Provincial Budget Funding Impact
Monday April 10, a City Administration report was discussed by the Governance & Priorities Committee (GPC) and GPC approved a balanced approach to address the $9 million hole left in the City’s budget as a result of the increased PST and the abrupt end of the Grants-in-Lieu of Taxes (GILT).
As City Manager Murray Totland has outlined, this is not about any process to cut jobs and City Council wants to keep people in their jobs and service levels up. This is demonstrated through the Committees approved recommendations based on the following principles:
- keeping any property tax hikes to a minimum, and service levels up
- adjusting all options – how we spend, and the cash collected in fines and fees
- short-term solutions that are doable this year and then longer-term ones for the future
- ways to back-fill the provincial budget hole without dipping into reserves
- ways to maintain jobs
So what does this mean for City employees?
There are no job cuts and we still need to deliver all of our important services to citizens. However, the Committee is recommending that the allowance for a general wage increase for staff in 2017 be removed from the budget (that means there would be no economic -- or inflationary -- wage increase for staff in 2017). This goes for everyone, from the Mayor and Councillors, the City Manager, and all the way down the line. We have to keep in mind that many citizens have lost jobs, or have taken a pay cut as their employers try to make it through these tough times. We appreciate everyone riding this out together and understanding the compromises we must make to maintain jobs and keep property tax increases as low as possible.
What does this mean for property tax increases?
Despite how you might hear this being reported in the media, the Mayor and Councillors approved an additional tax increase of 0.93% to cover the provincial cuts. That will be added to the existing 1.62% increase, already approved by Council last December, for an overall 2.55% municipal tax increase (without library). This is actually lower than what was approved in December, because of the changes to the city tax policy. In the simplest terms, for an average house, it amounts to $43.80 per year or $3.65 per month over the 2016 City property tax bill.
What else will change?
The snow and ice levy won’t be collected in 2017 and will be deferred for one year. Also important to know, Committee is recommending that our water utility pay a little more back to the City’s general revenues as a return on the investment our citizens have made in that utility. In addition, parking ticket fines will go from $20 to $30, effective July 1st.
What about the City Reserves?
The Committee is not recommending using the reserves to address the gap in funding due to the Provincial government. The provincial cut is not a one-year shortfall – it is a permanent operating budget adjustment that requires back-filling by ongoing funds. Taking funds from a reserve would be a one-time solution which would have to back-filled in 2018 and future years to come.
The City has about $140 million in the reserve. If the City was to only use the reserve funds to deal with the ongoing provincial cuts plus pay for everything else we use the reserves for, all of the reserves would be depleted in seven years or less. So at the end of seven years, we wouldn’t have the reserves to pay for all the major projects that they currently fund. We wouldn’t have anything in our savings account to pay for projects that keep our roads, leisure centres, outdoor swimming pools, or parks in good working condition. And in seven years, we still would not have a long term solution to pay for the provincial budget shortfall.
What happens next?
These recommendations still require the final approval of City Council at its meeting to be held on April 24, 2017.
Questions About Reserves?
Why can’t the City just fill this gap and take it from one of the reserves?
This reduction is a permanent operating budget adjustment that requires back-filling by ongoing funds. Taking funds from a reserve would be a one-time solution which would have to back-filled in 2018 and future years to come. Reserves are established to mitigate risk; that means the reserve funds are there to cover us for unforeseen events, such as excessive snowfall, emergencies, and as an asset replacement fund.
It is not to cover our day-to-day operating expenses. We already know that funding to maintain some of our major assets such as bridges and parks is insufficient and have been attempting to build up reserves for these purposes. Pulling money out of our reserves, transfers this problem down the line and leaves us to deal with crumbling infrastructure and unexpected situations out of our operating budget.
What do we use our reserves for?
Just like your home, City facilities need maintenance and repairs too. One of the main things we use reserves for it for repairing city facilities and infrastructure. For example, when the roof needed to be repaired at the Saskatoon Field House, we had the money in reserve and City Council didn’t need to try to find the money elsewhere – or raise taxes. The money is there when we need it. Reserves are also used to mitigate risk and impact to tax payers in the event of an emergency or financial deficits. Establishing these stabilization reserves are a best practice which has also been recognized by our Bond Raters.
