New Brunswick

Moncton sees multimillion-dollar deficits in coming years tied to pandemic

New financial projections show the COVID-19 pandemic creating a long-lasting financial hit for New Brunswick's largest city. Moncton staff say it could require cutting spending or tax hikes to avoid multimillion-dollar deficits.

City staff say tax hike, service cuts or other spending cuts could be required

Jacques Doucet, Moncton's chief financial officer, shown at a council meeting last year, outlined scenarios for how the pandemic could affect the city's long-term finances. (Shane Magee/CBC)

Moncton's municipal finances could be in for a long-lasting, multimillion dollar hit requiring tax increases or spending cuts, according to city staff projections outlined Monday. 

Staff presented a new long-term outlook at a committee meeting that forecasts what could happen under scenarios where the pandemic reduces property assessment value growth in the province's largest city.

The projections represent a change in how Moncton staff view the impact of the pandemic, as council was originally told not to expect significant changes in assessment values. 

"We could be in a challenging position if COVID has a big, big impact," Jacques Doucet, the city's chief financial officer, told councillors. 

Doucet said the latest figures were based on "worldwide research" and preliminary conversations with various people.

A Hyatt Place hotel under construction in downtown Moncton. Staff say a new hotel opening during the pandemic would likely have a lower assessed value than one that opened before the pandemic as its rooms may not be booked. (Shane Magee/CBC)

"There will be an impact on assessments in 2021, certainly," Doucet said, adding it's unknown if it will be greater in the years that follow. 

He said while New Brunswick's economy looks like it will recover, the uncertainty comes from whether a broader recession impacts Toronto and countries like China, which could affect private investment in things such as new construction in Moncton. 

Several years of flat assessment growth would compound over the coming years.

Property assessment values play a significant role in determining municipal finances. The province assesses properties, taking account of various factors that include the market value if a property were to be sold. 

Staff told council that a sustained shift in people working from home instead of from downtown office buildings could also affect assessment and city finances. (Shane Magee/CBC)

The city's property tax rate is then multiplied against the assessed value, resulting in property tax revenue for the city. 

Doucet suggested it's unlikely a newly opened hotel with no rooms reserved would be assessed the same as if it opened before the pandemic. Two new downtown hotels are nearing completion in Moncton. 

The city had prepared its budget assuming it would see two per cent assessment growth over the next three years, leaving it in a surplus position.

But Doucet said following the research and discussions, staff prepared two new scenarios. 

The first would see assessment growth dropping to one per cent over the next two years resulting in deficits of $1.4 million and $2.8 million in 2021 and 2022. Even if growth then recovered to levels predicted before the pandemic, staff forecast the city would have cumulative deficits of $12.6 million over the next decade. Doucet described this as the "more probable" scenario.

The second scenario forecasts the growth rate at zero per cent the next two years, before it increases to one per cent by 2023. That would result in deficits starting at $2.8 million and climbing to $6.2 million in 2023. The city would face cumulative deficits of $88.3 million by 2031. 

Since municipalities cannot legally run deficits, either scenario would require new revenue, such as a tax increase, or significant spending cuts over several years. Moncton's operating budget is $161.8 million this year.

The two scenarios presented by city staff show how lower than expected assessment growth in the next few years because of the pandemic could result in cumulative deficits between $12.6 and $88.3 million by 2031. (City of Moncton)

Doucet said under the second scenario with a structural deficit, the city could require assistance from the province. However, he said if it's only a year or two with a deficit, the city could cut capital spending and use funds from reserve accounts. 

Mayor Dawn Arnold and several other councillors suggested they'd oppose a tax increase. 

"We can't be raising taxes for our citizens," Arnold said. "People are really suffering right now. That's the last thing they'll want or be able to sustain."

City council has already approved delaying capital spending and other measures to reduce a projected $3.5 million deficit in 2020.

About the Author

Shane Magee

Reporter

Shane Magee is a Moncton-based reporter for CBC.

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