In the summer of 1858, a sweltering heat wave rolled over London and had no small historical importance for the seat of British government. The burgeoning city on the Thames — having rapidly grown to a population of 3 million — was still a city without proper sanitary sewers, and the combination of hot weather and flush toilets emptying into the river caused what’s memorably called “the Great Stink.” The choking, nauseating stench was so bad that it did something three prior waves of cholera had failed to do: convinced MPs to finally vote to fund a proper civil-works project to redirect the flows of London’s wastes elsewhere.
In a nice bit of historical juxtaposition, one of the other matters up for debate that summer was the Government of India Act, which formalized and cemented the control of the British Crown over the subcontinent and ended the rule of the British East India Company. British politicians were cementing their control over an overseas empire at a time when the city around them was literally rotten and rotting, which just shows that elected leaders can have a pretty skewed perspective on the world.
Ottawa isn’t London, and 2024 isn’t 1858, but the problem of skewed perspectives is eternal — and it came to mind this week in the wake of Ottawa mayor Mark Sutcliffe’s complaint that the national capital is being short-changed by both the provincial and (more acutely) federal governments. We’ve conquered cholera, but it’s still possible for a capital’s foundations to rot while national leaders put their energies and attention elsewhere. And wouldn’t you know it, institutionalized penny-pinching still stinks like sewage.
In a recent column, my colleague Matt Gurney said that he wasn’t sufficiently informed to adjudicate Sutcliffe’s complaints. I’m more of a municipal-policy nerd, so allow me to offer at least this much: while Sutcliffe’s tenure is certainly not beyond reproach when it comes to his city’s fiscal state, he has some legitimate grievances — ones he shares with other municipalities — that just happen to be exacerbated by Ottawa’s largest employer and landowner.
While Sutcliffe has a litany of complaints of varying levels of seriousness, he dedicated a lot of time in his recent speech to the matter of “payments in lieu of taxes,” or PILTs. The root of the problem is that municipalities, as creatures of provincial jurisdiction, are prohibited from levying any kind of taxes on federal property. Under Ontario law, they’re prohibited from levying taxes on provincial properties. Yet both federal and provincial governments depend on municipal services like water, sewers, and road maintenance to operate everything from offices to hospitals. Recognizing this, both Queen’s Park and the feds provide cities with PILTs as a kind of voluntary alternative to taxation.
You can probably guess the issue with this set-up: How much of your taxes would you pay if they were ultimately voluntary and you faced no legal consequence for paying less or even zero? That’s the problem that municipalities deal with under this system. It’s not a problem that’s exclusive to Ottawa: there are plenty of small towns where a single large provincial employer — jails, universities, and hospitals all qualify — is exempt from direct property taxation and so pays PILT instead. An enduring complaint from municipalities, through the Association of Municipalities of Ontario, has been that Ontario’s PILT was last adjusted in 1987 and hasn’t been updated for inflation since.
What is unique about Ottawa’s situation is that it’s a municipality with big-city bills — including ones related to a transit system it’s fitfully trying to bring into the 21st century — and the single largest employer and landowner (the federal government) is totally, permanently, and constitutionally immune from municipal taxation. This means that, when the federal government decides it has other priorities, it can simply… stop paying money to the city or pay less than previously agreed to, something that Sutcliffe alleges the feds have been doing more often in recent years.
Municipalities are a provincial responsibility everywhere in the country, but Ottawa is different. The National Capital Commission was created by Parliament after World War II precisely because federal leaders believed it was a matter of compelling national interest that Canadians enjoy a seat of government befitting a prosperous country. The Supreme Court, in the 1966 Munro decision, agreed that there was a matter of national concern at play and allowed that federal law could supersede provincial and municipal rules where they conflicted. That doesn’t mean Ottawa is an enclave in which provincial power is null and void, but it certainly means that the federal government has a larger role in the city precisely because MPs voted to give it one.
Lots of cities around the country are facing serious fiscal problems. Some of those problems long predate COVID-19 (hello from Toronto), while others — such as the explosion in homelessness and drug use — stem largely from the pandemic and its after-effects. When it comes to any other municipality, the federal government is within its rights to tell mayors and council to go hat in hand to their premiers before begging national leaders for support. And, indeed, Sutcliffe has his share of complaints about provincial spending as well, particularly as it relates to transit investments.
But when the city of Ottawa struggles specifically because of choices made by the federal government — like unilaterally reducing PILTs — MPs should think about what exactly they want from the city. If Ottawa is going to be a city “in accordance with its national significance” (language that’s still in the National Capital Act), it needs real dollars, and the feds should pony up. If they won’t — if they’re more committed to parsimony than to supporting the needs of the city they work in — then we should all probably get used to the sight, and smell, of more decay.
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