0w2010 01 RESUM EJECUTIVO 03 DEFcarta ang
26/10/10
19:49
Página 64
EXECUTIVE SUMMARY 64
United Cities and Local Governments
imposing indirect taxes, which is a stronger tool preventing them from distorting interprovincial trade. Second, state and local governments are prohibited from taxing international trade. In addition, the U.S. Constitution supersedes the state constitutions when conflicts arise between them. Limitations arising from state and local governments’ inability to distort interstate commerce are imposed both by federal court constraints and by congressional legislation. The revenue raising ability of local and state governments is significantly constrained by these limitations. •
•
Intergovernmental transfers provide a significant share of local financing: Both Canadian and U.S. municipalities depend on transfers from provincial/state governments and, to a lesser extent, from the federal government. In Canada in 2007, for example, transfers accounted for over 40 percent of local government revenues; in the U.S., transfers accounted for almost 34 percent of local government revenues. In most cases, these transfers are for specific purposes (for example, to pave roads or subsidize recreation programs) but, in some cases, they are general purpose grants (for example, they can be used for any expenditures or to reduce taxes). Canadian school boards depend much more on transfers than do municipalities. Over the last 20 years, overall transfers to municipalities in Canada in constant dollars per capita have fallen at the annual average rate of 0.1 percent. Transfers to local governments in the U.S., on the other hand, rose 2.3 percent annually in constant dollar per capita terms between 1992 and 2006. Federal mandates often require municipalities to generate funds to meet service standards: Higher level governments alter local behavior through
both carrot and stick approaches. The carrot approach often involves providing grants that include conditions that require local governments to spend the money in a particular way or alter the local price of delivering services that the higher government would like provided. The stick approach often means requiring local governments to deliver specific services, to use specific approaches to deliver the services, or to meet certain input or output standards as the services are produced. Of course, municipalities in both Canada and the U.S. may be more concerned with finding sufficient funds to meet the service standards associated with all of these functions than they are with the distinction between mandated or non-mandated services. Higher standards have led to higher costs but not necessarily to higher provincial funding. Municipalities often find such requirements and changes in those standards difficult to meet both in terms of qualified staff and capital demands. •
Municipalities are responsible for much of the countries’ infrastructure: Most public infrastructure is the responsibility of municipal governments. The argument has been made that infrastructure is in a state of disrepair because the municipal financing of infrastructure is in a state of disrepair. Some of the reasons include: politicians prefer to support short-term projects because of reelection rather than long-term capital projects; accounting practices fail to include replacement costs for depreciating assets resulting in a fiscal shock when it is time to replace the asset; and inadequate user fees and local taxes promote over-consumption of local services and an increased demand for infrastructure.
•
Local government services should be financed with user fees wherever possible: Collecting user fees is generally the preferred mechanism for financing local