Toronto, other cities say costs of legal cannabis will leave them millions of dollars short

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Toronto Mayor John Tory, who heads Ontario’s largest municipality, said the staff has estimated cannabis legalization will put the city on the hook for “tens of millions of dollars” in additional policing, paramedic, fire, public health and other costs.

“And the number that they said they were going to give us was, I guess, we get $3 million,” and a similar amount after that, said Tory, whose council voted Thursday to allow cannabis stores to open shop in the city starting April 1. Late Thursday, the province announced it would only issue 25 licences across Ontario for business at first, blaming national supply issues.

“It clearly is not enough to cover all our costs.”

Tory said in an interview the city’s position has been that the provincial and federal governments should pick up all of Toronto’s extra cannabis expenditures.

“We didn’t change the law (federally) and we didn’t set up the regulatory regime provincially,” he said. “Therefore property taxpayers should not bear this cost.”

Under current plans, municipalities will share — on a per-household basis — in the $40-million Ontario Cannabis Legalization Implementation Fund, set up to offset their pot-related costs over the next two years.

The fund, which will ensure that even the smallest municipality gets at least $5,000, was sliced from a $100-million grant the province received from Ottawa to help transition into the legal pot era.

Municipalities thatallow cannabis stores to open shop will get another similar grant later in 2019.

After that two-year period, municipalities will share half of any revenues generated by Ontario’s portion of the federal excise duty, should these exceed a total of $100 million over the next two years, provincial finance ministry spokesperson Scott Blodgett said in an email.

“We would like to be very clear … municipalities must use this funding to address the costs that directly relate to the legalization of recreational cannabis,” Blodgett said.

These would include any increased enforcement costs for police and public health and court agencies, he said.

Blodgett said the provincial funds would also partially cover costs related to increased use of 311 phone inquiry lines, fire and paramedic services as well as cannabis-related training for municipal workers.

In addition to excise revenues, Ontario will keep its standard 8-per-cent portion of the federal/provincial HST charged on online and store sales. The size of this cannabis pot will depend on the number of stores that eventually open across the province, Blodgett said.

“Provincial tax revenue is directed to the Consolidated Revenue Fund and is used to meet the priority needs of Ontario families such as health care, education and infrastructure,” he said.

Read more:

Mississauga says no to cannabis

Toronto opts in

More distance urged between shops, schools

But Blodgett said that only municipalities that opted to allow pot stores will be eligible for any of the provincial funding beyond the initial payment. Municipalities have until Jan. 22 to say no to the stores, otherwise they must allow them in any number and almost any location that retail is permitted. (The Alcohol and Gaming Commission of Ontario will have sole discretion over the number and placement of the stores, which can’t be within 250 metres of schools.)

King Township Mayor Steve Pellegrini said the relative pittance smaller municipalities would get from the province in the per-household formula is one of the main reasons he rejected stores.

“We’ve got 9,000 households in … the largest municipality in terms of area” in York region, Pellegrini said. “We have more roads and everything to patrol, but with a very limited population, and I would get next to zero,” said Pellegrini, whose council voted unanimously to reject the stores.

He said the $5,000 minimum the province will give all municipalities — the only payment his opted-out community will receive — is “a joke” and would not put a dent in any town’s extra cannabis costs. “That’s insulting. That’s not going to get me anything.”

Toronto police spokesperson Caroline de Kloet said the force is still calculating what its increased cannabis costs might be.

But just north of the city, the numbers have been crunched. York Regional Police estimated those costs would soar to some $7.7 million annually by 2021, said Jeffrey Channell, manager of financial services.

That would amount to $6.41 for each region resident for police services alone, Channell said, adding that many of the estimates were based on research in Colorado and Washington state, where cannabis has been legally sold for nearly five years.

But current provincial funding for all of the region’s increased cannabis costs over the next two years — including to public health and paramedic services — is only $1.40 annually per person, he said.

