Municipalities across Eastern Ontario must develop a strategy to address the pressing business challenges they face. An aging workforce, a population shift from mid-sized cities and small towns to urban centers and the disruption of the digital economy will force local governments to make important choices. Will we embrace the new entrepreneurial solutions, create novel services while explore partnerships or simply maintain the status quo? Can we along the St. Lawrence Corridor keep pace with the new economy? These choices will define how we view the role of local government and will determine our shared prosperity.

1. unicipal Governments around the world are challenged by a
changing economic landscape. This is particularly true for
Eastern Ontario. While baby boomers inch nearer to their
eighth decade and over 250,000 Canadians retire annually, we
are witnessing a significant shift in population from rural to
urban areas. A changing employment landscape where the
digital economy threatens jobs and in turn traditional sources
of revenue from across sectors further challenges the status quo. Digitalization
induces outsourcing and shrinks the tax base while undermining traditional
office and industrial taxes. Retail space utilization is retrenching as capital e-
commerce platforms like Amazon and Shopify with massive artificial
intelligence capabilities expand influence and market share. Revenue sources
for Ontario’s municipalities are limited and static. Apart from provincial and
federal transfers, primary sources of revenue include residential and non-
residential property taxes, development charges and user fees. The past
decades have witnessed municipal expenditure increases while revenue
growth declines. Our municipalities continue to receive provincial support –
receiving approximately nine cents on every household tax dollar paid. Local
governments will need to develop creative and entrepreneurial solutions to
these emerging challenges. Reviewing service delivery models, creating new
services and exploring partnerships to launch services and enhance economic
development will become mission critical tasks in the coming years.
Municipalities that rely on traditional revenue models will place themselves in
an unsustainable future as the economy continues to evolve and challenge our
way of thinking about our local government, its role and our shared future
prosperity.
Eastern Ontario’s Next Challenge: Optimizing
Municipal Revenue in the New Economy
Charles Mignault, Commissioner Fall 2019
St. Lawrence Corridor Economic Development Commission
Charlie Mignault, Commissioner, SLCEDC 1

2. The fast moving trend
towards urbanization is creating
enormous challenges for
municipalities in Eastern
Ontario. According to a recent
study by 2050, 68% of the global
population will live will live in an
urban area (Figure 1).
Even as this trend
accelerates, municipal
governments face increasing
pressure from their constituents
and businesses to improve
service delivery performance.
Likewise, the funding envelopes
municipalities receive from
provincial and federal
departments are—relatively
speaking—decreasing. For
example, from 2010 to 2016,
central government funding as
the share of total municipal
revenue fell by approximately
12 percent on average across
all countries in the
Organization for Economic Co-
operation and Development
(OECD).
The decline of commercial land as a revenue generator
As the digital economy continues to dominate through the second
decade of the 21st century, E-commerce is reducing the demand for retail
spaces while telecommuting and hot-desking are gaining in popularity.
Workplaces are shrinking, characterized by the average square footage per
employee declining rapidly. Industrial and commercial land is increasingly
becoming decoupled from economic growth here in North Americap; a
challenge that municipal governments need to come to terms with. Moreover,
Fall 2019Optimizing Municipal Revenue in the New Economy
Charlie Mignault, Commissioner, SLCEDC 2
Figure 1: The urban and rural population of the world,
1950-2030
Figure 2: Government funding for municipalities vs.
population growth

3. the continuing shift from manufacturing and the industrial sector towards the
service sector and the knowledge-based economy causing revenue attributed
towards nonresidential property is moving in a downward trend (Figure 3). The
result is an over-reliance on residential property taxes, which in turn challenges
the sustainability of many small to mid-sized towns across Ontario. Many
municipalities may see a doubling in residential property taxes. Unfortunately
and all too often, municipalities look to the provincial or federal governments
for relief instead of considering the opportunities that might exist as a result of
this challenge. We must search for new revenue streams, new services and
innovation to meet the gaps- not simply look towards other government
bodies to solve our problems.
Questions of sustainability are again percolating to the surface with
discussions already afoot regarding shared services among neighbouring
municipalities and amalgamation. Non-urban areas, small and medium sized
towns and cities and rural Ontario are struggling to meet revenue targets as
their overall populations’ contract and grow significantly older. As a result of
these challenging trends, municipalities here in Eastern Ontario are struggling
to increase revenues while facing structural budget shortfalls that threaten
service delivery and overall quality. This situation is heightened by structurally
negotiated human resource cost increases with other key supplier’s costs
increasing contemporaneously. When we analyze this business challenge and
put government funding aside, the primary revenue streams for municipal
governments are service fees, fines, taxes, and assets (like buildings and
properties). Further analysis suggests that these elements are far from fully
optimized. Municipalities are often unaware of methods to get more from
existing revenue sources and lack the resources and capabilities to mount such
efforts.
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 3
Figure 3: Private, non residential, fixed investment
Optimizing Municipal Revenue in the New Economy

