It was a double Council week. In addition to our regular bi-weekly Tuesday meeting, Council met to set the starting point for the 2018 budget. You can read the staff report and presentations here. The gist of it is there are some pressures due to unexpected costs (mainly labour for police and fire), but that overall HRM is in pretty good shape.
The noteworthy part of the budget direction that grabbed the headlines is that Council approved a 1.9% increase in the tax bill as a starting point in the creation of the 2018 budget. A 1.9% increase would mean about $35 for the average homeowner to $1,874. It would be below the average growth in wages in HRM and on par with the consumer price index. The 1.9% increase will raise just under $10 million, which covers the $8.5 million cost of the recent police arbitration award. The police arbitration provided officers with a 2.75% increase each year, a substantial increase compared to the 1.0% that HRM submitted to the arbitrator. The extra 1.75% has punched a large hole in the budget plan. Since firefighter wages are tied to police wages, the arbitration award has also impacted the cost of settling the firefighters’ contract. The firefighters increase totals $1.4 million. So the 1.9% increase is basically all spent on increased wages on police and firefighters that HRM has no control over.
Of course, just like a household, HRM’s other costs and revenues aren’t static and there have been changes since 2018 was sketched out last year. Here’s a round up of some of the other budget pressures:
- HRM’s firefighting costs are also increasing because HRM has directed that there be four firefighters per truck. Having four firefighters per truck is important because four is the number of firefighters that are needed to enter a burning building. If there are less than four, than the crew has to wait for a second truck to arrive. HRM is staffing up, but it takes a while to train more firefighters and training also has to keep pace with those who retire or move to other departments. The requirement to have four has meant higher overtime totaling about $3,000,000.
- $2,900,000 in ticket and building permit revenue won’t be collected because the needed legislative changes haven’t been made.
- Transit revenue is down by about $1,000,000.
- Licensing costs for software are up more than expected, by about $1,000,000.
- An increase in the senior snow shovelling program ($200,000) and grants for community museums ($220,000).
- On the positive side, deed transfer taxes is expected to be about $2,200,000 more than budgeted as the real estate market remains brisk.
So even without the 1.9% to cover increasing police and firefighter labour costs, HRM’s costs are up and some planned revenues haven’t come through or will be less than expected. This will likely mean that some projects will need to be adjusted in scope or put off a year to balance. There are also emerging challenges on the assessment side. Commercial tax revenues are the bread and butter of municipal budgets, but high vacancy rates in the office market (both suburban and Downtown) means that growth in commercial assessments has really flattened out. Residential assessments are still growing, but not by as much as they did in the past. The assessment changes means revenues will be $4,500,000 less than originally expected. This will likely impact future budgets as well because the office glut isn’t likely to go away overnight, especially since the amount of space per employee is steadily declining as business and government adopt more flexible work arrangements.
So what does it all mean? My recount of what’s changed for 2018 versus the original plan may sound gloomy, but the reality is HRM is in very good shape. The municipal tax burden in HRM is in the bottom 1/3 of large Canadian municipalities, HRM’s debt load is more than manageable and has been steadily declining, and a large portion of the capital budget is paid for from savings and taxes upfront (pay as you go). There are more items on the capital wish list than there is money for, but the bulk of that capital hole is on big ticket items that would be nice to have, but aren’t a necessity in the short-term. Council will be taking a close look at the capital budget to identify priorities, but HRM is really in great shape.
I expect we’ll end up with more adjustments on the operational side as we start to dig into each department’s budget in the New Year. I will need to add the expanded Alderney Ferry service ($500,000) into 2018 and I would like to see more money put into sidewalks, crosswalk improvements, and traffic calming. I know as well that HRM is falling behind on the urban forestry plan because it was never fully funded and, at the same time, the cost of new trees is increasing because demand is up from other municipalities buying. Funding the capital budget to make sure the Integrated Mobility Plan’s big vision for cycling, complete streets and bus rapid transit is also a priority for me. We’ll see what budget season brings, but some adjustments on the capital side, how much debt HRM pays down or a possible increase of more than 1.9% (low 2.0s) are what I see as possibilities if Council decides to add more to the operating budget. Based on last year’s results, I suspect some adjustments are likely. Will post more in the New Year as the budget process unfolds.