MITIGATING LITIGATION RISK IN NEW MUNICIPAL REVENUE STREAMS

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Municipalities are finding it increasingly difficult to fund the growing cost of local services and other municipal operations. Financial support from higher levels of government is limited, while increases in property taxes often face stiff resistance from the electorate. While certain municipalities have been given special powers to assess and collect tax other than just property taxes, most municipalities must rely on property taxes as their principal means of funding many of the services they provide.
Under these circumstances, most local governments have been compelled to consider user fees and regulatory charges to meet the growing cost of, and demand for, municipal services. Implementing new fees and charges requires special care as they are vulnerable to court challenges alleging that they are in fact taxes and therefore beyond the power of most municipalities to assess or collect. The cost and distraction of litigation is something every local government tries to avoid.
Fortunately, when properly implemented, user fees and regulatory charges are within the statutory authority of a municipality to enact. Importantly, the courts have provided guidance as to what constitutes a permissible user fee and regulatory charge and what is required to defend a legal challenge alleging a fee or charge is a tax.
WHAT IS A TAX?
In Lawson v. Interior Tree Fruit and Vegetable Committee of Direction [1931] SCR 357, the Supreme Court of Canada established a foundation for this discussion by pronouncing that taxes met the criteria of being:
• Enforceable by law;
• Imposed under the authority of the legislature;
• Levied by a public body; and
• Intended for a public purpose
On their own, however, the above criteria are not helpful in d...

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...ous analysis of the municipality’s accounts. A surplus itself is not a problem so long as the municipalities made reasonable attempts to match the fee revenues with the administrative costs of the regulatory scheme.”
CONCLUSION
It remains clear that when municipalities implement new user fees or regulatory charges, there are steps that can be taken to minimize the risk of litigation. For new user fees, that means linking the fee to the service being provided and making a reasonable attempt to match fees charged with the cost of providing the service. In the case of a regulatory charge, the charge should be reasonably justifiable in light of the cost and purposes of the regulatory scheme. In either case, prudent municipalities will conduct a careful financial analysis of the proposed fee or charge and make efforts to share that analysis with all affected parties.

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