The financial status of the City of Vancouver is extremely unpredictable in the next years, to the point that significant property tax increases would be required to make up for the shortfall.
Simply put, municipal government expenses are beginning to build up, and they are increasing at a rate that is higher than revenue growth.
A significant share of the costs is due to costly initiatives that are the result of dozens of resolutions proposed and accepted by the current Vancouver City Council. Other costs, such as union-mandated salary hikes in the city’s workers and the rising price of replacing ageing crucial water and sewage infrastructure, are termed “uncontrollable.”
As part of their effort to prepare a budget for 2022 and lay a foundation, although unstable, for future years, city staff gave budget outlook updates to city council this summer and again earlier this fall.
To address rising costs, city administration has advised city council that an average property tax rise of 9 percent to 10% in 2023 and an annual average of 7% for the five-year period from 2022 to 2026 is required. Such increases aid in covering the budget’s growing structural costs.
In comparison, Vancouver’s recent average property tax increases of 2.3 percent in 2016, 3.9 percent in 2017, 4.2 percent in 2018, 4.9 percent in 2019, 7 percent in 2020, and 5 percent in 2021, along with various utility fee increases, were 2.3 percent in 2016, 3.9 percent in 2017, 4.2 percent in 2018, 4.9 percent in 2019, 7 percent in 2020, and 5 percent in 2021.
City council asked city officials earlier this year to develop a budget that keeps the city’s share of the 2022 property tax at no more than 5%. City staff presented a $1.7 billion draught operational budget for 2022 to city council this fall, which required $45 million in savings, which were achieved by identifying efficiencies, delaying some programmes, and deferring the scope of some projects. Furthermore, the 2022 deferrals are putting additional strain on the budgets for 2023 and beyond.
This explains why, starting in 2022, the city’s revenues are expected to revert to pre-pandemic levels, following falls in 2020 and early in 2021. Casino income and licence fee revenues are not expected to return to normal levels until 2023.
Three city council members have expressed their worries about the troubling fiscal trajectory. There is also a scope creep in the tasks that the City of Vancouver has taken on, resulting in a reduced focus on essential services and core municipal responsibilities.
“Years of city financial forecasts have told us current spending is unsustainable and that measures need to be taken to offset growing cost pressures,” said independent city councillor Lisa Dominato.
“Vancouver residents expect us to be responsible stewards of their tax dollars and have told us again this year that their top priorities are delivery of core services, affordability, housing and homelessness, community safety, and city finances. The draft budget does not adequately prioritize the services that residents and businesses have told us are important.”
The municipal government’s costs have also risen as a result of its willingness to download costs that were previously the province’s and federal governments’ direct responsibility, particularly in the areas of funding the construction and operation of affordable housing buildings, various homelessness support services, opioid overdose crisis resources, and childcare.
In July, city council passed a motion instructing city officials to collate any expenses incurred by the municipal government that can be classified as downloaded services previously provided by the provincial and federal governments.
“Residents question whether they are getting value for their tax dollars. Year after year residents are looking for consistent improvements based on investments in core services at a minimum, let alone beginning to address the broader challenges that are under the purview of the provincial and federal governments, and our engagement survey shows we are not meeting expectations in terms of core services,” said independent city councillor Rebecca Bligh.
“Affordability is worsening in our city, meanwhile the downloading from senior governments has resulted in programs inadequately resourced by limited property tax revenue — in other words we have taken on 100% of the responsibility with less than 10% of the required funding.”
And that’s only the percentage of property taxes paid by the city of Vancouver. The provincial government’s school tax, TransLink, Metro Vancouver Regional District, BC Assessment, and the Municipal Finance Authority all contribute to the property tax. Other entities’ part of property taxes and fees currently account for roughly 46% of total taxes and fees for a typical single-family home in Vancouver.
With housing affordability continuing to deteriorate, and recent inflation in the costs of goods, transportation, services, labour, and logistics, independent city councillor Sarah Kirby-Yung suggests the city take into account the rising cost of living for residents and the surging operational costs for businesses.
The councillors also believe the city government should concentrate on replenishing its General Revenue Stabilization Reserve, which is currently at an all-time low of around $50 million.
This fund is set aside to cover unforeseen operational costs incurred as a result of crises such as bad weather, catastrophic disasters, environmental risks, unusual public safety situations, and economic downturns.
During the peak of COVID-19, when the city’s revenues plummeted and new pandemic-related response expenses arose, the stabilization fund was used.
The city government’s stabilization reserve was over $146 million just before the outbreak.