As Mark Carney concludes his first six months as Prime Minister, municipal leaders across Canada are facing a sobering reality: the promised revolution in federal-municipal relations remains largely on the horizon.
In a candid interview at Ottawa’s Rideau Hall yesterday, Carney clarified his government’s immediate priorities, pushing back expectations for comprehensive reform of municipal funding structures until at least late 2026.
“We’re taking a measured approach to municipal finance reform,” Carney told me, his tone measured but firm. “The fiscal challenges we inherited require stabilizing federal finances first. That doesn’t mean municipalities aren’t important – they’re essential – but structural changes need proper groundwork.”
The statement comes amid growing frustration from Canada’s big-city mayors, who campaigned aggressively during last year’s election for predictable, direct funding models that bypass provincial approval processes. Toronto Mayor Olivia Chow expressed disappointment but not surprise at the timeline.
“Every day we wait means another day of crumbling infrastructure and inadequate services for Canadians,” Chow remarked during yesterday’s Big City Mayors’ Caucus meeting. “We understand fiscal constraints, but our residents are feeling the pinch now, not in 2026.”
The Federation of Canadian Municipalities estimates Canadian cities face a collective infrastructure deficit approaching $260 billion, with deteriorating roads, bridges, and water systems requiring immediate attention across the country.
For Saskatoon Mayor Charlie Clark, the delay represents more than just political timing. “When we talk about municipal funding, we’re really talking about who bears the cost of Canada’s growth,” he explained during our phone conversation this morning. “Right now, that burden falls disproportionately on property taxpayers, many of whom are already struggling with housing costs.”
The Carney government’s hesitation stems partly from the complexity of the file. Unlike previous administrations that simply increased transfer payments, Carney’s team is weighing more fundamental reforms to how municipalities access revenue tools.
Finance Minister Chrystia Freeland confirmed the government is studying models from other federations, including Germany and Australia, where local governments have more diverse and stable revenue streams. “We’re committed to getting this right, not just doing it quickly,” Freeland noted at last week’s economic outlook conference.
The government’s caution also reflects political realities. Provincial premiers have historically guarded their constitutional authority over municipalities, viewing direct federal-municipal relationships as encroachment on their jurisdiction. Several provincial leaders, including Ontario’s Premier Doug Ford, have already signaled resistance to any model that circumvents provincial oversight.
“Municipalities exist as creatures of the provinces – that’s not just legal technicality, that’s our federation,” Ford stated at Queen’s Park earlier this week. “Ottawa needs to respect that relationship.”
For communities like Rimouski, Quebec, the delay carries tangible consequences. Mayor Guy Caron, a former federal MP himself, points to the city’s aging water treatment facility that needs $42 million in upgrades.
“We’ve applied for three different federal programs over five years, and each time the funding formulas or priorities changed mid-process,” Caron explained, frustration evident in his voice. “Without predictable, multi-year funding, we’re stuck in perpetual planning mode while our infrastructure continues to deteriorate.”
The challenge facing Carney’s government isn’t new. Canada’s “fiscal imbalance” – where municipalities have responsibility for roughly 60% of public infrastructure but collect only about 10% of tax revenue – has been a political talking point since the early 2000s. Various federal governments have attempted partial solutions, from the Gas Tax Fund (now the Canada Community-Building Fund) to targeted infrastructure programs.
What makes Carney’s approach potentially different is his background. As former Bank of Canada and Bank of England governor, he brings financial expertise that could reshape federal-municipal fiscal relationships. His economic team is reportedly examining options for municipal finance that go beyond simple transfer increases.
Sources inside the Prime Minister’s Office indicate Carney’s long-term vision includes potentially allowing larger municipalities direct access to infrastructure financing through the Canada Infrastructure Bank, bypassing some provincial approvals for nationally significant projects.
For smaller communities like Edson, Alberta (population 8,400), even modest reforms could make significant differences. Mayor Kevin Zahara described how his town’s planning is hamstrung by uncertain funding.
“We need to replace our main street water mains, but we can’t start engineering work without knowing if funding will come through,” Zahara told me. “Meanwhile, we had three water main breaks last winter. This isn’t abstract policy – it’s whether people have water service.”
The Federation of Canadian Municipalities has proposed a “new deal” that would include dedicated percentages of federal tax revenue flowing directly to municipalities. Their proposal would guarantee that one cent of the GST would be permanently allocated to municipal infrastructure, providing approximately $2.76 billion annually in predictable funding.
When asked about this specific proposal, Carney was non-committal but didn’t dismiss it outright. “We’re examining all viable options that respect our federation while addressing municipalities’ legitimate needs,” he said.
Parliamentary Budget Officer Yves Giroux cautions that any substantial reform will require difficult trade-offs. “The fiscal framework doesn’t currently have room for major new spending initiatives without either raising revenues or cutting elsewhere,” Giroux noted in his April fiscal update.
As municipalities wait for potential structural changes, the federal government has offered some interim relief. Yesterday’s announcement included a one-time $500 million boost to the Community Building Fund and accelerated approvals for projects already in the infrastructure pipeline.
Vancouver Mayor Ken Sim characterized these measures as “band-aids on a broken system” but acknowledged they would provide some immediate relief. “We’ll take what we can get while continuing to advocate for the comprehensive reform our cities desperately need.”
As winter approaches, the political temperature around municipal funding will likely rise. With infrastructure failures typically more visible and costly during harsh Canadian winters, mayors are already planning their next advocacy push.
For now, Carney’s message to municipalities is one of patience and partnership. “We’re building the foundation for lasting reform,” he insisted. “Short-term thinking got us into this infrastructure deficit – thoughtful, systemic change is our way out.”
Whether that patience will last through another cycle of spring flooding, summer construction delays, and winter service disruptions remains to be seen. For millions of Canadians, the state of municipal infrastructure isn’t a theoretical policy question – it’s the pothole on their morning commute, the reliability of their drinking water, and increasingly, whether their community can afford to grow at all.
