The City of Thunder Bay is now projecting a positive variance of $3 million for the 2021 budget year. Despite the ongoing COVID-19 pandemic and its costs, the City of Thunder Bay is receiving more financial support than expected from both federal and provincial levels of government. As well, policing costs as well as other expenses such as debt interest are coming in lower than expected. If the assumptions underlying this budget update forecast come to pass, then for 2021, Thunder Bay will have its seventh consecutive positive budget variance making for accumulated variances of $17.1 million over seven years.
Needless to say, this “good news” will be used to lend a positive vibe to discussions of spending more money on big capital projects such as a revised Multi-use Indoor Turf Facility project or the new proposed police facility. After all, with City finances in such “good shape”, we can afford to spend more. Until next fall of course when the discussion will tilt to how we need to raise taxes 3-4 percent. It would appear that the budget spin in Thunder Bay changes from quarter to quarter depending on the need to support the needs and aspirations of the moment.
Positive variances are an odd term. The term variance makes it sound like all that has happened is that the numbers they are getting now are somehow at “variance” with the original budget. The degree of economic literacy in the general public and maybe amongst a few of the city councilors is such that they probably do not realize that a “positive variance” on the budget is not some type of COVID-19 hybrid spreading to the finances but rather than what it really is: a surplus. What the city is really saying is that they either have or are projecting an operating surplus on the tax supported budget. At three million dollars it is just about the size of the tax increase they brought in this year meaning that once again taxes came in much higher than if spending estimates were on the nose.
Of course, this is a COVID-19 year and a lot of unexpected things can happen. Moreover, while having very large positive variances means that the tax rate levy that was imposed was again higher than it needed to be in 2021, one does not want municipalities to become spendthrifts and needlessly run down their reserves. After all, it was not that long ago that negative variances were more of a concern as the accompanying figure illustrates. As the numbers for the City of Thunder Bay show, negative variances used to be a problem but to its credit the city actually got a handle on its spending to the point where the financial leaks have been plugged. Too bad, they could not solve the City’s ongoing leaky water pipe crisis too.
Municipal governments of course are not allowed to run deficits on operating expenditures by the provincial government, so deficits are covered out of reserve funds while surpluses can be used to augment reserve funds. At the same time, many municipalities – Thunder Bay included – are now in the practice of running habitual surpluses funded out of tax increases that are often higher than they need to be. Enjoy the surplus. We are paying for it as ultimately it comes from taxpayers at either the local, provincial or federal level.