British Columbia

Cuts are coming to city halls across B.C. Here's what you need to know

As financial decisions roll out, here's an explainer of what these changes mean.

What's being cut, what help the province has provided, and why there hasn't been a bigger bailout yet

Mayor Kennedy Stewart holds a virtual council meeting after declaring a state of emergency at city hall in Vancouver, British Columbia on Thursday, March 19, 2020. (Ben Nelms/CBC)

Cuts are coming to city halls across B.C., with municipalities dipping into savings in order to make up for lost revenue from the COVID-19 crisis.

Worries are looming that homeowners may not pay taxes, and some municipalities are cutting planned tax increases.

As financial decisions roll out, here's an explainer of what these changes mean.

Why are municipal governments being so hard hit?

While provincial and federal governments are rolling out new spending programs to help get people through this crisis, local governments are instead tightening their belts and warning of a tough financial position.

This is because unlike senior governments, municipalities typically aren't allowed to run a deficit — that is, they can't spend more money than they make in any given year. 

And the amount of money they make is trending downward, fast. The closure of city buildings like pools and skating rinks is costing millions in lost revenue every month, at the same time as communities are waiving parking fees and bus ridership is down.

All of this means lost revenue: from approximately $1 million a month in Prince George to $5 million in the City of Vancouver.

Property taxes and mill rates

The larger concern, though, is property taxes, which make up the bulk of city budgets.

While the feds and province collect a portion of people's income and business earnings, municipalities are only able to charge those who own land, setting a mill rate, or the amount of tax payable per every $1,000 of assessed property value.

COVID-19 brings two different issues: the non-property tax revenue municipalities receive has mostly dried up, and city halls are worried that homeowners might not pay their property taxes.  

What has the government done so far?

In response to the crisis, the provincial government has so far declined to give municipalities direct subsidies, instead giving them new tools to move money around. 

These measures include allowing cities to:

  • Borrow money from next year's budgets, effectively allowing them to run a deficit for the first time ever. 

  • Take money from reserves typically dedicated for specific purposes to pay for general operations.

  • Delay paying the portion of property taxes that are given to the provincial government until the end of the year. 

The province has said more changes might be made if necessary. 

Frank Leonard, a former president of the Union of B.C. Municipalities and chair of B.C.'s Municipal Finance Authority, said the changes should allow most communities to weather the storm. 

Combined, B.C. municipalities have more than $6 billion in reserves, and Leonard said the province likely didn't want to create an unequal playing field by bailing out some communities before there were major cash flow issues. 

"To just start distributing money without due diligence and discussion could punish those that have taken measures to get their budgets in order," he said. 

However, he said the province needs to keep lines of communication open. 

"We need some thoughtful discussion not just in terms of dealing with what the problem is this week, but trying to envision what the municipal cash flow will look like in September," he said. 

"What is the responsibility of the municipality to, you know, suck it up, as opposed to more funding from the provincial and federal government? I think those issues need to be sorted out rather than just start writing cheques."

How have municipalities responded? 

Most have enacted hiring freezes and temporarily laid off employees who work in departments that have been closed due to the pandemic, like community centres or libraries. 

In addition, the deadline for submitting budgets for the fiscal year is May 15 — and many communities have cut proposed property tax increases in recent weeks because of the medium-term uncertainty. 

But cities that already committed to keeping property tax increases low are having an easier time making up for lost revenue. Fort St. John, for example, was only planning on a 1.25 per cent increase, and plans to make up that gap through reserve funds. Prince Rupert already had budgeted for a zero per cent property tax rate increase, instead relying on new investment related to the city's growing port to fund yearly cost increases.

Other communities have had to make larger cuts to long-term programs. Victoria has postponed all new projects that weren't underway to eliminate property tax increases this year, while several Metro Vancouver municipalities have cancelled funding for climate emergency programs. 

Vancouver Mayor Kennedy Stewart has argued that lowering property tax increases would be irresponsible.

"The homeowners wouldn't really notice a cut. They'd hear the news, but they really wouldn't notice it. But our city finances would certainly feel it. Those councils [that have lowered rates] ... if people default on property taxes, those reductions will be short-term gain for really long-term pain."

What things are being cut? 

The most immediately visible cuts might be to city beautification projects. Dawson Creek has already opted to not plant its bedded gardens this summer, freeing up funds to be directed elsewhere, and Port Moody has cut its vegetation maintenance budget for boulevards and roads, along with the number of flowers purchased.

Likewise, Prince Rupert has warned residents to expect longer lawns and a few more weeds on city properties as they reduce the amount of temporary staff hired for maintenance work.

In Terrace, council decided not to hire a new RCMP officer or a deputy CAO, two positions they hoped would help manage a fast-growing population. Those items will be back on the budget list for next year.

But outside of continued temporary layoffs and suspended programs, municipalities will likely be in a holding pattern until they have a better sense of two things: how many people won't pay their property taxes this year, and how certain services might rebound once certain restrictions on physical distancing are lifted.

"Simply reopening the rec center isn't going to bring back revenue because I think people are going to be reluctant to be in close quarters," said Leonard. 

"Local governments, just like businesses right now, are going to have to think about what June or July or August looks like in terms of operations, even if we reopen."

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