In a new paper for the Institute on Municipal Finance and Governance (IMFG) and The Urban Project, the late Richard M. Bird and Enid Slack review the current state of provincial-municipal equalization transfers in Canada and suggest ways to improve their design.

The paper argues that provincial-municipal equalization is essential to ensure that all residents of a province can access a comparable level of municipal services with reasonably comparable tax rates.

To design a proper equalization system, the paper sets out a number of issues that need to be resolved including the overall amount of equalization and how it is determined from year to year, which municipalities are entitled to equalization, whether the variables determining the grant allocation can be influenced by municipalities, how fiscal capacity is measured, how needs are measured, and whether transitional funding is required to ensure that no municipality is worse off even if fiscal capacity and needs change.

One-page summary
Provincial-Local Equalization in Canada: Time for a Change