The city is facing a shortage of more than $500,000 in next year’s budget and that figure could be on the rise.
The 2012 budget largely hinges on Catalyst.
Andy Laidlaw, city manager, said Catalyst has requested a reclassification of its former Elk Falls mill property from the major industry tax class to the business/other tax class.
“If the BC Assessment Authority does reclassify the site there will be further reduction in city revenues for 2012,” said Laidlaw in a report to council.
At the end of budget deliberations in March 2011, city staff projected a 2012 budget deficit of $1.85 million but the outlook has improved. As of Dec. 1 the deficit now stands at $550,000 based on continuing service levels as is, but it does not include any possible reduction in the amount of taxation from Catalyst.
“Current budget projections are based on continuing the 2011 service levels adopted by council,” Laidlaw said. “Management has been instructed to budget with a zero per cent increase in all costs other than those which have been contractually negotiated.”
Laidlaw said less than anticipated increases in the RCMP contract and inflationary costs for fuel, Hydro and supplies helps the city’s financial position, as well as decisions council made in the spring when hammering out this year’s budget.
“Council anticipated the 2012 budget being difficult and budgeted $442,500 in 2011 towards the 2012 projected deficit,” Laidlaw said. “We are in an improved financial status as a result.”
During 2011 budget planning, council also chose to put a three per cent residential tax increase towards the 2012 deficit as well as a business/other tax increase of .5 per cent.
Laidlaw said that while council reduced some services and administrative costs during budget planning, it may also need to consider “significant service reductions” if council intends to not increase taxes.
“If council’s priority is to reduce future tax increases, then significant changes to the status quo will be required,” Laidlaw said. “Alternatively, if council’s desire is to maintain continuity of current service levels, to retain its capacity to respond to community-driven service requests and to increase economic development initiatives, then that will by definition, require increased taxation.”
He warns that past practises, such as drawing from reserve funds, are no longer an option.
“Council has utilized many of its existing reserves, reducing them to a point where this strategy will be less effective,” Laidlaw said. “Short-term expediency is not good for long-term fiscal prudence, without a strategy. Some reserves are depleted and utility funds are not sustainable. In 2012, council will have to make further difficult choices between significant service cuts, raising taxes, or a combination of both in order to maintain a balanced budget. Local governments across the province are being asked to respond to many community needs not traditionally provided. Provincial cuts in grants or service delivery have also been downloaded to local taxpayers (gaming grants). Revenue reductions with the mill closure continue to require a gradual shift to residential or business taxation.”
Laidlaw said the most significant question for council going into next year’s budget planning will be whether it wants to reduce services or increase taxes.
In Laidlaw’s report, which was before council on Tuesday night, he detailed all the city service areas that need funding despite a struggling economy.
One of the biggest priorities is water and sewer as the infrastructure is aging and requires necessary upgrades.
Laidlaw said as it stands now the “water rate structure is inadequate to sustain these utilities and utility rate increases will be required to maintain current levels of service in to the future.”
Council will work out next year’s budget in late winter or early spring.