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,5volumetric 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 assess the current state of the law on user fees in Canada and to highlight key issues that present challenges to Canadian municipalities in ensuring that user fees are legally permissible and appropriate.9By carrying out a detailed review and critique of the existing case law, we aim to provide clarity with respect to the principles developed in the jurisprudence on the topic of user fees, particularly from a municipal implementation perspective. Our main focus is on the legal tests and criteria that are relevant for municipal public administrators. While these tests may address some questions regarding the legitimacy of user fees, the law in this area is complex and not definitive. As a result, many legal questions remain unresolved, creating uncertainty with respect to the specific requirements that must be met in designing municipal user fees. Our intention in highlighting these grey areas of the law is to illuminate the inconsistencies between the existing legal tests, not only to ensure that municipalities are aware of potential vulnerabilities but also to guide courts toward resolving these inconsistencies. An important caveat of our work is that, because municipalities derive their authority to charge user fees from their enabling legislation, the analysis presented here cannot and should not supplant careful review of such legislation by any municipality contemplating the introduction of user fees.
The discussion that follows is divided into six sections. In section one, we outline the constitutional authority for municipalities to charge user fees. Then, in section two, we explain the legal tests for user fees and review the leading cases establishing these tests and their respective criteria. Our discussion focuses on those cases in which the legal criteria have been elaborated or clarified; by no means do we attempt to cover all municipal user fee cases. However, we do include user fee cases outside municipal law where the judgment would apply in the municipal context. Drawing on this case-law review, in section three we identify and explain a number of unresolved issues related to the existing legal tests, and make recommendations for clarification of the test. Then, in section four, we address an important complication that arises in the jurisprudence—the difference between a user fee and a regulatory charge. Again, our review of the case law highlights several unresolved questions related to the distinction between a user fee and a regulatory charge, and these are discussed in section five. Section six presents a few brief concluding comments.