than just being mired in the day-to-day business, which we still have to get done. The Arctic and northern policy framework really identifies a lot of the challenges that exist across the north. If we're going to be doing some bigger-picture stimulus, let's look there and find out what our opportunities are that will provide stimulus immediately to get some projects going, whether it's at a planning stage or whether it's actually at a shovel-ready stage. Either one of those will be a benefit. And what can we do to then fix some of these underlying problems that have really come into strong relief? I've heard others talk about some of them.

I see the hand signal going up. I'll stop there.

[The Chair, Liberal, Wayne Easter]

Thank you, Minister Wawzonek.

We will go to Pierre Poilievre and then to Sean Fraser.

[Pierre Poilievre, Conservative, Carleton, ON]

Thank you very much, Mr. Chair, and I thank all the witnesses for being here.

We have representatives of municipalities before us today, and it made me reflect on the gargantuan increases in revenue that municipalities have enjoyed over the past three decades.

Back in the early 1990s, the federal government played no role in funding municipal infrastructure. The Chrétien government then made the decision to contribute to funding municipal infrastructure by offering one-third of the cost of some limited number of major projects, and then the Martin government introduced a GST refund and a gas tax initiative.

Then the Harper government came in, doubled the gas tax transfer and massively increased the federal capital budget for municipal infrastructure. Then along came the great global recession, which, while it had a major hit on federal and provincial revenues, did not significantly harm municipal revenues, because the property tax doesn't take the same kind of immediate hit in revenue as income tax and corporate taxes do.

Nevertheless, the federal and provincial governments then poured in about $40 billion in one-time funding, on top of all the other funding that municipalities regularly get, and did a monstrous, massive federal and provincial uploading of municipal capital costs. The new Trudeau government came in and then again massively increased the transfer for the same things, and then I think in a recent budget they doubled the gas tax transfer. I stand to be corrected on that.

There has been this spectacular increase in revenues for municipalities over the last 30 years. In fact, in the period leading up to 2013, revenues to municipalities were growing twice as fast as the combined rate of inflation and population growth for a decade straight. That's not true for any level of government.

We have seen this absolutely massive increase of revenues to municipalities. Today we're seeing a request for another $10 billion that will last four months, and then, as I gathered from the testimony, we'll be back again in four months to discuss even more.

We continue to have more and more burden on the backs of federal taxpayers. These are the same people who pay property tax in your municipalities. They don't come from a different planet. They are the same. There's only one taxpayer.

My question is actually for Brandon Ellis, who is with the St. John's Board of Trade and represents the entrepreneurs and businesses that will end up paying for all of this. They're the ones who employ our young people and propel our poor out of poverty by giving them great jobs.

Mr. Ellis, are your members concerned at all about the enormous tax burden they are going to have to pay as a result of the roughly quarter-trillion dollars of new debt that governments are adding this year, and the seemingly endless demands for new spending that are continually being placed on the federal taxpayer?

[Brandon Ellis]

Thank you, Mr. Poilievre. I appreciate the question.

As noted in my testimony a year ago, and I know several committee members were here, our membership has been consistently concerned for the past 25 years with the high amount of deficit spending. We have a survey out at the present time, and I can forward the results to the committee afterwards, once they're complete, but I would suggest that there would also be concern that high deficits and high spending today will lead to higher taxes tomorrow. I would say there would be a level of concern.

[Pierre Poilievre, Conservative, Carleton, ON]

Understandably so. It was only two years ago that the federal government tried to hammer your members with new taxes, particularly with penalties for small businesses saving within their companies. That looks extremely short-sighted, now that businesses that saved within the company are the ones that are best positioned to weather this storm. We should encourage rather than punish entrepreneurs for that kind of responsible behaviour, but that was what the federal government attempted to do.