How did the reserves get to have so much money?
The simple answer is we put money in reserves every year – we need to have a fund to pay for things like fixing roads, and to keep leisure centres, outdoor swimming pools, or parks in good working condition. The money is there to pay for things that are above operating costs for facilities and infrastructure. Asset replacement and maintenance reserves are specific to each reserve’s purpose. They just can’t be arbitrarily redirected over the long run without major impact to the condition of the assets owned by the taxpayers of Saskatoon.
How much money is in our reserves?
There is about $141M in our reserves (2015 year-end). Of our total capital (construction and infrastructure renewal) spending every year, nearly 65% of all capital projects are paid for from the reserves. This is why we need to keep our contributions up every year.
How long would our reserves last if we were to use them to pay for the shortfall due to the provincial budget cuts?
There is about $141 million in the reserves. Based on the annualized impact from the Provincial Budget, if the City used reserves to offset this impact it would take about seven years to deplete all the City’s reserve balances. As a result we would not be able to fund any of the projects that we currently use these reserves for.
So at the end of seven years, our reserves would be gone; and we still would not have a long term solution to pay for the provincial budget shortfall.
That means we wouldn’t have anything in our savings account to pay for projects that keep our roads, leisure centres, outdoor swimming pools, or parks in good working condition
What are some things that we have recently purchased from our reserves?
The City uses these reserves to replace vehicles, buses and equipment, fire apparatus, repair roads, repair facilities, maintain and expand our utility infrastructure including electrical, water, wastewater and storm water, and many other capital expenditures.
The following are the resolutions from the special meeting.
- That the Administration implement a temporary hiring and discretionary spending freeze until Council can make a decision how to handle this, subject to the discretion of the City Manager.
- That the Administration look into the long-term service agreements and options in regards to lease payments from the Province for the P3 School Sites, including but not limited to charging market rent for the school sites.
- That the Administration report on how much the Province be charged for emergency services, and any other services the City provides on its properties.
- That the Administration explore a market rent for the Right-of-Way (ROW) access by Crown Corporations.
- That the Administration report on options for internal savings and revenue (not just property taxes).
- That City Council request a joint meeting (public) with Saskatoon Caucus MLAs from both parties to give them an information session on the impact the 2017 Provincial Budget impact on the City of Saskatoon.
- That the Administration provide a historic view on the funding relationship with the Province to be included in the Administration’s report on provincial transfers scheduled for April.
- That the Administration pursue appropriate legal measures, in coordination with the Saskatchewan Urban Municipalities Association (SUMA) and others affected in the municipal sector, including injunctive relief regarding the matter of redirecting Grants-in-Lieu (GIL) to the province’s general revenue fund.
As of March 27, 2017
What is a grant-in-lieu?
Instead of traditional property taxes, the Provincial government has paid the City of Saskatoon grants-in-lieu of taxes and rights of way that SaskPower and SaskEnergy utilities operate within Saskatoon, other cities towns and villages. This has been the arrangement for more than 60 years.
How does the province’s decision to cut out grants-in-lieu affect Saskatoon residents?
This decision will have an annual impact of $11.4 million dollars to the City, equivalent to a 5.63% property tax increase. It forces City Council to choose between raising taxes and/or making cuts to core services such as snow clearing, leisure facilities, police, or fire. In other words, the provincial government-owned power and gas companies will still charge their customers the same amount, but instead of passing some of the cash they collect on to cities, towns and villages for the municipal services those companies use, the government is keeping that money.
Does this mean my City of Saskatoon, SaskEnergy, and/or SaskPower bill will go up or down?
There will be no change to the City’s utility charges. Although the Province will no longer provide these grants-in-lieu payments to the City, it intends to keep collecting these amounts through their utility bills (SaskPower, SaskEnergy and TransGas) and then transfer the money to the provincial government’s General Revenue Fund account. The City’s bill does not decrease, because we match SaskPower’s rates.
Did the City know about the grants-in-lieu cut?
