Looking like a 4.23% tax increase for 2017 - 2018 might touch 5% - and that hospital levy is here forever.

Budget 2017 ICON aaBy Pepper Parr

January 17th, 2017

BURLINGTON, ON

 

While city council works through the operational budget for 2017 – they will be doing the heavy lifting on Thursday and settle on what the taxes will be at a city council meeting on the 23rd.

The Finance department has done all its prep work – it is now in the hands of city council

Director of Finance Joan Ford did say that while the proposed tax increase is above the 4% level – they have managed to whittle away more than $1 million on the spending side.

Joan Ford, the city's Director of Finance knows where every dollar comes from and where every dollar gets spent.

Joan Ford, the city’s Director of Finance knows where every dollar comes from and where every dollar gets spent.

The struggle for the city is upgrading the infrastructure which needs millions more. This is the result of tax increases that were at the 0% level during the late 90’s. Ford pointed out that if tax increases had been as little as 1% a year for those ten years the city would not be in the uncomfortable situation it is in today.

When the province told the city that it was going to have to come up with $60 million to pay for part of the hospital renovation/redevelopment program and that the hospital foundation would also have to come up with an additional $60 million a special levy was placed on the tax bill.

That levy was supposed to end in 2019 but it has been “repositioned” infrastructure. City council, on the advice of the finance department decided that they would just change the original reason for a tax – give it a new name and continue to collect the money.

There was never an explanation. That one has election issue potential written all over it.

A decision made in November of 2012 approved Long Term Financial Plan which included the following key strategic objectives for the city:

1. Competitive Property Taxes
2. Responsible Debt Management
3. Improved Reserves and Reserve Funds
4. Predictable Infrastructure Investment
5. Recognized Value for Services

The Director of Finance presented a 2017–2036 operating forecast.  It is not a pretty picture through to 2019 – after that is gets digestible.

20 year drivers 2017 budget graph

The purple line is the one that matters. It represents spending the city does. The bar chart is the tax increase when you add in the school tax, which the city has no impact on and the Region budget which we are part of but we don’t make that decision – we do influence it.

The forecast is based on estimated budget drivers using the 2017 budget numbers as a starting point.

Ford pointed out that the simulation forecast has greatest precision in the first year and added that it is imperative that the results are simply used as an information tool regarding major budget drivers and future projected tax impacts.

Not only does it provide an analysis of what the future financial picture for the City of Burlington might look like, but it also helps assess financial risks and the affordability of existing and new services, existing and future capital investments, as well as provides an opportunity to analyze sensitivities to assumptions.
Looking into the future means considering:

• Changes in economic conditions and market demands
• Fluctuations in customer expectations
• Legislative changes
• Reassessment impacts
• Operating impacts from approved capital initiatives
• Joint venture and other business agreements
• Business process improvements

Assessment growth has been a bug bear for the finance department. Expecting assessment growth of 1.6% was projected for one year – it came in at 0.15%.

Staff have shown a realistic scenario where assessment growth is maintained at 0.6% per annum; no new legacy projects are forecasted; and infrastructure renewal funding is addressed over the 20-year time horizon, as per the Asset Management Financing Plan. These components provided the basis for estimating budget drivers and include the following assumptions within each item:

Maintaining Current Service Levels – Base Budget
Inflationary Impacts and User Fees
• With the exception of human resources and commodities (hydro, water, fuel etc.), 2.0% inflation per year has been applied to all other expense categories (materials and supplies, purchased services and contributions to local boards and committees)

% cubes

Taxpayers would prefer a different % in that tax increase.

• The increases to User Rates and Fees assumed a 2.0% increase per annum, which is dependent on the nature of the revenues and external market conditions

• An annual increase of 3% to the Vehicle Depreciation Reserve Fund to sustain the City’s fleet and equipment inventory

Corporate Expenditures/Revenues
• An annual increase to the provisions for Insurance and Contingency Reserves of $100,000 each.

• An increase in Investment Income of $100,000 per year in 2019 and beyond given the current low interest rate environment.

• Reversal of one-time revenue of $220,000 for assessment growth stabilization in 2018.

Other Expenditures
Infrastructure Renewal Funding and Joseph Brant Hospital

• An annual increase of 1.25% for Dedicated Infrastructure Renewal Funding from 2017-2022, reduced to 1.0% for 2023-2033 and 0.5% for 2034 and 2036. This provides funding for capital renewal, as per the Asset Management Financing Plan (approved 20-year scenario).

JBH renering July -15 with passageway to garage

That special tax levy for the hospital is apparently with us forever – money will go into infrastructure starting in 2019.

• An annual increase of $200,000 (2020-2024) in order to phase in required increase for debt charges.

• Includes the repositioning of the hospital levy to infrastructure renewal in 2019 ($1.5 million), 2026 ($800,000) and 2027 ($2.5 million)
Business Cases

• Details from the 2017 Capital Budget and Forecast as well as growth related operating impacts in the future
• In order to address Service enhancements, similar to the one included in the 2017 Proposed Budget for Tree Service ($254K), $600,000 have been included in the 2018 Forecast for Playfield Service levels, reducing to $400,000 annually from 2019 and beyond for other Service enhancements.

Allowance for Unknown Factors

As with all forecasts, it is imperative to recognize that there are a vast number of unknown factors that will likely occur in the future that could impact the model. In order to address these unpredictable factors, an amount of $100,000 has been included in the 2019 forecast, increasing by $50,000 per year until 2027, and maintained at $500,000 beyond that.

Assessment Growth
The weighted assessment growth for the 2017 budget is 0.15%. Assessment growth is estimated to be 0.6% in 2018 and maintained unchanged for the remainder of the 20- years. Over the last 5 years, weighted assessment growth has ranged from a low of 0.15% to 1.16%. The five year average is 0.75%.

