There is enormous uncertainty with the City of Vancouver’s financial situation in the coming years to the extent that significant successive increases in its property tax will be needed to compensate for the shortfall.
Simply put, local government expenditure is starting to pile up, and it is creeping up at a pace that is faster than revenue growth.
A growing portion of the cost is the result of costly initiatives that are by-product of dozens of proposals put forward and approved by the current Vancouver City Council. Other costs are considered “uncontrollable”, such as union-mandated wage increases in the city’s workforce and the rising costs of replacing aging critical water and wastewater infrastructure.
City staff provided updates to the city council’s budget outlook this past summer and again earlier this fall as part of their process of drawing up a budget for 2022 and setting a foundation, albeit a shaky one, for years to come.
City staff have indicated to the city council that an average property tax increase of 9% to 10% in 2023 and an annual average of 7% for the five-year period from 2022 to 2026 is needed to cover the growing costs. Such increases help cover the escalating structural costs of the budget.
Compare this with Vancouver’s latest average property tax increases of 2.3% in 2016, 3.9% in 2017, 4.2% in 2018, 4.9% in 2019, 7% in 2020 and 5% in 2021, along with various consumption tax increases .
Earlier this year, the city council instructed city staff to create a budget that keeps the city’s portion of the property tax for 2022 at a maximum of 5%. City staff returned to city council this fall with a draft operating budget of $ 1.7 billion in 2022, necessitating $ 45 million in cuts made by identifying some efficiencies, delaying some initiatives and postponing the scope of some projects. In addition, the deferrals in 2022 will put more pressure on the budgets for 2023 and beyond.
This also explains the forecast that city revenues, starting in 2022, will return to pre-pandemic levels after declining in 2020 and earlier in 2021. It is expected that casino revenues and licensing revenues will not return to normal levels until 2023.
Three city council members have come forward with their concerns over this worrying fiscal policy development. There is also a scope that creeps into what the city of Vancouver has taken on its shoulders, resulting in a diminished focus on basic services and core responsibilities for the municipal government level.
“Years of urban economic forecasting have told us that current spending is unsustainable and that measures need to be taken to offset the growing cost pressures,” said Independent City Councilor Lisa Dominato.
“Residents of Vancouver expect us to be responsible managers of their tax dollars and have again this year told us that their top priorities are the provision of core services, affordability, housing and homelessness, community safety and the city’s economy. The budget proposal does not give sufficient priority to the services that residents and businesses have told us are important. ”
The cost to the local government has also grown from its willingness to download costs, which were previously the direct responsibility of the provincial government and federal governments, especially in the areas of financing the construction and operation of affordable housing, various support services for the homeless, resources for opioid overdose crisis and childcare.
In July, the city council approved a proposal that required city staff to collect the complete expenses incurred by the municipal government, which can be considered as downloaded services that have traditionally been provided by provincial and federal governments in the past.
“Residents are questioning whether they are getting value for their tax dollars. Year after year, residents are looking for consistent improvements based on investment in core services as a minimum, let alone addressing the broader challenges that are under the competence of provincial and federal governments, and our engagement survey shows that we do not live up to expectations in terms of core services, ”said independent city councilor Rebecca Bligh.
“The affordable price is deteriorating in our city, meanwhile, downloading from senior governments has resulted in programs insufficient resources of limited property tax revenue – in other words, we have assumed 100% of the responsibility with less than 10% of the necessary funding.”
And it’s only the city of Vancouver’s part of the property taxes. Additional parts of the property tax can be collected for the provincial government’s school tax, TransLink, Metro Vancouver Regional District, BC Assessment and the municipal finance authority. Currently, the share of property taxes and fees from other units represents about 46% of the total taxes and fees for a median single-family home in Vancouver.
Independent City Councilor Sarah Kirby-Yung suggests that the city needs to consider the rising cost of living for residents and rising operating costs for businesses, where housing affordability continues to deteriorate and the recent inflation in costs of goods, transportation, services, labor and logistics.
It is also proposed by councilors that the local government should focus on rebuilding its general revenue stabilization reserve, which is currently at a record low level of around $ 50 million.
This contingency fund is dedicated to unexpected operating costs due to emergencies such as bad weather, catastrophic events, environmental hazards, extraordinary public safety situations and economic downturns.
The stabilization reserve was exploited below the peak of COVID-19 when the city’s revenue suddenly fell and when it saw new pandemic – related effort spending.
Just before the pandemic, the municipal government’s stabilization reserve was over $ 146 million.
“We need to recognize that the overall affordability of the city is deteriorating. People are suffering from rising food, shelter, supply and transport costs, and we should not add excessive tax increases to that burden, especially while people feel the value for taxes are falling, ”Kirby-Yung said.
“We need to adjust spending to what residents and our small businesses said were most important to them: clean and safe, well-maintained streets, public spaces and sidewalks, quality services, affordable housing and homelessness and public safety.”
So far, these discussions mainly concern the operating budget, but there is also the multi-billion dollar capital budget (in the direction of new infrastructure and plant construction and major maintenance projects) to consider.
During the initial discussions this year on the 2022 budget, several other city council members suggested they would like to see fewer spending cuts and higher property taxes.
Also yesterday, Vancouver’s Mayor Kennedy Stewart announced that he will formally introduce his proposal to create a new “progressive” tax to fund the 32 initiatives under the city’s Climate Emergency Action Plan (CEAP). The tax will raise $ 100 million over 10 years and will be used to cover CEAP’s costs totaling $ 500 million. The specific details of Stewart’s tax mechanism have not been released.
All of these budget considerations for 2022 and beyond, including Stewart’s tax, will come into play early next month – December 1, when the public is invited to speak with the City Council, and December 7, when the City Council will take a decision on the municipality’s finances, including the rate of property tax increase.