The budget process slowly drags on at City Hall. Or, I suppose over Zoom in virtual council and committee meetings. The Halifax Regional Municipality (HRM) created headlines with proposals to cut fire and other services in order to address a cash shortfall resulting from COVID-19. While councillors quickly responded to lessen the cuts, it is almost inevitable that no department will escape some kind of trim in the COVID-19 world.
Individuals, businesses, and governments are all facing a pandemic induced financial crunch. With decreasing revenue, profits, and income in almost every sector, combined with business closures, and what could be permanent staff reductions in some sectors, you can expect service cuts at all levels of government over the next few years. But in Nova Scotia, at the municipal level, councils are left with little choice but to pull out the machete and cut the budget in the middle of the pandemic.
Recently, I’ve been asked by many people why provincial and federal governments are spending and just taking on debt, while municipalities are looking at cuts. The answer is simple. The solutions are complicated.
Unlike other levels of government, Municipalities in Nova Scotia cannot legally run deficits. Any deficit in one year is the first budget charge the following year (they can take on debt for capital projects). This law, which only the provincial legislature can change, exists for a lot of reasons, not least of which is that historically some municipalities found themselves deep in debt, and repeated studies on municipal fiscal capacity have shown municipal financial resources are generally declining, especially when measured against increasing costs. So unsustainable deficits are high risk for municipal units. (its worth noting that municipalities tend to be responsible for services which disproportionately rise faster than the cost of living, so this is another pressure making deficit financing risky) Nonetheless, this immediately removes one of the tools the provincial and federal governments have to weather situations like COVID-19.
As municipalities contemplate how to address this situation, they face a number of other factors.
Lost Revenue
This is self evident. Some municipalities made parking and transit free. This is revenue which they will never get back. Some delayed the due date for property tax. More critically, some businesses will not survive the COVID-19 closures. For some of these, taxes may ultimately be written off as uncollectable. There is a long-term issue as well. In some municipalities, the business office market may shift to more at home work reducing the demand on office space, and ultimately commercial assessments of properties. This will result in lost tax revenue to municipalities.
The Year Has Started
The municipal fiscal year starts April 1. As I write this we are two months into the fiscal year. Many contracts will have been signed. Tenders issued and awarded, and projects begun – some of them done in advance to get a head start on the season. Council by way of its procedures and its earlier motions pre-approved some of the budget. A large portion of the municipal budget is also fixed costs. Some have asked why the library budget hasn’t faced as big a cut as fire or police (percentage wise) but that budget is likely faced with many more fixed costs such as commercial leases, as they went through rationing in earlier years. Few municipal departments deliver discretionary services (less road maintenance? Garbage collection?). None of the choices are great. And many which might exist can’t be put in place as cuts quickly. Thus the primary option is cancelling programs or services which have not yet started.
But, A Bail Out Surely…
Some have suggested that the federal or provincial government bail municipalities out. In Nova Scotia this seems unlikely. Federally they are rapidly running out of capacity. Edmonton alone is seeking over $200 million from the federal government. There are 3,573 municipalities in Canada. Varying needs and sizes of course, but you can imagine the size of the financial commitment that would be needed to even make a dent on issues faced by municipalities.
So that leaves the province. Let’s face it, the current government in Nova Scotia has staked its reputation on balancing the budget. The Nova Scotia government has offered a loan program to municipalities, however it is interest bearing and must be paid back in three years. This results in simply another charge for municipalities. For HRM its reported to be a cost of $31 million to finance the loan. You the taxpayer will pick this up through property tax. A more appropriate program by the provincial government would have made the support interest free for municipalities if paid back in the three year window, and interest bearing after that. This alone would have saved municipalities millions of dollars, and avoided the need for some of the cutbacks. Yes, there is only one taxpayer, but this comes down to capacity of various levels of government to manage increased costs.
So What Now?
Municipalities like HRM will continue to finish their budget process. There will be cuts. Plans to bring things like the fire service closer to the national standard will almost certainly take longer. Other projects have been delayed. More will be. There will also likely come a rethink of municipal standards such as sidewalk widths, increased demand for active transportation options, and how to make transit safe for riders and staff. What will happen to property taxes over the next couple of years is anyone’s guess. There is little room in municipalities like HRM to raise property taxes (while the actual property tax comparison is middle of the road for Canadian municipalities, it’s the combination of other costs in NS, municipal, provincial, and otherwise which provide little room to move up on taxes). So unless the economy suddenly turns around within the year (unlikely given the predictions for the pandemic), expect more painful and deeper cuts and service fee increases next year. A wise council would begin that discussion fairly quickly and not wait until the next budget year so the public could weigh in on what council should prioritize for funding and for service reductions.