The Hidden Costs of That Low Tax Increase

The mayor felt it important to point out to Prince Albert in a press release this week that the city set the lowest tax rate increase, 1.5%, in the province.  In doing so, he didn't count the whole cost, and he gave the impression that this was part of a plan of council.

To be clear, the tax rate increase was his election promise, not one that was developed by council before the election.  In my opinion, focusing on what the tax rate is should be the last step in budgeting, not a target to be met.  I'm sure that the public would be happiest with a 0% increase, but that is living in a fool's paradise.  Costs rarely go down, and trying to set a tax rate based upon what you think the public wants to hear, rather than on the work that needs to be done, is extreme short-term thinking.  And of course, with a mostly rookie council in place, two of whom didn't think that it was  important to be at the budget vote meeting, it passed with barely any discussion of what this would mean for the future.

What wasn't mentioned is how council is keeping the rate so low, despite rising costs and no efforts to trim spending in non-essential areas.  To start with, a goodly chunk of operating costs is being covered by dipping into reserves - reserves which are not meant to be spent on operating costs, but to be kept for emergency situations or large capital expenditures in the future.  And this decision was made before the provincial budget hits.  We're already having to go to the reserves to cover the $2.8 million owed to Domtar (that would be a legitimate use of reserves); now they're being used to cover shortfalls in revenue caused by poor budget decisions before the provincial budget, and then the province cutting back on the long-standing grant to municipalities that was meant to cover taxes that would be charged if they weren't a government.  Using reserves, of course, is following the premier's advice on how to deal with the problem - and we've seen his attitude, and the resulting mess, towards reserves.

So we have the money in reserves - what's wrong with using it this way, rather than increasing taxes?  Well, it's like draining your RRSP to pay your credit card bill.  At some point, you're going to need that RRSP money, and it won't be there - it will be in the big screen TV that you didn't really need (like paving the Art Hauser parking lot), but seemed really important at the time.  It's like our finances are being planned by a teenager who forgets that the costs of the car that he really, really wants need to include ongoing maintenance and fuel costs.  So watch out for larger than usual increases in subsequent budgets - once the reserves are empty, it's back to the taxpayer.

And the press release also doesn't include the fact that part of what should be covered in the tax increase is actually included in your utility bill, which rises at a rate of about 10% each year.  This helps to hide operating cost increases for things like garbage pick up in what you probably think is your water bill.  That helps to explain why any efforts to decrease water usage don't result in a comparable decrease to your water bill - there's other things stuck in there, plus the ongoing increase, that help to keep it going up and up.

So don't believe everything you read, especially if it's in a press release from the city.  That's not reporting; that's pushing a political agenda, and such things never tell the whole story, just the part the city wants you to hear.

"You can fool all of the people all of the time if the advertising is right and the budget is big enough." - Joseph Levine