No, the grants-in-lieu cut was not made known to municipalities before the government announced the provincial budget. The provincial government’s move will have a huge impact on over 100 cities, towns and villages across the province. The City of Yorkton, for example, would lose the equivalent of 58% in revenue sharing.
When will the cuts become effective?
We understand that as of April 1, 2017, these grants-in-lieu will no longer be paid.
I keep hearing about the "municipal surcharge," what is that?
The municipal surcharge is different than the GIL. All cities receive a 10% municipal charge that is applied to the SaskPower Bill of all residents and business in the City. This “flow through” charge of 10% is collected from SaskPower's customers and passed onto the City on a monthly basis. This 10% surcharge was established to compensate all municipalities in Saskatchewan for lost revenues from the sale of former city electrical utilities to SaskPower. Although the Cities of Saskatoon and Swift Current retained ownership of their electrical utilities, these cities negotiated for the same 10% municipal surcharge for the areas outside of their power company coverage area.
Why can’t the City just fill this gap and take it from one of the reserves?
This reduction is a permanent operating budget adjustment that requires back-filling by ongoing funds. Taking funds from a reserve would be a one-time solution which would have to back-filled in 2018 and future years to come. The reserve funds are our savings account and are there to cover us for unforeseen events, such as excessive snowfall, emergencies, and as an asset replacement fund. It is not to cover our day-to-day operating expenses. We already know our bridge repair reserves are insufficiently funded today to meet our long term needs. We have been trying to build a parks rehabilitation reserve. Pulling money out of our reserves, transfers this problem down the line and leaves us to deal with unexpected situations out of our operating budget.
What’s going to happen to the Meewasin Valley Authority?
The City of Saskatoon recognizes the importance of Meewasin and has already increased our investment to $1.043 million in its civic 2017 operating budget. The implications of this Provincial budget cut are yet to be fully known, but the City will be actively engaged to find a way to keep Meewasin as a lead steward of our river valley.
Is there any way this can be stopped?
Saskatoon’s Mayor and Council are working with cities, towns, villages and the Saskatchewan Urban Municipalities Association in the hopes of addressing the Provincial Government about the long-term impact this will have. Cities are the economic engines of Saskatchewan.
What is revenue sharing and how does it impact the City?
Revenue sharing is when the Government of Saskatchewan distributes the equivalent of one percentage point of the Provincial Sales Tax to municipalities. The City will receive $330,000 more than it budgeted for, as a result of Census population increases being applied to the allocation. The allocation is higher than what the City projected in the 2017 Budget and totals $46.43 million, resulting in a 2017 budget impact equivalent to a tax decrease of 0.16%. In the last 10 years, 56,441 people have moved to Saskatoon which is a 26% increase and has required the construction of new neighbourhoods and necessary infrastructure.
Updated April 5, 2017
The Provincial budget has had a significant impact on the City of Saskatoon. City Council is gathering information so it can make an informed decision that is best for our citizens in the long term.
At a special meeting of the Governance and Priorities Committee held Tuesday April 4, 2017, Mayor Charlie Clark outlined his March 29 meeting with four provincial cabinet ministers. Mayor Clark told the committee the conversation was positive and it allowed the delegation of Regina Mayor Michael Fougere, Yorkton Mayor Bob Maloney, Saskatchewan Urban Municipalities Association President Gordon Barnhart and he to present the provincial budget impact on cities, towns and villages.
Mayor Clark stressed the conversation with the province was not just about the City of Saskatoon: the meeting provided an opportunity for some understanding on both sides.
Mayor Clark also explained the elected officials and their administrations were considering options to present to the Ministers to deal with the provincial shortfall. He said part of the conversation also has to be about a program to replace the Grants-in-lieu -- to arrive at some new arrangement in exchange for property taxes for Crown corporation assets on municipal land that use municipal services.
Mayor Clark turned the floor over to City Manager Murray Totland who further detailed for the committee the impact of the loss of Grants-in-lieu (GIL) and the PST increase announced in the provincial budget.
Totland said the impact of the GIL cut for 2017 is approximately $8M and the 1% PST hike will have about a $1M impact. He also reminded the committee there will be an additional $3.4 M to account for in 2018.
