April 14, 2020
RE: City Budget Implications Given COVID‐19
Municipal government across Canada are faced with fiscal challenges due to the disruption arising from the COVID‐19 pandemic. How they respond will have lasting impacts on residents and businesses.
The COVID‐19 pandemic has plunged the British Columbia economy, along with the rest of the world, into a deep recession. Most businesses in Kamloops are now experiencing significant economic hardships and it is clear not all of them will survive the pandemic. Further massive employment losses and temporary layoffs have suddenly placed many homeowners and renters in a dire financial situation.
A key to the overall impact is how long the COVID‐19 pandemic and government responses will adversely affect the world and local economies. Recently, Prime Minister Trudeau suggested that no return to “normality” will take place until a vaccine is found for COVID‐19. Currently projections suggest we are still 12 to 18 months away from a vaccine.
Against this backdrop we find the City struggling with noticeable revenue shortfalls. According to the City, Kamloops needs to come up with $3.7 million in savings to balance the budget, in the event the crisis continues to the end of June. This number jumps to $6.2 million should the crisis continue through to the end of September. Overall, the City expects $6.5 million in lost revenue by the end of June and $11.6 million in lost revenue by the end of September.
As stated by the City, making up for this lost revenue would result in an estimated 6.3 percent tax increase through June or 8.5 percent increase through September, if the City rolled over those impacts onto property tax bills. It is encouraging to hear that CFO, Kathy Humphrey is recommending taxes not be increased in 2020. However, this does highlight the urgency with which the City needs to move on addressing this issue. There are three key factors facing the City and its taxpayers, including:
- Firstly, the ability to pay among the business community and residential taxpayers has just declined and will be impaired for the remainder of the year and beyond.
- Secondly, it is a pretty safe bet that we are looking at significant economic impairment that is going to last for some time. Most discussions seem to favour some kind of phased approached in returning to normal which will create a lingering economic impact for some sectors, such as tourism, over the next couple of years.
- Thirdly, unlike senior levels of government, the City does not have the ability to run deficits to finance its annual budget, so it needs to act quickly in responding to the fiscal challenge.
While the Chamber of Commerce advocates spending money on planned projects to stimulate the local economy, that approach to fiscal stimulus during a recession works best when governments can deficit spend. They also work best when spending can be directed to local enterprises that employ local people and purchase local goods and services.
These elements make deficit spending effective at the provincial level, but much less so at the municipal level. Were the added spending to be financed by an increase in taxes, there is, on the local level a double hit in that residents have less disposable income and the spending does not necessarily increase local business activity and employment.
For the City of Kamloops where there is a clear and confirmed ability to leverage significant dollars from Federal and Provincial governments, then undertaking planned capital and maintenance projects makes sense. However, the priority must be given to ensuring that the burden is not placed on the taxpayer. Already the City has laid off the most vulnerable portion of its workforce by temporarily reducing 100 part‐time and on‐call staff.
However, much more will need to come from the City very quickly in order to ensure that residential and commercial taxpayers are not overburdened.
Many municipalities have already taken decisive action. For example, Fort St. John city council has ordered a review of the operating budget for the next four years and the impacts of the COVID‐19 pandemic on the city’s bottom line. Also, work is underway in eliminating a 1.25% property tax rate hike, deferring tax and utility payments and waiving late fees. Further, Fort St. John is eliminating business license fees this year and though core city services are still operating, the city has significantly cut its operations, laying off 88 workers.
The City of Port Coquitlam announced that their residents would not have to pay property taxes until Sept. 2. For residential owners, a previously proposed tax hike will be eliminated, and the average business will see a 0.59% decrease, and light industry will see a 3.33% decrease in their property tax bill.
The City of Victoria is considering lowering property taxes to provide fiscal relief to residents. Further, in the Greater Victoria area, municipalities are collaborating on developing a Recovery Task Force and focusing on three distinct phases: relief, recovery and resiliency, thinking about not just what they do in 2020 but in 2021 and beyond.
In Vancouver a recent survey suggests that upwards of 25% of City taxpayers may be unable to pay property taxes due to COVID‐19.
One thing that does seem to be clear: those municipalities who have budgeted carefully in the past are taking decisive action now to protect their taxpayers.
Further consideration for Kamloops is the potential risk of flooding this year which may create further challenges in utilizing the City’s modest emergency reserves. The City of Kamloops needs to move quickly and decisively, as continuing to delay action will only see the deficit build and will only make the solution that much more costly.
Board Member, Kamloops Voters Society