Lawrence Solomon
National Post
May 30, 2002

This is the fourth in a five-part series on what should be done about our cities. Part Four: The less the feds help, the better cities fare.

America’s federal government is investing massively in its municipalities, leading to resurging U.S. cities that now outcompete their Canadian counterparts.

Or so the Federation of Canadian Municipalities told Parliament’s finance committee last week. "I always used to say, thank God we’re not like those American cities," admitted Jack Layton, the federation’s president. "I’m now having to say look at the facts. The Americans are investing in their cities . . . Either we learn from their history and catch up to them, or they will simply beat us in the competition as they’re doing now."

Mr. Layton’s facts, and his understanding of history, lead him to the assessment that Canada’s federal government should do as the U.S. government does. His view is echoed among officials in Canadian cities from coast to coast, and in the editorial pages of their daily newspapers. It has become the conventional wisdom, held by business leaders such as TD Bank CEO Charles Baillie and by prominent organizations such as the Conference Board of Canada.

Yet this conventional view is fundamentally wrong. Yes, many U.S. cities are making an impressive comeback, but that comeback comes despite – not because of – the U.S. federal government. Contrary to widespread anxiety over impending doom – "our cities are on the precipice of a financial crisis," in Mr. Layton’s words – Canadian cities are performing exceptionally well. By many measures, much better than their competitors south of the border.

The difference between federal government funding of municipalities in the United States and Canada is the difference between tiny and tinier. According to a recent study by Mr. Layton’s own Federation of Canadian Municipalities, the U.S. government provides but 3.3% of municipal government budgets, compared to the 1.3% met by Canada’s federal budget. That marginal difference is made all the more irrelevant by the nature of much of the city funding: showcase projects, far removed from the cities’ many unglamorous needs, that provide ribbon-cutting photo-ops for politicians.

While Canada’s urban lobby loudly speaks to the injustice of our federal government providing them with a tad less support, it will not even whisper about the much bigger gap in funding that comes from state and provincial governments – and for obvious reasons. Here are facts that Mr. Layton et al. don’t want Canada’s parliamentarians, or the public, to hear. Fact #1: Our provinces meet 17.3% of municipal needs, compared to the 4.5% that U.S. state governments provide. Fact #2: Combined, Canadian governments provide almost two-and-a-half times as much funding to municipalities as do U.S. governments.

If Mr. Layton and other scrutineers of municipal budgets really believe that Canadian municipalities should follow the lead of those to the south, they should call for Canada’s municipalities to try harder in the one area in which U.S. municipalities obtain markedly better funding – user fees. Fact #3: While U.S. municipalities obtain one-third of their revenues in user fees, Canada’s obtain one-fifth, and some municipalities, like Winnipeg, less than one-tenth. While he’s at it, Mr. Layton could call for widespread privatization of water and waste-water utilities, to help our municipalities meet the stellar water quality standards and cost savings that exist south of the border.

U.S. municipalities do lead ours in private utility and user pay systems – operations which help them maintain their independence – and here Canada should emulate the U.S. approach. But not when it comes to federal infrastructure programs. At the same time that they provide high-profile funding to U.S. cities’ competitiveness by undermining city economies.

The largest federal infrastructure program in the United States, and the one that Canada’s urban lobby most envies, is called the Transportation Equity Act for the 21st Century, a six-year, $US218-billion fund passed in 1998. TEA-21 does fund some urban roads and public transit projects that city governments might otherwise be unable to afford. But the small good that this might do for some cities is more than undone by its immense harm. The vast majority of TEA-21 funds are destined to towns and sparsely populated areas that do not have the industry or the people to economically justify major transportation infrastructure – these include revamping the interstate highway system and aiding underdeveloped regions such as rural Appalachia and Alaska.

Mr. Layton asks us to be mindful of history. TEA-21 continues the 50-year-long practice of heavily subsidizing megaproject highway building. Designed to encourage people and industries to leave cities, these programs undermined the urban advantage of locating industries near markets and led to the great decline of major U.S. cities after the Second World War – the so-called "hollowing out" that occurred when Boston, Chicago and other major cities lost one-third to one-half their populations. Similarly, federal housing programs encouraged people to move from city to suburb, as they continue to do to this day: By one estimate, U.S. federal aid to suburban development averages US$15,000 per house, helping to make the United States the most suburbanized society on earth.

Mr. Layton well understands that the U.S. government – heavily weighted to rural states that have voting strength out of all proportion to their populations – have historically favoured the United States’ low-population areas over its cities. Mr. Layton also understands that Canada’s electoral system, and federal government policies, have similarly been skewed against cities. But Canada’s have been less so, in part because Canada’s federal government is less activist than the United States, leading it to do less harm. Unlike U.S. cities, ours suffered relatively little, and sometimes not at all, from urban expressways that tore through the heart of city neighbourhoods, from abandoned downtowns, from devastating crime rates, and from severe decline. As a result, Canadian cities often excel relative to U.S. cities.

Evidence of our continuing success comes from all manner of sources, many of them independent foreign assessors who make their living comparing cities for the benefit of individuals and companies whose welfare depends on impartial, accurate information.

New York-based William M. Mercer, the world’s largest human resource consultancy, placed Vancouver as the world’s second best city in which to live in its 2002 Quality of Life Survey. Last year Vancouver ranked first. No U.S. city ranked in the top 10 in either year. In Mercer’s survey of the world’s cleanest cities, Calgary ranked first and Ottawa fifth. New York’s Robb Report, designed for globe-trotting American executives and socialites, placed Toronto’s Forest Hill neighbourhood in the world’s top 10 on the strength of its convenient access to shops, public transit, restaurants, and vibrant downtown. London-based Wallpaper, the ultra-trendy magazine, placed Montreal fourth in its list of the best places in the world to call home. KPMG’s 2002 report on the competitiveness of Western cities, sponsored by 45 economic development agencies in eight countries, ranked Canadian cities higher than U.S. cities in all five of its North American regions.

Canadian cities compete well against cities in the United States and other countries, in part because they must in our increasingly globalized world. As U.S. cities make their comeback, our cities will need to progress further, to remain competitive, and U.S. cities will then need to work harder still, to keep up. Even though, history teaches us, our federal governments will inevitably pursue policies that tend to drag our cities down, competition among cities, in this way, will help to pull them up on both sides of the border.

Other articles in this series:
Lawrence Solomon’s Next City Part One:
Globalization equals urbanization
Lawrence Solomon’s Next City Part Two:
Don’t tax, toll
Lawrence Solomon’s Next City Part Three:
One million more Torontonians
Lawrence Solomon’s Next City Part Five:
Advice to cities: take control of your province