Thunder Bay Budget 2019: Onward and Upwards Simply Won't Do This Time

The 2019 Thunder Bay municipal budget has arrived, and the proposed budget projects a total increase in the municipal tax levy of 3.25 percent. The proposed levy is $195.9 million which represents an increase of $6.2 million over last year’s budget of $189.7 million.  You can get a nice summary of the proposed changes in this summary article by Jeff Walters given that the actual executive summary document released by the City of Thunder Bay is really quite lengthy and as usual a rather opaque document with its summary of total tax supported(gross) spending, tax supported (Net), rate supported (Gross) and rate supported (Net) spending all of which include capital spending and government grant supported spending and are all well in excess of the $195.9 million tax levy which is not mentioned until the second page.

This first budget is an important test of the new Mayor and City Council in that it will provide an indication of their approach to municipal fiscal matters.  Indeed, the incoming Mayor in his assessment of major issues facing the City noted that taxation levels were one of his top three priorities  (along with infrastructure and crime).  There is of course a difference between the level of taxation and the size of a rate increase – reducing the level of taxation actually means having a negative rather than positive change to the net municipal levy. However, as Figures 1 and 2 show, the trend over the last two decades has been one of constant increases with a median increase in the levy of 3.1 percent. That is to say, half of increases were above 3.1 percent and the remainder below with the lowest increases being for the years 2000 at 1.1 percent and 2010 at 1.2 percent.  Hopefully we will not again see years like 2004 and 2006 as given the current levels of taxation they would represent an economic disaster for many local households.

 

 

An important issue for Council to ponder is the recent tendency for municipal budgets to generate large surpluses as was the case with the 2018 budget which was on track for a $3.6 million surplus as of October 2018.  While such surpluses are often used to replenish reserve funds, it remains that it becomes easy to budget when one overshoots with spending estimates and banks the savings at taxpayer expense.  Given that the increase in the municipal tax levy in 2018 was $5.75 million, it suggests that one could have had a much smaller tax increase and still run a modest positive variance in the $1-$2 million range.   And the fact is that 2017 also saw a budget surplus in the range of $8 million as a result of “one-time costs” that were lower than expected.  Essentially, municipal services - some of which are more regional than local it is to be noted - are being funded by local ratepayers as well as a broader range of cultural and social services and added to that a municipal "savings program" designed to build up reserves. Moreover, the residential ratepayer has been bearing a rising share of the tax burden given the decline in the city's industrial base.

I suppose whether you think using municipal property tax revenues to hit such a wide range of targets is a good idea depends on whether you believe the purpose of property taxation is to fund local services or whether it has a broader range of goals.  Municipal taxation is traditionally supposed to be "benefit" taxation - that is it is to be used to fund local services to residential property and property owners - rather than a form of wealth taxation - which is actually how the tax is levied.  If benefits and services to property are tied to the value of the property, then  the current approach works.  However, we all know that there is a wide variation in services to property.  As well, the aim should be for prudence in the budgeting to provide services with some effort to maintain reserves for unforeseen expenses.  At the same time,  the municipal ratepayer should not be treated as a sort of unlimited liability insurance provider when it comes to budgeting by being used to generate large surpluses that result in taxes higher than needed to fund operating service and needed capital projects.

So, what should this year’s increase in the municipal levy be?  Well, increases in levy supported spending should not exceed the rate of growth of population and inflation.  Given inflation in the rate of 2 percent and population increase of zero you are looking at 2 percent rather than 3.25 percent as the upper bound for this year’s increase.    True, unforeseen circumstances could cause more spending than anticipated later on in the year rather than a reduction but then that is what reserve funds are for and they have seen some healthy replenishment over the last few years.  Going ahead with the 3.25 percent increase is an indication of business as usual as 2017 and 2018 also saw increases in the total levy of over three percent.  Council will need to go through the list of proposed increases and ask for a pretty good justification of why they are needed.  Onwards and upwards is simply not a good option this year.