The force’s increased spending would arise out of some 26 changes and requirements brought on by legalized cannabis. These include roadside testing and its required equipment; increases in criminal and motor vehicle accident investigations; a team to combat any ongoing black market sales; and a new impaired-driving co-ordinator.

Colorado and Washington research suggests the main front-line policing impacts “are around impaired driving, traffic stops, seizures, drug violations, increases in motor vehicle collisions and injured persons,” he said.

Channell said tax revenues in Washington state were much higher than expected and that the federal and provincial governments might have much more money to pass down to the municipalities than currently anticipated.

That state’s $460-million (U.S.) cannabis revenues last year would translate into $3 billion (Canadian) over this country’s population if similar sales levels were seen here, he said.

“That’s three times any official Canadian estimate of excise taxes.”

But Channell said every significant police organization in the country — including the Canadian Association of Chiefs of Police — has advocated for proper cannabis-related funding from senior governments.

York police Chief Eric Jolliffe said the region’s property tax base should not be responsible for any extra costs for his force.

“Both the federal and provincial governments are collecting revenues from the sale of cannabis and we have been repeatedly assured we will receive funding to help offset these costs,” Jolliffe said in an email. “As of now, we have only received a small fraction of the costs we have incurred for up-front training.”

In fairness, Tory said, many of the estimated cost hikes for police and other services may never materialize.

“For example, the volume of (311) phone calls we’re receiving at the moment is lower than expected,” he said, adding that expected increases in 911 calls have also failed to materialize.

“I’m prepared to have a little while where we actually see what the experience is. But I think it’s safe to say that as of this moment, the money they have committed to us is less than whatever our costs will be.”

Tory said estimates of extra pot costs the city would face would be above and beyond those the force incurred while policing and prosecuting cannabis crimes during prohibition, which ended Oct. 17.

Association of Municipalities of Ontario president Jamie McGarvey figures any money is better than none, but says civic leaders should monitor their cannabis-related costs closely.

“We’re going to be dealing with (any fallout costs) anyway so my own personal feeling is we’re better to opt in, because at least we’ll get some extra funding,” said McGarvey, who is also mayor of Parry Sound.

McGarvey — whose group helped lead negotiations over the funding split with the province under the former Liberal government — said Queen’s Park held all the cards during those talks.

“I think we tried to get as much as we could for the municipalities but that is totally on the call of the province,” he said. “They’re the ones controlling the pot, no pun intended.”

Tory said that in talks, the province has shown some sympathy for the idea the municipalities should not bear the bulk of extra costs. “They have accepted the principle that we shouldn’t be put to a lot of extra expense.”

Tory said municipalities have no way to force the province to up the ante, besides dogged lobbying.

“I’m not going to be satisfied with hope,” he said. “But my plan B would be to continue advocating,”

Joseph Hall is a Toronto-based reporter covering cannabis. Reach him on email: gjhall@thestar.ca

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Finance Minister says corporate tax breaks needed to stop Canada losing business dollars to U.S.

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OTTAWA—Finance Minister Bill Morneau is defending his government’s big tax breaks to corporate Canada, saying that Ottawa had to act or risk losing business investment to the U.S.

Confronting criticism that Wednesday’s economic update was too focussed on business priorities, Morneau said that ensuring Canada remains competitive in the face of big corporate tax cuts south of the border is critical to the country’s economy and job creation.

But he said that the Liberal government is mindful that it has more work to do to address the needs of low-income and middle-class Canadians.

“We know there is always more to do in that regard, but we can’t forget that, for a significant number of people, we’ve got to find the right jobs for the future,” Morneau told the Star.

The federal Liberals used this week’s economic update to deliver tax changes to allow companies that invest in manufacturing and clean energy to write off their spending on new equipment right away. Other businesses will be able to write off more quickly a greater portion, but not the full amount, of their capital spending.

Morneau says that Ottawa had to act in some way to ease the tax burden on Canadian corporations because of Washington’s sharp cuts to corporate taxes, which had eliminated Canada’s tax advantage.

