Budget 2020: Impacts of Provincial and Federal Decisions

Next week, Council will be debating Budget 2020. Recently, I wrote about what we heard from the public regarding the budget. In this post, I’ll be writing about the impact provincial and federal decisions will have on the City’s budget.

There are many changes happening at the provincial and federal levels. Because of these, the City will need to make up for significant lost revenue and increased costs between 2019 and 2020. The full impact is not yet known, but my best early guess is that it will add up to about $4,500,000 in 2020. To put that into context: for the City to generate that much money through property taxes, it would need to raise taxes by a little about 4%. I don’t see Council passing on these full costs to local taxpayers (and I certainly wouldn’t support that course of action). But this lost revenue will have an impact on local services and/or taxes.

Some have suggested we should be able to absorb these changes with no local effect. However, we were already working hard to find efficiencies: that’s how we were able to lower taxes in 2019 while also increasing how much was spent on roads, RCMP, and other key services. We would’ve continued looking for savings in 2020, no matter what came down from the provincial and federal governments. So decisions by senior levels of government aren’t causing the City to find savings it wouldn’t have found otherwise. Instead, it is meaning that less of those savings can be passed onto local taxpayers.

Due to losing millions of dollars from its budget, the City will either need to charge higher taxes or offer less service than it would’ve otherwise.

Following is more information about how senior levels of government impact the City budget.

WHY IT MAKES SENSE TO FUND MUNICIPALITIES

There are many reasons that it makes sense for senior levels of government to provide municipalities with funding rather than requiring municipalities to generate all of their own income. Three big ones:

  • Municipalities collect the least amount of taxes. Municipalities own over 60% of public infrastructure. They also deliver the government services that citizens access the most often. Despite that, municipalities generate less than 10% of the total tax dollars collected in Canada. Our current tax regime is unbalanced between municipalities and other levels of government, making municipalities dependent on support.

  • Many municipalities serve non-residents. Grande Prairie is a prime example of that: every day, thousands of non-resident individuals and vehicles travel into and through our City. Additionally, the City is host to provincial buildings that serve the entire region, not just City residents (GPRC, hospitals, the court house, etc. ). These buildings are on some of our biggest and most valuable pieces of land, but they don’t pay taxes. It makes sense for senior levels of government to provide funding to the City to help deliver municipal services to these non-City-taxpaying people and buildings.

  • Property taxes are a poor form of taxation. Property taxes discourage people from improving their land and buildings. They can fluctuate unpredictably as property values change. And they don’t get scaled back if a family’s income is suddenly decreased. Despite all of their problems, property taxes are the only form of taxation available to municipalities. When provincial and federal governments pass on less money to municipalities, property taxes need to rise.

Municipalities absolutely should receive support from senior levels of government.

However, it is also very appropriate to consider how much and what type of support is given. In 2020, both the federal and provincial government will be making changes. While a few are troublesome, most of these changes are reasonable. However, they will all have impacts on City services or taxes.

Following is a look at some of those changes.

PROVINCIAL CHANGES TO MUNICIPAL FUNDING

The province has made a number of changes that will impact the City budget. The full cost of these changes is not yet know. However, they’ll add up to about $2,500,000 that the City has to find.

You can click here to see a City staff report detailing some of these changes.

Changes include:

  • Infrastructure Funding Decrease: Provincial funding for infrastructure comes through a program called the Municipal Sustainability Initiative (MSI). When it was introduced, the province said that MSI would be scaled up over time to equal what the province collects in educational property taxes. That never happened: the City’s MSI grant is equal to ~1/3 of what it collects in property taxes on behalf of the province. And under the new provincial budget, MSI is set to decrease by 17% over 4 years before being replaced by another program. In 2020, the City will see a reduction of $730,000 from this infrastructure funding.

