Major changes could be coming to how cities in Alberta operate, and they could have an effect on new home prices, business taxes and how towns and cities work together.

Municipal Affairs Minister Danielle Larivee tabled an overhaul Tuesday of the Municipal Government Act, the second-largest piece of legislation in Alberta.

The act governs all cities and towns in the province, and controls many of the things they do — from taxing property owners to building police stations.

The act hasn't had a major update in more than two decades.

New home prices could rise

Alberta cities, particularly Edmonton and Calgary, have long asked for a way to address the costs of urban growth. For every new neighbourhood that's built, the city must provide roads and sewer pipes, and often fire stations and recreation centres.

Cities can already charge a levy to developers to help pay for roads and sewers. Changes to the MGA would allow them to also charge for police stations, fire stations, recreation centres and libraries — as long as at least 30 per cent of the benefit would go to the new neighbourhood.

"This approach will make sure that fire halls, swimming pools and services Albertans need are there when they move in," Larivee said.

New changes to the Municipal Government Act could lead to a modest increase in the price of new homes in Alberta's towns and cities.

The government also plans to allow cities to mandate that a certain percentage of new development be reserved for affordable housing units.

Developers have raised concerns that the additional costs will be passed on to new homeowners, driving up house prices.

Larivee said all taxpayers are currently sharing those costs.

"We're just making sure that the people who are benefiting are the ones who are paying," she said.

She said she anticipates any potential increase in home prices will be small. The decision to actually use these options will be left to individual cities and towns.

No new taxes

Morinville Mayor Lisa Holmes, president of the Alberta Urban Municipalities Association, said her organization was disappointed the government does not plan to allow cities to apply any new taxes.

"We just have one revenue source right now, which is property tax," she said.

Communities had hoped for new sources of cash, such as a hotel tax, for example, to help fund their operations.

"We also want to discuss how municipalities can share in provincial revenues," Holmes said.

Morinville Mayor Lisa Holmes, president of the Alberta Urban Municipalities Association, said she hoped cities and towns would have the power to introduce new taxes as part of the Municipal Government Act review. (CBC)

Calgary and Edmonton may be granted new taxation powers as part of the Big City Charter negotiations, which are expected to go to public consultations in the fall.

But Holmes said the vast majority of municipalities will be excluded from those talks.

Edmonton Mayor Don Iveson has long asked the province to update the way it funds policing.

He has maintained that a number of provincial responsibilities are downloaded onto city police, such as dealing with mental illness and homelessness, which drive up municipal property taxes.

The MGA did not deal with policing, but Iveson said it's understandable given the fiscal situation the province is coping with.

Wildrose municipal affairs critic Pat Stier was less understanding.

"Wildrose has long been adamant about the necessity for a predictable, stable, long-term funding model for our municipal partners, and that is not among these changes," Stier said.

"That's concerning."

Businesses could get a tax break

Larivee said there are tax changes to the MGA that will be good news for businesses, which may get a tax break.

Right now, cities can tax businesses and homes at different rates. In Wood Buffalo, for example, businesses are taxed at a rate 18 times higher than residences.

The changes would cap business taxes at five times higher than the residential tax rate. Edmonton and Calgary are already well below that ratio.

The updated MGA would also allow cities to charge lower property tax rates for small businesses than they do large businesses. The government is working on regulations that would define which businesses fall into which category.

Putting an end to competition between towns

The new legislation makes it mandatory for municipalities to share the cost of services that benefits the entire region, which could include anything from parks to drinking water supply.

All municipalities that share a border will be required to reach agreements.

Larivee said traditionally, cities and towns have been competing with each other. These agreements are meant to put a stop to that.

"We need to recognize that our communities are interconnected and transcend municipal boundaries," she said.

Iveson said the province is holding the Capital Region Board up as a positive example, and he's glad to see the government taking it even further, though there's no details about the cost sharing expectations between municipalities.

"I think the implication is pretty clear that no municipality will be an island to itself in its region," he said.

Public to weigh in

The province has been working on changes to the act for the last four years.

The bill passed first reading on Tuesday. The minister and other MLAs will tour the province this summer to collect feedback before the legislation is finalized.

After that, more specific regulations will be developed to decide how the changes will work in practice.

The government hopes to have the new rules in place in time for the next municipal election in October 2017.