Franchise fees may have unintended consequences


I have been following the conversation regarding franchise fees with interest for several years now as this is one topic that seems to pop-up once per term.

Of the arguments for franchise fees, the most commonly cited is that it allows the city to diversify its revenue stream while mitigating the impact of future tax increases. On the surface, this is a measure that I can support. Further to that, as a moderate libertarian, I am generally supportive of programs where the user/beneficiary of a service or infrastructure is the primary funding source. User fees are great. Those who use it, pay for it. This, in theory, would allow a reduction in the residential tax roll assessment.

However, with respect to government finance, theory and practice are vastly different. Governments in general, do not reduce base taxation levels in spite of new revenue streams. GST, as an example, was proposed as a “revenue neutral” alternative to the Manufacture Sales Tax when first proposed in 1989. When implemented in 1991, the implications were far from revenue neutral and the additional government tax stream simply funded exponential growth of government programs. There are a multitude of other examples of government user-fee based programs to fund infrastructure. Toll roads are common in eastern Canada and tolls are explicitly implemented to cover cost of construction and operation of the roadway – yet, rarely if ever, do users see toll rate reductions (even after the capital cost is repaid).

I fear that this would be the same outcome for the implementation of a franchise fee. While council may or may not direct administration to proportionally reduce the tax roll, we know that this won’t be a lasting measure as new business cases will continue to be brought forward to help utilize the franchise fee. This is not a direct comment on how this council will operate, but is a comment on the history of government finances.

In reality, the only upside I see to a franchise fee is the ability to generate revenue from property tax exempt buildings like hospitals and schools. However; any fee assessment to provincial property will ultimately be covered through provincial tax increases. Basically, it uploads the cost from a municipal level to a provincial level at which time it is recouped via provincial taxes. There is only one taxpayer, so we all ultimately end up covering the cost.

The argument of “everyone else has one” is not sufficient enough to move forward on franchise fees. St. Albert city councils have a history of using comparison metrics to different municipalities to suit a particular argument. “We” want to do this to be different from every other jurisdiction or “we” want to do this to be like every jurisdiction. “We” need to stop using other cities’ operations and finance as our primary metric for decision-making.

One of the biggest unintended consequences from this program will be the effect on low-income renters in the city. The franchise fee will be loaded onto the tenant’s gas and electric bill while the landlord will, in theory, pocket a reduction in the property tax assessment. This flies in the face of city initiatives for affordable housing.

Council must ask themselves:
1. Are you solving a problem with the implementation of this program? I think it can easily be argued that the answer is no.
2. Will the city receive additional revenue from this program? If it is revenue neutral, no.
3. Does the city have a revenue problem that needs to be addressed? No.
So, if the answer is no to the above, why is council investing time and resources on a program with little benefit for the city and no benefit for the resident and with potential damaging impacts to low-income residents of the city?

I urge council to put this issue to bed.

Dana Popadynetz, St. Albert


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