It may seem like Council is being inundated with reports lately — on buildings, on financial trends, on operations — but it is all a build up from the moment the new Council started work, says Mayor Don McCormick.
“It’s not that it’s all happening now. It’s cumulative over a year,” he said. “We talked a lot about a service review and it is all coming together in these various reports.”
What is clear is that the current way of operating is not sustainable. You can’t continue going back to the residential and small business taxpayer year after year, McCormick says. Nor can the city continue to underfund infrastructure while building tourist amenities.
“Much of Jim Ogilvie’s (former longtime Mayor) vision has been fulfilled. We have a number of amenities. But the money put into those amenities was money not put into infrastructure. Now we are shifting gears and moving city money to infrastructure.”
Report after report has indicated that new sources of revenue must be found and that service levels must be looked at.
That is ongoing, McCormick says.
“Every service the city offers is being reviewed. Are we getting maximum value for the money and are there ways to maintain it at a lower cost?”
All of these reports help in pointing Council in the necessary direction, though out of all of them, McCormick says the financial trend analysis prepared by CAO Scott Sommerville may be the most useful. See his thoughts on that below.
Report Analysis – Financial Trend Analysis 2001-2015
Two of the five Strategic Priorities set by Council – Financial Sustainability and Infrastructure Renewal – require a balancing. Financial sustainability means living within our means; and at the same time reliable infrastructure is required to keep the community growing.
History paints a picture of not only where we have been but more important where we are headed. The goal of this trend analysis is to identify areas where we are heading in a different direction than needed to achieve our goals.
Taxation – the amount residents and businesses pays to the City each year – is $10.1M; User fees – amounts paid for water, sewer, and garbage – are another $5.1M of the $24M annual budget.
Generating new revenue (not increasing taxes to existing taxpayers) is a long term requirement to ensuring we are financially viable. In the short term, we need to deal with what we can control and achieve a balance between spending and service levels. Some areas require much more spending (such as infrastructure) and while some tax increases are the way to help pay for this, it cannot be the only action. Rationalizing our spending habits and service levels has been on-going for the past year, with progress made in some areas:
– Operational costs have been reduced by about $200,000;
– The front office at City Hall has undergone several changes aimed at staffing improvements, cost efficiencies and being more effective at getting the job done
but there is much work left to do in this area.
This trend analysis contained several key recommendations aimed at achieving the balance needed for long term viability.
The easiest thing to do is take an incremental approach to spending, and keep going back to the taxpayers for additional funds as needed. This approach has resulted on an average annual increase of more than 5% for the past 15 years. There are those in the community who feel tax increases are no problem – it is the price you pay to live in a great place; there are those on fixed incomes whose standard of living is impacted by the yearly increases; and high tax rates have an impact on our competitive position with other communities in the Kootenay region with whom we are competing for new residents. Also consider that the overall assessments have remained flat for the past 5 years.
All of this means that automatic tax increases are not healthy. Our strategy is to identify our municipal rate of inflation – the annual increase in the cost of the uncontrollable necessities for the City. This would be things like the union contract, fuel for the fleet, BC Hydro, etc. This increase would represent the maximum tax increase; any additional pressure for tax increase would be identified as such and that increase would be allocated directly to that expense. An example would be paving projects beyond what is in the current capital plan.
Staff has been directed to identify our inflation basket as a first step and determine our rate of inflation for 2015.
Four of the ten operation areas analysed have increased at a rate much higher than the others: economic development (358%), Water Sewer and Solid Waste (124%), General Government (118%) and Transportation and Civic Works (91%). The Economic Development portfolio expanded considerably with the addition of the Conference Center; given they are our infrastructure it is not surprising that utilities have increased as they have. It is in the areas of General Government (which includes things like administrative wages, legal and accounting, and maintaining City Hall) and Recreation and Culture where we have the highest increases in controllable costs.
Staff has been asked to identify targets for operational efficiencies along with options for service reductions where is makes sense to do that.
SALARIES, WAGES & BENEFITS
This expense category makes up more than 50% of total expenditures, and 68% of taxation revenue. It is clearly the City’s biggest expense. This expense needs to be analysed in the context of service delivery and targets set for what we can afford to pay. In principle, increased wages need to be in line with increased productivity in order to reach our goal of long term financial viability.
A significant recommendation in this report and agreed by Council is a change to the exempt (non-union) staff salary increases. Increases have traditionally been tied to the results of the union contract. Going forward the CAO will award increases from an approved pool of money based on performance. Third party market reviews will also factor on an on-going basis.
The union contract is expiring at the end of February. Since these wages and benefits make up 73% of total wages, the new contract will be a big part of our inflation rate for 2016 and beyond.
We are spending $1M less annually than needed to keep up with the depreciation of our general fund infrastructure. We need to stop this bleeding and begin rebuilding these assets. Chief among the assets are our roads.
We have already begun to sell assets that are not working for the city (that is, generating taxes); by selling we get short term cash and more important start generating taxes immediately and then get more taxes on the improvements when the asset is raw land. We are reviewing user fees for services funded through the general fund and will look to diverting any operation surpluses to invest in infrastructure.
Council will take all of this – as well as the other recommendations in the report – into consideration as we assess the operating budgets for the next 5 years and establish the tax rate for 2016.