User Fee Design By Canadian Municipalities: Considerations Arising From The Case Law

Abstract

Municipal governments in Canada have come to rely increasingly on user fees to fund local services, as they struggle to deal with the combined pressures of federal and provincial devolution of responsibility for such services and the political costs of raising property taxes. While there is a substantial body of literature regarding the rationale for user fees, little information exists about how to design and implement a user fee so as to ensure that it satisfies the legal requirements for imposing this type of levy. The authors provide a detailed review of the existing Canadian case law to highlight key legal, technical, and administrative issues facing municipalities in designing and implementing user fees. The discussion focuses in particular on the principal legal tests for user fees and the application of those tests in specific cases. Through their analysis, the authors draw attention to several unresolved issues and inconsistencies in the application and interpretation of the tests, which need to be navigated and addressed by the courts.

Introduction

A growing concern for Canadian municipalities is their ability to generate sufficient revenue to fund activities, using the most appropriate policy instrument, while balancing complex policy challenges. As "creatures of the provinces," Canadian municipalities may raise revenue only through means authorized by the provinces.1 As a result, fewer revenue-generating instruments are available to municipalities as compared with those available to the provincial and federal governments. These concerns have led Canadian municipalities to turn increasingly to user fees as an alternative to property taxes.2

While the rationale for user fees is well established in the literature,3 little information exists on how to satisfy the Canadian legal requirements for the imposition of user fees, despite the presence of significant relevant case law.4 In fact, the legal requirements for user fees do not appear to be well understood, if they are even considered, in the existing literature. There is evidence suggesting that municipalities have experienced legal difficulties in implementing user fees. Not only have municipal user fees in a number of forms faced legal challenges across Canada (examples include campground fees,5 volumetric gravel removal fees,6 and waste disposal fees7), but they have also been the subject of negative internal audit reviews.8

The primary purpose of this article is to...