The cost of not acting would be losing businesses that were already here and making Canada less attractive to foreign investors, he said, during an interview in his office in the Finance Department building.

“We recognized that as our reality, so we wanted to make sure that that next investment can be made in Canada,” Morneau said.

“Not only are we assuring that investment, but we are assuring the newest technology will be here in Canada, which means the more exciting jobs,” he said.

Morneau, who is scheduled to talk to a Toronto audience Friday about the update, said that based on “very positive feedback” from corporate leaders, he’s confident that businesses will take advantage of the measures to make job-creating investments.

“We’re making a decision for the long-term health of our economy and the exciting jobs of tomorrow. We need to do that at the same time as we think about how we assure that people who are really challenged are helped out along the way,” he said.

Morneau, who has served as Justin Trudeau’s only finance minister, has one budget left before the next election in October, 2019.

Looking ahead, Morneau said that income equality, skills training to meet the changing economy and helping the less fortunate will be priorities for the final months in office.

Morneau said the measures taken so far by the government — notably the child benefit, the Canada Workers Benefit and increases to the guaranteed income supplement — will lift 652,000 people out of poverty.

“That’s an enormous impact,” he said.

“We don’t think our job is done at all. We think we have to be continually focusing on how we ensure that middle class Canadians have optimism about the future and we need to continually be focusing on how people who are the most challenged in our society move into a better situation,” he said.

NDP MP Peter Julian (New Westminster-Burnaby) said the priorities laid out in the economic update were “completely inappropriate” and would do little to help the pocketbooks of everyday Canadians, many of whom are struggling with record levels of household debt.

“The announcements … of massive corporate write-offs is unbelievable. It just shows how out of touch this government is, given the size and scope of what Canadians are struggling through,” said Julian, the party’s finance critic.

He said the government should have moved on other initiatives, such as accelerating investments in affordable housing. “They are not doing the things that they need to do to support Canadians,” Julian said in an interview.

On Parliament Hill Thursday, Conservative MPs Pierre Poilievre and Michelle Rempel criticized Liberal plans, laid out in the economic update, to help Canadian media outlets to the tune of $595 million over five years.

The measures, which include a tax break for subscribers of digital news and tax credits to news organizations for a portion of their labour costs, are meant to assist media outlets left struggling by the downturn in ad revenues. The government said it will let an independent panel drawn from the journalism industry define eligibility for some of the measures.

But Poilievre and Rempel condemned the move, saying the government shouldn’t be underwriting media organizations. “A lot of the mainstream media outlets are not profitable. They’re not thriving and is it the role of taxpayers to bail them out?” Rempel said.

Morneau said that some details of the aid have to be confirmed in the budget, but he wanted to get the ball rolling on establishing the independent panel.

“We see it as critically important that we have confidence in the independence,” he said.

In his update, Morneau laid out a rosy economic picture with unemployment at a 40-year low, rising wages and corporate profits and continued growth. That has helped boost government revenues, but the new spending means that a return to balanced books remains out of reach for the foreseeable future.

In fact, Ottawa is now projecting higher deficit spending — about $5 billion more over the next five years — than it did in its February budget.

But Morneau says that even with the measures in the update, the debt-to-GDP ratio continues to decline and that Canada’s debt position is more favourable than other G7 countries.

The one storm cloud is the sharp drop in oil prices which hurts not just Alberta, but Ottawa’s bottom line, too. Morneau concedes there is no easy fix to depressed oil prices in Alberta, as there are roadblocks to getting oil to markets other than the U.S.

The federal government took the unusual step earlier this year of buying the Trans-Mountain pipeline in hopes of speeding construction of a second pipeline along the route, a project held up as further consultations take place.

“This is an enormous challenge. It’s a long-term challenge,” Morneau said. “We don’t have any magic solutions.

“We think the biggest single thing we can do is stay focused on what we’re trying to achieve,” he said.

Bruce Campion-Smith is an Ottawa-based reporter covering national politics. Follow him on Twitter: @yowflier

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