Growing taxes

For those councillors who read their agendas prior to attending the Strategic Planning and Policy Committee on Monday evening, there are some ominous warnings in the staff reports.

These are contained in the Consent items, assumed to generate little discussion and accepted by a single comprehensive vote, unless one of the members decides to “pull out” an item for specific questions and direction. That is likely to be the case with several, if not all of the items in that category.

The Development Charges (DC) Background Study is the first of these.

DC’s are essential to the city; it’s how we are supposed to pay for the growth that so many councillors see as their main priority on the assumption that it brings assessment growth (new taxes) to city coffers. That growth, however, requires hard (sewers, roads, water mains) and soft ( libraries, garbage collection, police and fire) services. The hard services go in first and then the money is raised through the issuing of building permits, which may generate a cash flow problem.

That’s when the city is required to take stock of what it has, what growth is reasonably anticipated and what it will cost. The “taking stock” is what the background studies is all about. You do the population projections, you look at what where the demands for growth will be, what the prices are for servicing that growth, and how to assign those costs among the residential, industrial and commercial sectors.

You can’t just do this once and be done with it. The provincial government requires that your DC by-law has to be updated every five years. The city has to start now, identifying the necessary staff, hiring outside consultants, and bringing together the stakeholders in the process to get this done by August of 2014 when councillors will be more interested in their re-election plans than council business. And if someone doesn’t like the final result, it can still be appealed to the Ontario Municipal Board.

This is not a small thing. DC revenues generated $30M into the city coffers last year, not enough to cover the cost of growth since there are a number of exemptions both provincially mandated and voluntary. But without that money, tax rates would have to go up by about 6.5%.

The current council had hoped that assessment growth, i.e. more residents and businesses to tax, would cover off any shortfalls in generating revenues for maintaining the budget at its 2010 levels. In short, no tax increases. The mayor suggested that 2.5% assessment growth should be the achievable target since the city, under his watch, would be open to business and growth. Some councillors got quite dizzy with the prospect, suggesting even double that amount. 

These were fine fantasies, but the reality is somewhat sobering; the highest assessment growth in this millennium occurred in 2009 when it came in at 2.36%. Currently, it stands at 1.01%, bringing about $4.6M into the city coffers. But if you use that money to reduce the taxes that everyone has to pay, how do you cover the costs of garbage collection, snow shovelling services, library staffing and so forth in these new areas? There are increased operating costs, and that has to be dealt with before you start giving money away in tax reductions or financing other new, sexy projects.

That’s the staff recommendation, too. First, use assessment growth to cover the additional costs associated with growth subject to a solid business plan from the department providing the service. Will the new subdivision require additional transit service? Do we have to buy another garbage truck? If so, take it out of assessment growth. Then, if any money is left over, assign half to avoiding taking on debt (a.k.a. pay as you go) and the other half to an economic reserve fund for the council wish list.

Of course, if assessment growth is not enough to cover the costs of the additional services required, which can easily happen in “leapfrog” development or growing in all directions at once, you’ve got a problem. Staff suggests taking the extra required from previous excess revenues or, if there aren’t any, raising property taxes for everyone.

Which brings me to the next item on the consent agenda on Monday: the tax levy increase for 2013.

This one is sure to get some attention. Some councillors may not be able to wrap their heads around the intricacies of the development charges—London’s approach to that is quite singular in the province—or assessment growth, but their ears will certainly prick up when they hear that a tax freeze is off the table for the next five years if the city treasurer has anything to say about it.

Here the message is quite clear. For the past two years, council has managed to freeze taxes by not contributing to the reserves, avoiding paying down debt, moving additional expenditures to the end of the taxation year, taking advantage of provincial government uploading. Very little had to be done in making actual cuts to services.

But now, the low hanging fruit is pretty much gone and fiscal reality sets in. You can’t give raises of 3% or more to police, or continue to hire even more of them, without increasing their budgets. Only a few of the players have actually come in at 0%, namely the city departments rather than the boards and commissions. Even if civic employees get only a 1% raise, well below the cost of inflation and well below the raise councillors gave themselves, that would cost an additional $3M in the budget.

The various boards and commissions, as well as city departments, have assessed their needs for the next years To accommodate those would raise the tax levy by an additional 5.5% for police, fire, ambulance, social and public housing, transit, business attraction. These will be partially offset by savings in Ontario Works, Long-term care and public health as a result of more provincial funding.

The city treasurer recommends that, by scrutinizing all the requests carefully, the tax levy increase can be whittled down to 3.8%. Even so, departments are going to be reviewing carefully how some current programs may have to be phased out, but this requires some advanced planning for an exit strategy.

Of course, this doesn’t include the increases in water and wastewater charges  projected to be at 8% and 7% respectively.

One increase that is included in the recommendation is a $1M increase in the Economic Development Reserve Fund to fund the projects Joe Swan’s Investment and Economic Prosperity Committee is working on.

It meets the following day, with the only item on the agenda, Councillor Hubert’s Hire 1 initiative. 

Will there be a quorum? 

Will the prospect of a one million dollar cash injection be enough to get them to the meeting?

 Stay tuned.