Some of the witnesses have commented on how the federal government has an easier ability to borrow on international lending markets, and that is somewhat true, although Bloomberg News reported yesterday that Canada's AAA rating is at risk precisely because the federal government is seen by lenders as vulnerable because of the implied guarantees it has to give provinces and municipalities, and if we do lose our AAA rating at a federal level, we will have to pay higher interest rates on our massive and growing debt, which means less money left over for valued and treasured services.

Do you worry, Mr. Ellis, about the extra burden that a credit downgrade for the federal government might place on the taxpayers that your industry group represents?

[Brandon Ellis]

Yes, we feel that it might be a significant burden. I spoke with a few of our CPAs yesterday, and they highlighted that as a big concern. They said we are in a weaker position today than we were 10 years ago to come out of any type of economic recession. The CPAs are worried. They're fairly risk-averse. I'm pretty worried as well.

[The Chair, Liberal, Wayne Easter]

Thank you, all.

Sorry, Pierre, we're quite a bit over.

We'll go to Mr. Fraser. After that, we'll try to get four single questions if we can.

Sean Fraser, you're on.

[Sean Fraser, Liberal, Central Nova, NS]

Thank you very much.

Thank you to all of our guests for their testimony.

My questions will be, at the beginning, perhaps exclusively for Mr. Karsten with the FCM. It's very good to see you here. I'm torn over the position you have put forward, Mr. Karsten. I fully appreciate the emergency in which municipalities and virtually everyone else have found themselves in recent weeks, but I do find some of the points made by my colleague Mr. Fragiskatos, and Mr. Poilievre just now, to have some real merit.

I want to focus on the portion of your testimony where you recognized that the province has a role to play.

One thing I'm tossing over in my own mind is the notion that this could be a series of provincial governments appearing before the finance committee and saying, “Look, we're in tough shape.” I know our guest from Newfoundland could probably testify to that effect for his home province. If they came and said, “Some of the operating costs we're accustomed to, such as paying teachers, are something we would like to have the federal government take over”, can you distinguish the ask that municipalities are putting on the table from a situation where the provinces would come up and say, “We've lost a massive source of our revenue too. We're really worried about the future”? Newfoundland has said as much publicly.

I'm curious if you can distinguish that situation for us.

[Bill Karsten]

Sure. Thank you very much, Sean, for the question.

The distinction is basically as simple as this. As I said a minute ago, these are unrecoverable losses. There's no way, no mechanism that municipalities have to say, “Well, if we impose this or a new way of putting this forward to our residents to pay the property tax, for example, we can recoup that money at some point.” We can't run deficits. Yes, theoretically, we could look at ways, potentially, of borrowing money, but how are we going to repay that?

That's where it really lies, and that's why it's such a crisis today. It lies in the fact that, as we discussed briefly with the member from Winnipeg, the fiscal framework for municipalities is broken. This is no time to address that, however, so what other avenue do we have than to basically plead with our federal government?

We are not only all the same taxpayers. We represent the same Canadians. Municipalities are on the front line on a daily basis, delivering the most fundamental services to our residents—the police and fire departments, the services they depend on. When we don't have the revenue coming in, we have to start looking at ways to cut the budgets we face. That is not a very pretty picture.

[Sean Fraser, Liberal, Central Nova, NS]

It sounds to me like you may be acknowledging that in a perfect world the proper place for this to go would be through the ordinary funding that we were more accustomed to. Municipalities, being provincial creations more or less, in a perfect situation would have their hands on money through the provincial government. I think you're saying that this is not a perfect situation. Is that more or less the scenario?

[Bill Karsten]

Sean, thank you for putting it that way. It certainly goes to what I've said before. Yes, we do need the provinces to work with us.

Quite frankly, in my many conversations with the Prime Minister himself, there are those in cabinet who recognize the concerns and the problems that municipalities sometimes have in dealing directly with our provincial counterparts.

What we're calling for, as much as anything.... Yes, the $10 billion to $15 billion is what we're looking at as a backstop to our financial losses, but we're—