4. Additionally, elected officials must maintain the uncomfortable balance
between raising taxes and fees while maintaining popular support from rate
payers. A challenging business problem to be sure. To meet rising expectations
for exceptional service delivery amid tight budgets, municipal governments
must increase revenues from traditional revenue streams while creating novel
revenue sources. The challenge is heightened by a culture that is not
historically entrepreneurial and often risk averse; moreover, leaders have
limited revenue producing options. These officials will find it challenging to
both identify reoccurring revenue opportunities and prioritize the
opportunities in terms of both potential fiscal impact and feasibility. These
choices need to
be pragmatic
and have short-
term execution
runway while
appealing to the
general public
and should be
accomplished
w i t h o u t
compromising
m u n i c i p a l
competitiveness
i n t e r m s o f
b u s i n e s s
attraction and
overall economic
development.
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 4
Figure 4: How municipal expenditure varies with municipal revenues
Figure 5: Permanent population growth rates in Kingston compared to
Kingston Census Metropolitan Area, Eastern Ontario and Ontario as a
whole,
Optimizing Municipal Revenue in the New Economy

5. What methods are mission critical first steps? Analyzing municipal
revenue streams is an essential initial task before a revenue optimization
activities can begin. Develop an inventory of existing revenue streams. Ontario’s
municipalities capture revenue from four types of sources:
1. Service fees. Municipalities raise revenues by charging for services
such as public parking, building permits, pet licences among others.
2. Fines. Use fines as both a deterrent for bad behaviour that opposes
the public good—for example, allowing grass to grow uncut and
garbage to build up on a residential property.
3. Charges and taxes. Municipalities levy charges and taxes on property
owners. These activities, such as hospitality charges and taxes on vacant
property, do not involve the delivery of services from the government.
4. City assets and investments. Through leases, joint ventures, and
joint development agreements, municipalities can generate additional
income. Assets can include land monetization (such as land used by
Telco’s for cell towers), appreciating land values, and commercial
advertisements in public spaces, public markets, and gyms.
Increasing Revenues
To increase the revenues from these sources, municipalities can select
from a number of interventions. Some are widely practiced, while others
represent emerging and innovative options to pursue. Since residents often
react negatively to actions that increase the cost of living, efforts to raise
revenue through additional fees and taxes will meet with opposition unless
delivered as a perceived public good. This is illustrated through broad recycling
programs or speeding enforcement/tickets to motorists in neighbourhoods
where concerned citizens have made complaints. Fines to landlords who leave
their properties in disrepair and annoy neighbours also clearly falls into the
category of an effort to support the public good.
A. INCREASE CHARGES
Perhaps the simplest and most straightforward approach across each of
the revenue streams options would be to charge more. Municipalities could
increase service fees (such as those on parking and construction permits) as
well as fines, taxes, and the cost of accessing city assets (i.e. marinas, gyms). To
guide price hikes, cities could use benchmarks to determine the acceptable
range. The price increase would also challenge staff to create more value for
clients through innovation to justify the increase. This intervention is typically
most applicable to administer as service fees—specifically, utility services such
as water, sewage, or electricity.
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 5
Optimizing Municipal Revenue in the New Economy

