Budgets aren’t sexy, but that doesn’t mean they’re not important. Take a look at the news: the world is teetering on the brink of financial crisis because Greece has racked up colossal debts. On this side of the water, Canada’s federal and provincial governments are preaching austerity, American states are undertaking huge budget cuts, and some U.S. municipalities are verging on bankruptcy.
The City of Victoria isn’t at that point … yet. But as the City’s own budget documents reveal, there are signs that our politicians will face some hard financial choices in 2012. Here is a summary of what’s involved.
THE INFRASTRUCTURE DEFICIT
As you’ve probably heard, the City has a shortfall of nearly $500 million between what it needs to spend to maintain and replace its aging infrastructure — roads, bridges, water pipes, storm drains, and buildings — and the funding it is actually setting aside for that purpose. In May 2010, City staff identified this infrastructure deficit in a presentation to Victoria councillors. As a slide from it indicates, the gap is growing by some $10 million per year:
The infrastructure deficit grows by $10 million annually
Worse yet, many big-ticket items — such as a new Crystal Pool, Fire Hall #1, or downtown library — have not yet been accounted for in the City’s long-term capital plans. A slide from a January 2011 budget summary to Victoria councillors says this:
Big-ticket projects like a new pool aren't funded
It also notes that Victoria won’t be able to borrow for these projects without raising taxes. Why not?
GROWING DEBT
The City of Victoria has the largest debt of all municipalities in the Capital Region. Spreadsheets listing the debt of B.C. municipalities indicate that the top three most-indebted in the CRD are:
Total Municipal Debt (as of December 31, 2009)
Victoria $49,386,444
Langford $23,002,407
Saanich $17,421,794
Victoria’s debt, compared to other CRD municipalities, can also be rendered graphically, using this tool:
In 2009, Victoria already had the biggest debt in the CRD. We've borrowed even more for a new Johnson Street Bridge
In 2009, Victoria spent some $7.7 million paying down principal and interest on its debt. Saanich, by comparison, spent $2.8 million, and Langford $1.1 million.
Victoria did retire some debt recently, by paying off loans it had taken 20 years ago to build the Caledonia Street police station, and to reinforce the Ross Bay shoreline. Last year, the City took this new borrowing room into consideration when deciding how to proceed with the Johnson Street Bridge, as a slide from a June 17, 2010, presentation to councillors indicates:
Enticed by the claim of "no tax increase", when we voted Yes to a new bridge we used $49.2 million of our $51.4-million tax-free borrowing capacity
In November 2010, voters approved borrowing $49.2 million for a new Johnson Street Bridge. This meant the City could only assume another $2.2 million in debt for all its other projects before it would have to raise taxes to service the loans. In 2011, the Capital Regional District contributed $8 million to the bridge project, so the City can now borrow around $10 million without increasing taxes — but that won’t be nearly enough to pay for all the bills coming due.
DECLINING CAPITAL RESERVES
To reduce the amounts it has to borrow, the City can draw from “capital reserves”, the savings account it uses to pay for longer-term projects. However, much of these reserves are already spoken for — and they are steadily diminishing. As this slide from the January council budget presentation shows, last year the City’s reserves declined from $73.4 million to $65.4 million:
The City's reserves declined last year by $8 million
RISING COSTS
The City’s operating costs also continue to increase. Last January, the City’s director of finance told councillors that the costs of construction materials, expenses for new City programs such as social housing, and grant funding and property-tax exemptions were all growing faster than the City could absorb. The City also calculated a 2% annual increase to its workers’ salaries (which it agreed to in October, but did not publicly disclose). This situation is precarious, she warned:
The operating budget must be reduced, just to keep tax increases below 4%
Instead, the City’s operating budget continues to grow.
TAX INCREASES
The City already knows it will have to raise property taxes by 4% every year just to balance its books. (Did YOU know this?) The Mayor’s budget presentation of March 2011 spells out the City’s own predictions of increases to its operating budget, and the associated property-tax increases:
Property taxes are slated to go up 4% every year ...
Note that these numbers do NOT include additional increases to cover debt for a new Crystal Pool or Fire Hall — let alone seismic upgrades to other City buildings, cost overruns for the Johnson Street Bridge, regional sewage treatment, or a $950-million LRT system. Nor do they, as another slide from the Mayor’s March 2011 presentation indicates, include the City’s loss of its policing contract with Esquimalt, the City’s share of $10 million in repairs to the CREST emergency radio system, or other impending expenses:
... and that won't even cover some forthcoming bills
In addition, the City intends to rebalance the tax burden between businesses and residences. Currently businesses pay a 4:1 rate compared to homeowners, and a City policy intends to reduce it to 3:1. This rebalancing turned the 3.96% property tax increase advertised by the mayor this year into a 7% increase on Victoria residences, making Victoria less affordable for everyone.
ARE THERE SOLUTIONS?
In October, the City trumpeted a new Economic Development Strategy as a way to balance its books, without jacking taxes or slashing services. But as noted in the slide above, the $1 million to fund the Strategy is still missing, and its success largely hinges upon the growth of institutions outside of the City’s boundaries, such as the University of Victoria or the high-tech sector. Others have suggested the City use a public-private partnership (“P3”) to fund new facilities such as Crystal Pool, but several councillors have rejected that idea, even though the current B.C. government requires that a P3 at least be considered for a project to qualify for provincial funding.
To solve this mess, it seems likely that whoever is elected on November 19 will have to undertake some drastic austerity measures of their own.
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