Nfld. & Labrador

$12M shortfall facing St. John's council as it looks to balance 2019 budget

The City of St. John's says it wants to hear from you.

Dave Lane warns mill rate increase needed to offset decrease in property values

St. John's Coun. Dave Lane says without raising the tax rate, city services will have to be cut in the 2019 budget. (Ted Dillon/CBC)

The City of St. John's is facing a budget shortfall next year of $12 million because of rising costs and dropping property assessments, says the head of the city's finance committee.

"What we're looking at is a decrease in the revenue that we'll be receiving from property tax if we keep the mill rate where it is right now," said Coun. Dave Lane. 

Lane and city council have been warning residents for the past few weeks to expect an increase to the residential mill rate — currently 7.3 mills.

The city has just completed another round of property assessments — done every three years — and the average assessment is down five per cent, said Lane. The drop in property values is contributing to a forecast decrease in tax revenue — residential and commercial — of about $6.4 million.

By law, we have to cover any shortfall. We can't have a deficit.- Dave Lane

"And also, we've seen our expenses go up into the next year, and some of the big numbers there are debt servicing costs, which is how we pay for our infrastructure, as well as some salaries have gone up and we are seeing electricity rates go up," he said.

It all adds up to a $12-million shortfall for 2019.

"By law, we have to cover any shortfall. We can't have a deficit," said Lane.

That means spending has to be cut — including services — or raising taxes, or a combination of both. Lane said that's why the city has launched public consultations to ask residents for their budget priorities.

Residents will have several opportunities to engage with the city about the upcoming budget, said Lane. (Terri Coles/CBC)

"We want to let people know first of all, that this challenge is ahead of us, and also get some feedback," he said.

To offset an average five per cent drop in assessments, a residential mill rate increase of 0.4 mills would cover it. A homeowner with an assessed property value of $300,000 currently pays $2,190 in property tax.

If that assessed value dropped five per cent, to $285,000, and the mill rate went to 7.7 mills — from the 7.3 mills that residences with water and sewer are currenlty billed — that same property owner would pay $2,194.50 in property tax.

The five per cent drop is an average — some homeowners may see a drop of more than five per cent, while others may see less of a drop, or even an increase.

If that $300,000 home saw a five per cent increase, to $315,000 for example, that same property owner would now pay $2,425.50.

Smaller houses more in demand

Complicating things further, noted Lane, is that assessed property values take housing market trends into consideration.

With the recent slowdown in the St. John's economy, larger houses — with generally higher assessed values — have been less in demand, and are more likely to have seen their assessments drop, while smaller homes have been selling better, which could mean an increase.

The housing market in St. John's has been struggling for a few years now. Today, smaller, more affordable homes are in hot demand. (Adam Walsh/CBC)

"That's unfortunately the system we have to work with … we have to use one mill rate for everybody, and we have to use property tax values as they're assessed, using the same method that is used across the province, to determine that value.

"It's not the system that we love, that's for sure."

Public engagement

Lane says that's a real complaint that's heard right across the country ... "That property tax doesn't reflect your ability to pay directly. In some cases it will, because probably you bought a house that's bigger because you have a higher income but it's not necessarily fair.

"Unfortunately, by law, this is the system we have to use."

The low-hanging fruit are gone, so any further cuts we make will impact service levels for residents …- Dave Lane

On the city's Engagestjohns.ca website, residents can enter their assessed values and see how the range of potential mill rate increases. The city is also sending out brochures to residents outlining the budget process and will hold five public meetings this month, as well as two Facebook Live events, including one Tuesday, to solicit input from taxpayers.

"If we don't want to have tax increases, we are going to have to make cuts in various areas, and we've been working on a lot of them. The low-hanging fruit are gone, so any further cuts we make will impact service levels for residents, and that's why we have to have this conversation."

Business federation advises spending cuts

Vaughn Hammond, Newfoundland and Labrador director of the Canadian Federation of Independent Business, says the city should take a closer look at spending, and implement a wage freeze to help prevent costs rising in the future.

Vaughn Hammond, director of provincial affairs in Newfoundland and Labrador for the Canadian Federation of Independent Business, says the city must look at deeper cost-cutting measures and a wage freeze to get its finances under control. (Eddy Kennedy/CBC)

Hammond told CBC's St. John's Morning Show that the city also should focus more on basics and offload some services to the provincial government, such as assessing property values, which the provincial government does everywhere else in Newfoundland and Labrador.

"It's water, sewer, how they deliver parks and recreation, how they deliver economic development," he said.

"They should look at how they are doing things overall. Admittedly, under program review, they made some cuts and whatnot, but they need to look a little bit deeper, I think."

Read more from CBC Newfoundland and Labrador

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