6. As an alternative to benchmarking, municipalities can also determine
the cost of services and then establish a cost-plus pricing model to generate
additional revenues. Municipalities could also revise their pricing models by
using differentiating factors specific to each revenue line. These factors often
include volume of activity, location, and period of validity. In Finland, for
example, fines for speeding are broadly linked to the income of violators and
how far over the speed limit they were traveling when caught. This approach
has the potential to not only fairly penalize offenders and reduce instances of
speeding but also to generate considerably more revenue – all accomplished
while gaining broad public support. A 2016 study conducted by the Australia
Institute concluded that the Finnish model would yield a 12 percent increase
on average in the value of fines issued by five states in Australia. Adding AI and
digital solutions to municipal services allows for creative options and
customized solutions. Perhaps more palatable and more interesting -
municipalities could increase revenues by implementing higher fees for faster
processing times or better service. This intervention is typically applicable to
any paper-based transactions or services, such as business license fees, impost
and development fees, or land registration fees. In Los Angeles, for instance,
developers can obtain an expedited engineering permit for a surcharge of 40
percent of the permit’s cost. Increases that enhance customer service are win-
win solutions.
B. INCREASE TRANSACTIONS
Municipalities can also raise revenues by increasing the number of
transactions through various approaches. This intervention includes expanding
the sheer quantity of service offerings and assets, extending charges to a larger
user base, or increasing the frequency of surveillance and inspection for
selected fine sources to maximize detection of violations. Furthermore,
technological advancements can aid increased surveillance. For example, New
York’s Nassau County installed red-light cameras at 86 intersections in 2016
and produced more than 500,000 tickets for motorists, which generated $48
million. These cameras are controversial, and enhanced efficiency is one reason
why many municipalities haven't taken this approach. However there is an
undeniable two – fold public good component to the revenue generation.
C. ENHANCE COLLECTION METHODS
Every organization that competes needs to manage cash flows – a
municipal organization is not different. Optimizing and increasing revenue
collection rates and minimize leakage is essential. One strategy that cities have
followed is introducing an amnesty program for delinquent parking tickets
that waives penalties and additional fines as an incentive for motorists to pay
up. The City of Chicago has instituted such a program several times over the
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 6
Optimizing Municipal Revenue in the New Economy

7. past two decades. Each time, the city brought in seven to nine million dollars
in revenue. Many municipalities in Eastern Ontario have paper based payment
methods that are anachronistic and lead to sub optimal results.
D. DESIGN NEW SERVICES
Innovation is a critical component to revenue optimization, Municipal
leaders need to offer novel services, service fees, fines, and charges—and in so
doing, create new sources of revenue. In general, this intervention represents
the horizon for innovation across all revenue streams. Sustainability is an
essential contemporary element in policy. To that end, municipalities could
institute new charges for the disposal of food waste. These fines would
promote environmentally responsible behaviour as well as create a viable
revenue stream for the city. In 2013, Seoul introduced a volume based food
waste disposal charge that succeeded in reducing its daily food waste
significantly. Similarly, London has instituted a congestion charge that drivers
must pay when traveling within the city centre. This charge generates more
than $100 million in revenue each year. Optimizing land monetization has the
potential to double baseline revenue from income-generating assets. For
existing land lease contracts, cities could maximize value through
renegotiation or cancellation and retender based on tenant response. When
renegotiating existing leases, several levers can be utilized, such as increasing
allowable floor-to-area ratio (FAR), collecting penalties for violations, amending
contract duration and payment terms, and modifying plot use. Cities could
also increase value from unused land plots through monetizing them either as
lease contracts or through other more innovative public–private partnership
structures, such as joint development agreements or joint ventures.
Developing a Revenue Strategy
Once priority options are identified by leaders, consideration needs to
focus on the following questions:
1. Which streams and interventions can generate the most revenues with a
limited impact on stakeholders and citizens?
2. What is the size of the opportunity?
3. What priorities are best described as short term and which are longer term
to achieve results?
Municipalities will chart a course that makes sense for their unique set of
circumstance and context. Intact, each municipality’s situation is inherently
different and will require a unique combination of interventions and careful
consideration to ensure the program is both economically and politically
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 7
Optimizing Municipal Revenue in the New Economy

