It may not come as a shock that the Town’s property tax increase has been held to a modest 3% during a municipal election year, even while capital spending is up by 30% – an extra $1 million compared to last year.
A municipal budget is a complex puzzle, including money held in reserve for major projects. Residents may be unhappy about which projects get top priority, but the debates and decisions about spending are at least done with public scrutiny.
Yes, taxes are high, but that is primarily the price of living in a small Town with a very small industrial and commercial tax base. And yes, the Town could find ways to be more efficient, but that would not solve the main problem: not enough income to satisfy the demands of the provincial government and of residents.
It doesn’t really matter if improvements occur in an election year, as long as they get done. If voters want to toss out the current councillors, it’s going to happen whether or not any given road is paved. New councillors will have the same money to work with, and will discover that slashing spending is easier said than done.
The use of reserves is a tool that enables the Town to save up so that major jobs can be done with less borrowing. There are formal Reserve Funds in separate accounts, many of which are required by the province, such as Development Charges, Cash in Lieu of Parkland and the Federal Gas Tax Reserve Fund. Other informal Reserves remain within the general funds, but are still earmarked by council for specific purposes.
The Town started the year with about $5.4 million in Reserves and Reserve Funds. The 2014 budget will draw out $2.1 million for capital and operational uses, but transfer in close to a million, leaving a balance of $4.2 million. Finance Director Sharon Marshall estimates that an additional $200,000 to $300,000 will flow into Reserve Funds this year due to new houses being built, and lots being created.
The depletion of savings has enabled the Town to keep the tax hike to 3%, or $33 on an average home assessed at $387,750. If they had done the same spending without using reserves, that average tax hike would have been $262, an increase of 24%, Marshall said. Each 1% tax rate increase only raises about $50,000 for the Town.
Reserved money can be for projects considered too expensive to be funded in one year. It can also be money planned to be spent one year, but not actually spent, so it is carried forward for the same project. For example, $181,516 of unused 17 Sideroad reconstruction money was put into the Roads Capital Reserves in 2013, to be withdrawn to help pay for work in 2014.
“Much of the money used in 2014 from Reserves and reserve Funds was originally added to those funds for specific purposes,” said Marshall. Of the $2.1 million to be withdrawn in 2014, $1.5 million was for previously planned projects.
Staff presented a Five-Year Capital Plan last January. While Council did not formally adopt the plan, it did play a role in budget deliberations. Council did approve an Asset Management Plan (AMP) last December (as required by the province for grant applications), with recommendations on funding capital projects.
An article on the AMP is available at www.erininsight.blogspot.ca, and the document is available on the Town website, www.erin.ca. Capital Plans and Asset Management Plans do not bind the Town to projected spending – those final decisions are made in each annual budget.