Committee also heard the senior management team has been trying to explain the provincial budget impact to staff as it has created some fear and anxiety.
However, Totland reassured the committee open and factual discussions and the Mayor's leadership have promoted more confidence among staff.
Lastly, Totland said the Administration is preparing two reports for the next GPC meeting Monday April 10: one on the impact of provincial transfers (the GIL cut) and another on the City budget impact the transfer will have.
The City and SUMA are working together with its member communities to find a solution.
Here are the facts:
Instead of traditional property taxes, the Provincial government has paid the City of Saskatoon grants-in-lieu (GIL) of taxes for property and rights of way that SaskPower and SaskEnergy utilities operate within Saskatoon, other cities towns and villages. This has been the arrangement for more than 60 years.
The Government of Saskatchewan released its budget Wednesday March 22, 2017; it became clear, effective April 1, 2017, the provincial government plans to stop paying Grants-in-Lieu (GIL) of taxes and to redirect those funds to the provincial government general revenue fund.
In other words, the provincial government-owned power and gas companies will still charge their customers the same amount, but instead of passing some of the cash they collect on to cities, towns and villages for the municipal services those companies use, the government is keeping that money.
The removal of GIL results in the loss of $11.4 million; this is equal to a 5.63% property tax increase. Obviously, this leaves a significant hole in our operating budget and a situation where our citizens would have to make up this loss of revenue one way or another - whether in cuts to core services such as snow clearing, leisure facilities, police and fire protection or further cost reductions. In 2017, the net impact on the mill rate is an additional 3.93% and if added to the already approved tax increase of 3.89% would total 7.82%. This is a reduced amount since it takes effect on April 1 and cuts only 8 months of funding.
Updated March 31, 2017
The provincial government announced Friday, March 31, 2017 it will cap the impact of its proposed Grants-In-Lieu (GIL) program cut to the equivalent of 30 per cent of what municipalities receive in revenue sharing.
This move provides some financial relief to the nine smaller cities of Estevan, Humboldt, Melfort, Melville, Moose Jaw, North Battleford, Prince Albert Weyburn and Yorkton, but it leaves Saskatoon, Regina and 98 other communities in the same fiscal situation.
SUMA leadership – including Saskatoon Mayor Charlie Clark and City Mayors’ Caucus Chair, Bob Maloney – met Wednesday, March 29, 2017 with four provincial Cabinet ministers. The delegation discussed the importance of both short and long-term funding options to the GIL that were fair and equitable to all municipalities.
While the latest announcement still leaves Saskatoon with no relief or clarity about what City Council needs to do with its 2017 budget, Mayor Clark is encouraged it appears the GIL cap is a “one-year measure.”
This would allow SUMA to suggest alternative options to arrive at some funding arrangement to properly pay for government-owned property on municipal land.
While municipal leaders work on presenting the province with funding options, the City of Saskatoon continues to explore all the appropriate legal measures – including a court injunction – in coordination with the Saskatchewan Urban Municipalities Association and other affected municipalities to stop a provincial government plan that would create an $11.4 million shortfall in City finances.
The Saskatchewan Urban Municipalities Association or SUMA has added its loud voice on the behalf of all the affected cities, towns and villages. SUMA President Gordon Barnhart says the provincial government eliminated $36 million in funding from more than 100 cities, towns and villages without consultation, and after most of those communities’ budgets were already finalized. He further stresses ending the payments in lieu would be permanent.
Like the City, SUMA also says using reserves is not how to back-fill the hole left by the province. Reserve funds are usually a contingency plan for snow removal emergencies, major water main breaks, and other unexpected catastrophic infrastructure needs — not for last-minute, permanent cuts by the Province.
Mayor & Councillors Approve Balanced Plan to Fill Provincial Budget Shortfall
City Proposes How to Address Provincial Budget Cuts While Keeping Taxes Low; Maintaining Civic Services and Jobs
City Council Seeking Legal Measures Among Other Options to Address Provincial Gov’t Refusal to Pay Grants in Lieu of Property Taxes