The proposed 2017 Budget reflects a city tax impact of 4.23%.

Tax increases proposed 2017 - 2036

An increase for 2017, which is greater than the increase in 2016, which was greater – you’re getting the picture aren’t you?

The simulation forecasts the city tax impact from 2018 to 2036 to begin at 4.96% reducing to 2.90%.
While staff will look for ways to smooth out the timing of operating impact from prior approved capital projects, it is important for council to recognize the significant pressures in 2018. One way to stabilize significant spikes would be to partially advance a known 2018 budget pressure. While this would increase the 2017 budget, it could assist in mitigating the 2018 forecasted impact.

Keep in mind that 2018 is an election year; some of the members of council might want to get re-elected.
Councillors Taylor and Dennison were on council when those 0% tax increases were boasted about. They might choose to take their pensions and move on before the proverbial hits the fan.

There is a young candidate with significant potential looking closely at Taylor’s ward 3 seat.

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8 comments to Looking like a 4.23% tax increase for 2017 – 2018 might touch 5% – and that hospital levy is here forever.

  • Stephen White

    I admit to no expertise in finance or accounting but on the surface this is unsustainable for several reasons.

    First, the hospital levy was never intended to be a permanent fixture of the municipal budget. How many other cities have a similar levy, and for how long?

    Second, inflation is nowhere near 4-5%, and neither are the average workers’ salary increases.

    Third, there are no details on cost, complement or expenditure controls. There are 233 public servants on the 2016 Public Sector Salary Disclosure listing, 133 of whom are firefighters. That is 3 to 4 times the number for Guelph, St. Catharines or Cambridge. Why? There is an Executive Director and a Director of Human Resources listed with a combined salary in excess of $300K. Why two Directors in the same department?

    Finally, how do these increases compare with neighbouring municipalities such as Oakville, Burlington, Brampton, Hamilton, Cambridge and Guelph? 4-5% seems like the high end, and if it is then city officials need to go back and “sharpen their pencils” because this level of increase simply isn’t sustainable.

    For a municipality headed by a Mayor who is supposed to a financial planner and who promised us financial prudence during his previous election campaigns this budget reflects neither realism nor common sense. Then again, we shouldn’t be surprised. This is the same guy who also gave us the New Street “Road Diet”.

    • 100% Steve. We need a review of what value these departments are creating for the citizens of Burlington. The firefighters – at least I get what they are doing. I’m wondering how many staff we have actually acting against other staff or against what the council wants. High salaries are fine by me – so long as they are delivering high value. Currently I don’t see lots of value.

  • So I think we can dispense with the charade that intensification is some how going to keep taxes low.

    You can’t run 4% property tax increases in an environment where houses are so expensive – with an increase in gas – with an increase in electricity – in an environment of stagnate wages – and not start ash canning the middle class.

    You have too manly concurrent attacks on disposable income.

    • Phillip

      @Greg. I have never thought of intensification as a means of keeping taxes low–only a way to provide more tax revenue for the City to waste on its pet projects,
      keeping in mind that such intensification (besides ruining the character and lifestyle that WAS Burlington) will inevitably require more services and gridlock which is also imposing large costs. Perhaps Goldring will come up with a slogan such “Paying taxes is delightful”.

  • Phillip

    Stephen, I have to agree with your observations. I continue to doubt the budgetary process when I see no attempt at zero-based budgeting; the City’s “budget” process appears to be “cost+” and just pass the added cost onto the taxpayers. I can’t verify that non-unionized city staff just received an increase of 3% (reported in a previous article) but if this is true, taxpayers are now subsidizing the standard of living of well-paid municipal employees by accepting a lower standard of living (given that most private-sector have not seen increases on this level, particularly seniors living on fixed incomes). The unsustainable increases forecast by the City are also piled onto increases imposed at the provincial level. Of course, waste is endemic–it appears that the Pier to Nowhere–that enduring monument to poor fiscal management and profligacy at City Hall, will be reprised on New Street. On top of this lack of financial responsibility, we also see the lack of political integrity (how’s that for a contradiction in terms) when the promised temporary surtax for the hospital is now made permanent. I am not surprised–Goldring has long since distinguished himself as a profligate “tax and spender”.

  • Tom Muir

    I’m not going to repeat myself too much from last year, but the percent increases for the city are still on track to double in about 19 years or less.

    I wrote Council last year and the response I got was that they were concerned about it too, and were going to work on it over the coming year. Well, here we have the results. They still don’t get it.

    The city assumed inflation rate is 2%, but my pension increase, based on the CPI, only went up 1.4%, as did my wife’s’.

    In the Mayor’s December newsletter, he said that he thought the budget could be whittled down to something more like the 2%.

    From this Gazette story, there is still time to move in that direction in the coming days before the Council meeting of the 23rd.

    I worked in government for 33 years, and went through a lot of budget cuts. The way it was done if the guv was serious about it just tell the managers and the finance people to cut the budget across the board to meet the target expenditure increase.

    No nonsense or sacred cows, except entitlements. Don’t get lost in every line item. Just do it at the high level.

    Then cut where you want, but just make the cuts.

    This is what is needed now.

    The idea that there is nothing left to cut is absurd.

    It’s all in the approach and the political will.

  • Allen Jones

    100% in agreement with Tom Muir and Phillip

  • James

    Ugh, THIS is why I get so upset when I see City Hall wasting our money, because in their minds they can keep coming at us for more! There’s got to be a breaking point though when City Hall stops looking to us, and instead looks more closely internally at ways to save money. Time to evaluate “want to have” versus “need to have”. We are just SO grossly over-taxed in this city and province. As it is, anyone living in Burlington with a mortgage, car payments, and a household income of under $200,000 is likely living paycheck to paycheck. That’s a problem.