The Role of Government in Business Development in the USA and Canada

Municipalities According to Leann Hackman-Carty, municipalities are best positioned to serve as local champions for economic development programs. She observes that Canada frequently suffers in comparison to the United States because no level of government takes the initiative in coordinating and leading the response to an investment opportunity. Hackman-Carty believes that municipalities should be empowered to explore the best economic development options while also coordinating with other levels of government for required support.

All three authors see fiscal capability as a barrier

According to Shauna Brail, luring investment to a city necessitates improvements in transportation, housing, the arts and culture, and other areas. She and Charles Conteh both say that towns need more money to spend in the infrastructure and services that support effective economic growth and innovation policies.

Provincial governments

According to Hackman-Carty, provincial governments play an important, if largely supportive, role in economic development by investing in transit, transportation, education, and healthcare. Brail emphasizes the necessity of provinces in providing amenities that make cities appealing places to invest.

Conteh finds New Brunswick to be a beneficial example, as it has decentralized responsibility for economic development to the regional and municipal levels and might serve as a model for other provinces. Brail emphasizes the need of rewarding regional governance, notably in Ontario, to ensuring that economic development strategy is implemented at the proper scale.

Federal government

Brail and Conteh both argue that the federal government and federal development agencies are increasingly collaborating with municipalities on economic development policies. Brail advises expanding this work and cautions against provinces impeding direct federal-municipal collaboration.

According to Hackman-Carty, the federal government promotes economic development by negotiating international trade agreements, encouraging foreign direct investment, administering immigration programs, and protecting intellectual property.

Intergovernmental cooperation

Because of the wide range of policy areas involved, all three writers believe that economic growth must be an intergovernmental activity. Brail emphasizes the importance of both provincial (such as health care) and federal (such as rail and airports) duties in attracting investment and spurring innovation. As a result, she proposes establishing an international task force to research, consult, and advise on the best ways to institutionalize formal intergovernmental networks aimed at promoting innovation-driven economic development.

According to Conteh, economic development policy is increasingly linked to inter-jurisdictional collaborations focused on ambitious, innovative, and forceful municipalities. Building on this intergovernmental collaboration, he contends, needs federal and provincial governments to collaborate with small and medium-sized towns that may lack the ability to express themselves proactively.

Backgrounder on Municipalities and Economic Development Policy

By Gabriel Eidelman, Tomas Hachard, and Jason Adade.

Gabriel Eidelman is an Assistant Professor in the Teaching Stream and the Director of the Urban Policy Lab at the Munk School of Global Affairs and Public Policy.

Tomas Hachard is the Manager of Programs and Research at the Institute for Municipal Finance and Governance.

Jason Adade is an urban innovation candidate at the University of Toronto Mississauga.

Economic development is a primary concern for municipal officials in communities of all sizes.1 Local governments implement a variety of economic development policies to stimulate economic growth and raise inhabitants' standards of life.

Traditionally, local economic development strategy entailed developing programs or regulatory frameworks to attract capital investment, incentivise corporate relocation to local communities, and create job opportunities. Because of globalization and the emergence of new disruptive technologies, modern economic development policy now includes support for entrepreneurs, business retention and expansion (BR+E) strategies, and workforce development programs, as well as cluster strategies to strengthen the competitiveness of cities and city-regions through collaboration between governments, the private sector, universities, and civil society organizations.

This backgrounder offers a quick summary of:

This article explores economic growth at the local level in Canada, including legal and fiscal limits for municipalities, as well as examples of intergovernmental collaboration and coordination.

How municipalities operate freely under legal and fiscal constraints

The Canadian Constitution states that both the federal and provincial governments "are committed to furthering economic development to reduce disparities in opportunities" (Sec. 36.1), but it does not explicitly define a clear division of responsibilities or executive powers for economic development policies.2 Municipalities thus function within a comprehensive range of statutory constraints, such as intellectual property and employment regulations, that go beyond traditional views of cities as simply "creatures of the provinces."

For example, as local economies rely more on innovation and knowledge-based sectors, local economic development specialists must be knowledgeable about federal intellectual property and patent law. Similarly, the growth of non-standard employment arrangements (the "gig" economy), as well as the increased mobility of corporate functions around the world, has prompted assessments and adjustments to provincial industry and employment regulations.

As a result, local governments frequently play a supportive rather than regulating role in economic development policies. A local government may collaborate with local universities or chambers of commerce, for example, to foster innovation by establishing local business incubators that provide start-ups with training and support programs. Alternatively, it may help businesses locate appropriate locations for their operations. However, local governments have limited capacity to change existing legislation to significantly lower business running expenses or incentivise huge expenditures in R&D.

Municipalities frequently want to provide financial incentives to corporations to encourage investment

However, only a few provinces, like New Brunswick, Québec, Ontario, Saskatchewan, Alberta, and British Columbia, allow municipalities to provide property tax breaks for economic development, and frequently only within specified parameters.

For example, in Alberta, local governments can use a community revitalization levy to borrow against future property tax receipts to help pay for infrastructure needed to promote new development in a given area. However, the tax must be used to fund new roads, wastewater systems, and other hard infrastructure that could encourage private investment to a certain region.

Local governments often play a supporting rather than regulating role in economic development policies.

Similarly, under Ontario's Planning Act, municipalities can designate a specific region or the entire municipality as a community improvement project area. It can then implement a community improvement plan using grants and/or loans, which can be computed on a tax increment basis if the municipality so desires.5 In Toronto, for example, the entire city is designated as a CIPA, allowing the city to apply its Imagination, Manufacturing, Innovation, and Technology (IMIT) initiative across the city. The program encourages building construction and expansion in designated sectors by providing a 60 percent grant tied to the rise in municipal taxes attributable to the qualified development over a 10-year period.6

In Quebec, non-residential property owners who invest in their properties can have a portion of their property tax increases repaid over a five-year period. This compensation is applicable to properties in specific industries, such as manufacturing or film and video production.7 Municipalities in British Columbia have the authority to totally exempt non-residential property from municipal property taxes under specific conditions.8 Most recently, communities in Ontario pushed for and received approval to establish a small business property tax class to safeguard and preserve retail on main streets.9