Saint John’s city officials are warning changes to the unconditional grant program could cost the cash-strapped city almost $1 million.

The provincial government has handed out unconditional grant funding — a program that acted as an equalization program so local governments could deliver services — since 1967.

The program has been reviewed repeatedly over the years and has faced its own series of budget cuts.

Saint John's finance commissioner told councillors last week the city is expecting its unconditional grant allocation could be cut by as much as six per cent in 2013.

Greg Yeomans, the city's finance commissioner, said every one-per-cent reduction in the unconditional grant costs Saint John roughly $189,000 in revenue.

Saint John would be short about $1 million if the cut goes through as predicted.

The possibility of a reduction in Saint John's unconditional grant comes at a tough time for the city.

City councillors are visiting different parts of the municipality in a pre-budget tour, asking residents for their views on what services could be cut in the next budget.

The city has been grappling with a series of tough financial decisions over the past several years.

The city’s employee pension plan has an estimated deficit of $193-million and councillors were forced to make several significant cuts to city services in the 2012 budget.

Saint John Mayor Mel Norton warned city residents last week that any upcoming plans to reform the pension plan and cut the deficit will also be painful.

Saint John’s share of the unconditional grant is $18.9 million, which helps the city cover its $144.6-million budget.

Saint John has the largest slice of the grant program. Moncton received $11.2 million in unconditional grant funding in 2012, followed by Fredericton with $5.6 million and Dieppe with $925,000.

Equalization funding

The unconditional grant changes are being watched closely by the province’s municipal organizations.

Raymond Murphy, the executive director with the Union of Municipalities of New Brunswick, said it's not time for municipal governments to panic.

He said the grant formula is still being tweaked by the provincial government.

'What we heard it will be a more equitable formula. It will be based on the principle of equity. So there will be a major change for many municipalities.'— Frederic Dion, Association of francophone municipalities

Frederic Dion, the executive director of the association of francophone municipalities, said he believes the new unconditional grant formula will be based much more strongly on equalization.

"They will try to make sure that every municipality in the province has the ability to deliver a certain level of services,” he said.

Dion said the formula being developed by the Department of Environment and Local Government will focus on creating equality of service across the province.

"What we heard it will be a more equitable formula. It will be based on the principle of equity. So there will be a major change for many municipalities,” he said.

Dion said he expects that after a three or four-year transition period some communities will cease to get unconditional grants altogether.

The unconditional grant program has historically recognized the fact that municipalities face a fiscal gap between the services they have to deliver to their citizens and their ability to raise revenue to pay for those services.

Further, the grant addresses how some municipalities have a greater ability to raise revenue than others.

Dieppe’s unconditional grant funding shows a clear example of how the program has helped more economically disadvantaged communities.

Dieppe has a population of 23,000, according to the 2011 census, but the provincial government gave it only $925,642.

Dieppe may have the fourth-largest population in the province, but its share of the unconditional grant program is by far the lowest amount of any of the eight New Brunswick cities.

Bathurst, Campbellton, Edmundston and Miramichi all have smaller populations and each of those communities received unconditional grants of more than $2 million in 2012.

Local Government Minister Bruce Fitch has reduced the unconditional grant program in the last two years.

Fitch announced last November a two-per-cent cut that brought the program to $66-million.