  • Old Bypass: Ironically, in the same year that it is losing infrastructure funding, the City is also inheriting a very expensive piece of infrastructure: the old bypass. The province did give the City a $20,000,000 grant to make much needed repairs to the bypass, but those are unlikely to cover all the capital work needed. Additionally, the City needs to come up with its own operational funding to do snow removal, pothole fixing, light maintenance, line painting, street sweeping, and other regular maintenance. We don’t yet know what will be required to operate the bypass, but I’ve seen estimates of this costing upwards of $500,000/year.

  • Court Fines: When a municipal enforcement officer writes a ticket, the province takes a percentage of the revenue generated. Historically, the province has only taken enough to pay for the court costs associated with the ticket. However, the province is increasing the percentage of fine revenue it will keep to fund other programs. This will cost the City about $850,000 in 2020.

  • Grants in Lieu of Taxes: The City is host to many provincial buildings. Despite sitting on large and valuable pieces of land, these properties do not pay taxes to the City. Many of these buildings serve a large portion of non-City residents (ex: hospitals, GPRC, the court house). But City taxpayers are expected to fund roads, police, fire, and other expensive municipal services to these buildings. In recognition of the expense these buildings create for the City, the province does provide Grants in Lieu of Taxes. But these only cover a small portion of the cost to service these buildings. And they are being reduced by 24% this year and 32% next year. This will carry an unbudgeted loss of $106,000 in 2019 and an additional loss of $212,000 in 2020.

  • DNA Testing: The province has previously covered the costs of DNA testing. These will not be covered by municipalities. We do not yet know what impact this will have on the City’s budget.

MY TAKE ON PROVINCIAL CHANGES

This provincial government is dedicated to reducing expenses. As partners in building the province, it makes sense for municipalities to share in these reductions. I’m not fundamentally opposed to the province passing on more costs or reducing grants to municipalities. But this comes with three big '“howevers”:

  • These changes will have impacts on local services or taxes. There is no possible way for the City to absorb millions of dollars in loses without any effect.

  • Grants in Lieu should be left alone. City residents are required to subsidize residents of other municipalities in a variety of ways. Reducing the money the City receives to provide municipal services to large, regional provincial buildings (GPRC, hospitals, the court house, etc.) increases that subsidy. All Albertans should share equally in the challenges our province is facing. But reducing Grants in Lieu puts a disproportionate burden on urban residents.

  • Municipal infrastructure funding should rise in step with provincial revenues. Starting in 2023, a new framework will be put in for municipal infrastructure funding. Although this funding will be greatly reduced from current levels, it will also be set to rise (or shrink) as provincial revenues change. This makes sense: as the province experiences prosperity or challenge, municipalities should share in that. However, the proposed framework will only see municipal infrastructure grants change at 50% the rate of provincial revenues (for example: if provincial revenues grow by 2%, municipal funding would grow by 1%). This should be 100%- municipalities should be a full partner with the province.

FEDERAL CHANGE TO RCMP COSTS

There is also a significant change coming down from the federal government: the cost of our RCMP contract.

RCMP members recently won the right to unionize, which will be increasing their salaries. Additionally, the RCMP has determined that it has not being delivering municipal services at full cost recovery. The federal government has decided to raise the contract costs for municipal RCMP policing.

The City’s share of this increase has not yet been publicly released. However, it will be VERY significant. This will be a large added cost for the City in 2020.

I have no objection to this change: municipalities should pay the full cost of their policing. However, it is also worth pointing out that, in Alberta, most municipalities don’t pay for police. Only towns and cities of 5000+ people pay for general policing- the province covers the costs for all other municipalities. The province is looking at changing this funding arrangement. As the costs for police services change dramatically, it is even more important for all Albertan municipalities to start contributing.

You can click here to read about how police are currently funded in Alberta, and how that may be changing soon.

For good or ill, these changes from senior levels of government will have a very large impact on the City’s budget. While the City is working hard to find efficiencies, it isn’t possible to absorb millions of dollars without some impact on services or taxes. It’s going to create some interesting (and challenging) conversations as we head into budget deliberations.

Thanks for reading!

-Dylan

Dylan Bresseybudget, policeComment