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Mississauga’s one sided relationship with Pearson Airport forces City to seek new taxation powers


July 16, 2021
By Isaac Callan, Local Journalism Initiative Reporter, The Pointer

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Mississauga faces an ominous gap in its 2022 budget. It’s the sort of shortfall that would make a homeowner lose sleep about the bank repossessing their property.

Next year, a delayed drop in payments from Toronto Pearson Airport due to a steep decline in travel during the pandemic will see red ink splashed across Mississauga’s operating budget. After most air travel was paused in 2020, the airport, which pays a fee per passenger instead of standard property taxes, will send the City tens of millions less than it has in previous years. The deep blow will be felt in 2022.

Staffers at City Hall are trying to work out how to absorb the hit of $21.6 million in reduced `payment in lieu of taxes’ (PILT) from the airport. The figure works out to roughly $32 for every resident in Mississauga.

Municipalities in Ontario are not permitted to run deficits, so the PILT shortfall represents a rapidly gathering financial storm. Compounding the urgent concern are needs that were already being pushed off prior to the pandemic. The City’s long-term plans are grossly underfunded with a $3.5-billion capital shortfall for approved new projects and state-of-good-repair work. Last month, Paul Mitcham, Mississauga’s City Manager, admitted the $3.5-billion figure was for a list that is not even complete.

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Staring at a financial headache of epic proportions, Mississauga retained consultant Ernst & Young (EY) for a fee of $93,000 to analyze the current revenue tools at its disposal. In a June report to council, the consultant and City staff told councillors what they could and could not do.

“Many of the potential revenue tools identified by EY would require changes in legislative powers, similar to those contained in the City of Toronto Act,” a staff report explained.

The likelihood of Mississauga being granted new financial powers on its own is not good. It is unlikely any single city would get its own unique portfolio of taxation tools (like Toronto has) so an aggressive and coordinated province-wide advocacy campaign may be key if municipalities hope to dig out from the hole deepened by the pandemic, which was already gaping due to a series of responsibilities that have been downloaded onto cities for decades.

On top of public housing and aspects of public health as well as other needs, which municipalities were forced to pay for when the two higher levels of government shifted responsibility off their ledgers, the burden was further compounded prior to the pandemic when the Ontario PC government announced a number of sweeping cuts to public health funding for autism support, meal services, inspection programs and even infectious disease prevention, forcing local property taxpayers to pick up the slack for a range of services.

The provincial government is also moving rapidly to cut funding to conservation authorities, which would force local governments to either fill the gap or lose certain key services. While these cuts will not immediately impact the City of Mississauga’s budget as they are regional responsibilities, they still fall on Mississauga property taxpayers.

Long before the pandemic, it was already clear that municipalities across Canada could not manage all the costs dropped on their shoulders, while municipal revenue tools were not expanded.

The Federation of Canadian Municipalities (FCM) estimates the pandemic alone has caused a $10-billion to $15-billion near-term funding gap for the country’s 2,000-plus municipalities. That’s on top of the massive infrastructure deficit cities were already facing prior to the pandemic, pegged nationally at between $110 billion and $270 billion.

Unlike Toronto which has special taxation powers to issue levies on things like parking, hotel accommodation, personal real estate transactions, personal vehicles, alcohol, tobacco, billboards and even for amusement, Mississauga has no such revenue tools at its disposal.

The revenue disparity between the two cities becomes obvious when looking at the percent of each municipality’s overall funding that comes from property taxes: Toronto only needs about 33 percent of its money from property taxes; while Mississauga, because it does not have many of the tool’s its larger neighbour enjoys, needs property taxes to fund about 57 percent of its budget.

Toronto’s land transfer tax alone has raised more than $6.4 billion since it was implemented in 2008. The City charges this tax based on the price of a house: a sale of $500,000 results in a $6,475 payment to the City of Toronto and the same amount that goes to the Province. All real estate transactions in Ontario come with a provincial land transfer tax but only Toronto adds its own municipal share.

A $2-million sale price would result in $36,475 for the City and the exact same amount for the Province.

Such a tool for Mississauga could almost single handedly solve the City’s growing financial woes.

Instead, it faces increased pressures.

Mississauga relies primarily on property taxes, the airport PILT and user fees to fund its needs. Of the tools available to the City, Mississauga is not implementing a special area rate and land-value-capture-tax or encroachment tax.

It’s unclear why it’s not taking advantage of these potential revenue tools as they could represent a significant funding boost, for example, a land-value-tax could be imposed for all the private commercial projects along the Hurontario LRT corridor that will see their property values skyrocket because of infrastructure paid for by taxpayers.

Instead, the City is facing a major loss in one of its key revenue tools.

Mississauga’s relationship with Toronto Pearson Airport will be a unique drain on the 2022 budget. Unlike other municipalities, the City and airport are linked at the hip, with taxpayers on the hook for some of the costs associated with Canada’s busiest international hub. It is unclear if any of the financial tools available to Mississauga will be enough to plug its airport-sized financial hole.

The City’s agreement with Toronto Pearson Airport is enshrined in provincial legislation that dates back to 2001. Instead of paying property tax like residents and businesses, the airport pays just under $1 for every passenger that passes through its two terminals. The fee has not been updated to reflect factors like inflation since it was initially set.

