Finance staff have recommended an increase of 8% to the average property tax bill for next year, and painted a bleak picture of Halifax’s finances.
Budget and reserves manager Tyler Higgins and accounting and financial reporting director Dave Harley have tabled their budget direction for fiscal 2023-2024. The report to council’s budget committee “was designed as HRM faces significant economic headwinds.”
“Inflation has gripped the municipality and the municipality’s once strong financial position is showing signs of erosion,” Higgins and Harley wrote.
The report, coming to budget committee for debate next Friday, is the start of what councillors already heard will be a “tough” budget season.
Last year, councillors voted to hike the average property tax bill by 4.6%, including 3% for HRM’s climate action tax. The increase amounted to $94 on the average residential bill, and $1,989 on the average commercial bill.
HRM’s use of an average tax bill increase means the percentage increase accounts for rising property values. For residential properties, the tax rate actually fell last year.
$173 on the average residential property tax bill
Next year’s 8% increase would amount to $173 for the average residential bill and $3,955 for the average commercial bill. Higgins and Harley called the increase “significant.”
Costs are expected to rise $55 million next year. That includes $20 million in compensation, $10 million in fuel, and $8 million needed for capital projects. Non-tax revenues are down, including deed transfer tax and planning and development fees.
HRM is headed for a $7.5-million deficit this fiscal year.
“If this deficit continues into the end of 2022/23, the municipality will need to recoup the deficit in 2023/24,” Higgins and Harley wrote. “Currently, any deficit from 2022/23 has not been factored into 2023/24 budget direction.”
Even with the increase for 2023-2024, they’re expecting a $40-million shortfall the year after. With inflation expected to remain high, Higgins and Harley warn HRM will need even more cash for future projects.
“As a result of this on-going pressure from inflation, it should be cautioned that any one-time efforts to reduce the tax increase will only increase cost pressures and the tax burden in the following year,” Higgins and Harley wrote.
Councillors lose their cash cow
For several years, in a hot housing market, councillors used increased deed transfer tax (DTT) revenues to avoid tax increases. But that tax, 1.5% levied on the purchase of any property, is now trending in the wrong direction.
The revenue increased from $42 million in 2017-2018 to $83 million in 2022-2023, the current fiscal year. The money helped create budget surpluses for HRM every year.
Councillors faced warnings about using that money to pay for ongoing expenses. But, typically led by Mayor Mike Savage, they voted to use it anyway.
It won’t work in 2023-2024.
“The Bank of Canada has taken to interest rate increases to combat inflation. This has resulted in cooling the housing market and, thus, putting pressure onto DTT,” Higgins and Harley wrote.
“For the first time in five years, DTT is expected to decrease. The current projection for 2023/24 is an expected decline of $7 million or 8.4 percent below 2022/23.”
Taking on more debt to fund future projects
Higgins and Harley also warned councillors the municipality’s reserve accounts “are not sufficient to deal with the funding required for HRM’s Strategic Initiatives.”
An increase in debt won’t solve HRM’s problems either, Higgins and Harley wrote.
“Unlike other levels of government, HRM is legislatively bound to approve a balanced budget and is not able to use debt to fund its on-going operations,” they wrote.
But they recommended increased debt anyway.
“To accommodate the capital plan, this report is recommending that debt ceiling be increased from $1,200 per dwellings to $1,500 per dwellings over four years,” Higgins and Harley wrote.
“This would allow for an increase of $62 million of debt to fund capital projects.”
Councillors will debate this early direction next Friday, Nov. 25. They will continue to build a budget through the new year, and are expected to vote on a final budget in April 2023.