8. feasible. The following steps provide a structured process for cities to
determine a tailored and effective solution:
STEP 1
Identify the relevant revenue streams and which interventions to apply,
Determine the relevant data and revenue baselines. This preparatory work
generally consists of collecting the relevant data and developing the current
revenue baseline. In addition, to help measure public acceptance prior to
forging ahead with implementation, municipalities could consider conducting
a citizen sentiment survey to understand how receptive residents might be to
specific changes in fee structures and charges.
STEP 2
Perform a thorough gap analysis to define the potential revenue impact
for any given stream. This exercise involves analyzing revenue baselines to
determine current revenue generation across all streams and then comparing
revenue streams against benchmarks for peer municipalities to identify any
gaps. With initial adjustments for relevance and size of potential revenue
impact governments can select the most promising streams as revenue
generators. Following the clear identification of interventions and
opportunities, cities can set priorities based on social acceptance, economic
impact, and ease of implementation.
STEP 3
Establish a revenue committee that adopts a strategic perspective to
assess the impact of revenue levers and understand external linkages.
STEP 4
Gauging popular opinion. How receptive citizens and businesses are to a
given intervention in a revenue stream can have significant impact on the
intervention’s long-term viability. Therefore, the following three areas should be
examined:
A. Impact & Visibility—the significance of the changes and their impact
on citizens and businesses. Are changes concentrated within a
specific group or area or are they highly visible and applied to the
entire population?
B. Potential public benefit—the positive impact of the chosen revenue
lever. Does the tool provide clear public benefit while inducing
positive behaviour? Are these interventions applied fairly to various
socioeconomic segments?
C. Price against benchmarks—a comparison of current prices for
government services against data from comparable municipalities
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 8
Optimizing Municipal Revenue in the New Economy

9. that have similar levels of competitiveness. Is the level of fees, fines,
or charges higher or lower than the regional average?
D. Competitiveness—the municipalities position on various
competitiveness indexes and what factors, such as government
services and safety, compare with other centres should indicate the
interventions validity.
E. Ease of implementation—An effective assessment will analyze a
given intervention’s technical feasibility and operational
implementation.
Municipalities can enhance significant revenues by enhancing collections
and audit processes or better asset monetization. Municipal governments that
want to implement new charges will be more likely to build public support if
such measures both induce positive behaviour and have a clear, equitable, and
risk-averse public benefit (i.e. taxing plastic bags). A new tax on plastic would
raise revenues and also benefit the environment. VIP services can also be
offered where increased fee levels guarantee higher quality. Los Angeles, for
example, charges higher fees for expedited permitting and licensing processes.
These cities typically adopt one of two models: an independent revenue
monetization department that focuses on commercial aspects and acts as a
strategic unit for generating revenues, or a commercial unit integrated into the
finance department that is responsible for tracking progress of revenue targets.
To establish this dedicated unit, municipalities can create a cross-functional
workforce with representatives from different departments, including finance,
planning, property, legal and economic development.
To instill a culture of performance, organizations should set targets for
net revenues and select key performance indicators (KPIs). For example,
revenue KPIs could include the annual increase in revenue per lever, while
non-revenue KPIs could define targets for each lever and its corresponding
interventions, such as the annual increase in the number of violations
detected. Performance meetings should be scheduled on a weekly basis to
track revenue generation and build ownership. These meetings serve as a way
to monitor progress and enable proper implementation. The involvement of
leadership as well as all relevant departments and municipalities would help
to ensure proper implementation across all levels.
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 9
Optimizing Municipal Revenue in the New Economy

10. Conclusion
Most cities have yet to unlock the full potential of their existing revenue
sources, let alone tap into new streams. Despite the numerous options
available to generate more funding for municipal operations, elected officials
must proceed carefully. Maintaining public support is critical to the longer-
term viability of such efforts, and cities must create an attractive business
climate to continue to grow. Cities that successfully cultivate a mixture of
actions can dramatically improve their fiscal health and improve services for
their residents. Emerging trends will force the hands of leaders that lack the
ambition to dare greatly. The methods we employ to meet these challenges
will define our future and affect all of us. Our challenge is to answer the age-
old question—will we leave things better than when we arrived?
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 10
Optimizing Municipal Revenue in the New Economy

11. References
This article drew on information from the following resources:
https://www.mckinsey.com/industries/public-sector/our-insights/unlocking-
the-full-potential-of-city-revenues
https://www.mckinsey.com/industries/capital-projects-and-infrastructure/
our-insights/smart-cities-digital-solutions-for-a-more-livable-future
https://www.cityofkingston.ca/business/planning-and-development/
planning-studies/projections
https://www.un.org/development/desa/en/news/population/2018-revision-
of-world-urbanization-prospects.html
https://www.conferenceboard.ca/e-library/abstract.aspx?did=10396
Fall 2019
Charlie Mignault, Commissioner, SLCEDC 11