A series of caveats mean no matter what happens, the City gets a raw deal. For the years the airport does well, an increase-cap of five percent is applied to its payments, limiting how much Mississauga can share in its success. A year of seven percent passenger growth would only see PILTs grow five percent, the same is true of a 10 percent spike or even 15.

The cap is not applied on the way down. If the airport has a bad year, there is absolutely no limit to how low its PILTs can fall, something Mississauga is bracing to experience to the tune of $21.6 million next year.

From its new low, PILTs can only grow in five percent increments.

As the City weighs up an advocacy campaign to push the Province for new money raising powers, Mississauga Mayor Bonnie Crombie has said removing the cap on how fast PILTs can grow is her top priority.

“I did have a meeting with the minister and his key officials and ours at the City on PILTs, and if I had to choose one of the list of our priorities, I would say it would be making the change to remove the five percent cap on the PILTs,” she told The Pointer at a press conference. “That is critical – vital – for the City of Mississauga that that change is made, it represents a huge structural deficit in our finances.”

The benefits Toronto Pearson Airport receives from the City of Mississauga and its taxpayers are significant.

As The Pointer has previously reported, taxpayer funded ambulances from the Region of Peel service Pearson at no additional cost throughout the year. The precise taxpayer cost of this is hard to calculate as Peel Paramedics do not provide a specific per-call cost, but dividing the 2020 operating budget (the last budget planned pre-pandemic) by projected call rate yields a cost of $775 for every paramedic call, if all back-end operating costs like dispatch staff are included.

In 2020, 1,405 ambulances were called to the airport, even as most travellers were forced to stay home. The total cost to taxpayers was around $1.1 million.

On top of the PILTs cap and complimentary paramedic service, it is unclear if Toronto Pearson Airport pays Mississauga’s stormwater fee at the same rate as residents and businesses. To cover the cost of stormwater infrastructure, Mississauga charges an annual stormwater fee based on the area a home covers. Those in apartments or with smaller footprints pay lower fees because they contribute less stormwater to the system by paving over a smaller area with the asphalt or roofing that requires cities to build stormwater infrastructure in the first place.

In 2017, the City took the Greater Toronto Airports Authority (which runs Pearson) to court for $2.5 million in unpaid stormwater charges. The airport argued the stormwater charge was an unfair tax and said it managed the vast majority of its own stormwater runoff. Both the City and airport told The Pointer the case had been resolved out of court and the final decision was part of a private settlement.

“They are paying annual fees. The agreement is confidential,” a Mississauga spokesperson said. Toronto Pearson Airport said the two organizations had recognized “the unique character of the airport” and settled the disagreement. It is unclear if Toronto Pearson Airport is paying the same stormwater rate as residents and businesses in Mississauga, or if it has negotiated its own unique rate.

To deal with its PILTs loss and keep funds flowing into City Hall, Mississauga is looking to expand its fundraising tools.

In its report, EY outlined the variety of tools available to the City of Toronto under unique legislation and how much they would raise in Mississauga. The powers are not available to the City at the moment and would require an overhaul of Ontario legislation, something relatively unlikely under the current Progressive Conservative government. During a debate in 2015, Minister of Municipal Affairs, Steve Clark, then in opposition, said he opposed allowing a land transfer tax and pushed the then-governing Liberals to commit not to use it.

If Mississauga were to be granted new powers, the City could raise the revenue required to plug its PILTs losses. Some of the potential revenues are significant: a land transfer tax (imposing a one percent tax on all sales except first-time buyers) would give Mississauga $76.1 million in a year; a $45 vehicle registration fee could pull in $39.5 million; and taxes on alcohol, tobacco, advertising or amusements would yield smaller windfalls between $913,049 and $5.7 million.

During a lengthy discussion at General Committee on June 23 councillors instructed City staff to prepare reports investigating a vacant home tax, incremental property tax, landfill levy, land value capture and an encroachment tax (charged for anything that uses or utilizes municipally-owned lands). These are powers Mississauga or the Region of Peel already has access to under the Municipal Act.

Bureaucrats were also told to begin coordinating with other cities to decide which additional powers municipalities and mayors should lobby the provincial government to grant.

“This isn’t a tax grab, we just have a very large infrastructure deficit and cities are always looking for ways to find more long-term and sustainable funding so we don’t have to go cap-in-hand to other levels of government every time we have an aspirational project that wants to be built,” Crombie said to her council colleagues.

In a presentation, Brad Butt, vice president of government and stakeholder relations for the Mississauga Board of Trade (MBOT) pushed councillors to be cautious. He stressed a need for the city to stay competitive and asked for extensive consultations to take place before any final decision is made.

“Just because Toronto or any other municipality implements a new tax does not mean it is right for Mississauga,” Butt said. He listed the municipal accommodation tax, stormwater charge and user fees as costs the City already levies.

Council and City staff have begun a process to explore new revenue tools that could take years.

Some tools are already available and will require extensive consultation before they can be rolled out. Others are not permitted under current legislation and would need a gargantuan and coordinated advocacy campaign to end up at City Hall.

In the meantime, Mississauga needs to find a way to plug its looming $21.6 million gap from Pearson Airport.