A township municipal budget consists of a delicate act of balancing the operational needs of the township with the economic fortunes of its residents. During the period of time from 2020 to 2022, annualized inflation peaked at all-time highs in Canada making budgeting for township operations more challenging. Cost inputs such as fuel, labour, building materials and services rose at rates of up to 9%. Further complicating the task is the fact that healthcare related cost increases are also impacting local government. Municipalities have worked through these challenges trying to keep tax rate increases at rates similar to or less than the annualized inflation rate. In the past twelve months, we have seen a cooling of the annual inflation rate to 2.8% in February, 2024. In fact, the annual inflation rate has been declining since mid-year 2023. But, the cost of food and gas have remained stubbornly high into 2024 with grocery prices only starting to rise at a slower rate than the key inflation rate in recent weeks, affecting the economic well-being of our residents.
These are the conditions under which two of our local Township councils (Madawaska Valley and Hastings Highlands) are finalizing their budgets for 2024, both taking what would seem to be opposing approaches. The Township of Madawaska Valley is proposing a tax levy increase of 3%, whereas Hastings Highlands is proposing a municipal tax levy of 8.95%. The stark contrast of approaches really highlights the need to perhaps ask questions of our respective councils.
Hastings Highlands Draft Budget (8.95 % proposed tax levy) – Second Reading March 20th:
https://hastingshighlands.civicweb.net/document/143853/ (skip to page 74)
The Township of Hastings Highlands proposed 2024 budget documents are found on their website (see link above) and are contained in a presentation to council for 2nd reading on March 20th (pages 74 to 105). A summary of observations and comments follows:
- No explanation of the 2023 actual financials versus 2023 budget is provided. The 2023 revenue exceeded budgeted revenue and all expense lines were less than budget.
- The 2023 underspend combined with higher revenue resulted in a $727,357 surplus in 2023 with no explanation or accounting of where it went.
- 2024 projected expenses increase relative to the unachieved 2023 budgeted expenses. There is no explanation of why they underspent last year relative to budget and need a further 9% increase in expenses in 2024. The overall increase in spend from 2023 actuals to the proposed 2024 budget is $1.67 million representing a 15% increase.
- Items listed as extraordinary expenses for 2024 could easily have been covered by the surplus from 2023.
- $4.4 million of the Discretionary Reserve accounts are transferred into the 2024 budget for project spend (very little detail is provided of which projects receive funding). The Reserve Accounts are depleted from $6.1 million in 2023 to $3.2 million in 2024 with a corresponding $1.47 million transfer of funds into Reserves for a net depletion of $2.9 million. By comparison reserve accounts are now much lower than neighbouring townships. Presumably this use of reserves is to accelerate infrastructure repair, but at a time when the financial world can throw curveballs quickly, a reserve balance of $3.2 million could be low.
- There is an acknowledgement that assets need repair and maintenance (under-maintaining of assets such as roads, bridges & buildings has occurred over several years).
- In recognition of the need to increase the Reserve Account (counter the depletion referred to above), the 2024 transfer to Discretionary Reserves was increased by $100,000 to $1,468 million in 2024 (per comment above – of note the amount of transfer was only $750,000 in 2020). It is being Increased quickly to offset depreciation of assets in the future and prepare for replacement of assets AND to counter the rapid spend on infrastructure and draw down of reserves proposed by this mayor and council.
- Comment – it is very hard to understand the Discretionary Reserve Account and its relation to the 2024 budget (which projects will be funded by reserve transfers), and hard to understand the need for increased expenses. What is the accounting of last year’s surplus?
- Overall comment – the 2024 proposed budget increases spend on maintenance of assets and at the same time increases the capital reserve transfers in order to provide for the future depreciation of assets, a combined task which is hard to do in a few years and is what is driving the need for an 8.95% levy . In effect Hastings Highlands is spending much more on maintenance AND saving for future repairs at an increased pace. But Reserve Accounts are now also being lowered rapidly to a low point (do we have enough in our reserves for an emergency?) The comments pertaining to the 2024 proposed budget also reflect a concern (increased project spend by an administration and council that failed to deliver on the 2023 proposed budget and project list). Last year actuals indicate the Township made more revenue and spent less than they budgeted, thus it is very hard to see the justification for this budget as there are no explanatory notes, and past performance suggests it may not be possible to deliver on the budget. Furthermore, is it the prudent budget to impose on its residents, many of whom are likely struggling to adjust to the new reality of continued inflationary pressures.
Summary of Observations – Township of Madawaska Valley Draft Budget (3% proposed tax levy):
MV Township Approves 2024 Budget – Township of Madawaska Valley
The Township of Madawaska Valley budget documents are found on their website (see link above) and are contained in a presentation to council during a Special Meeting from February 27th of the proposed operating budget for 2024 (pages 3 to 134). This budget has passed 3rd Reading. A summary of observations and comments follows:
- Well-developed budget documenting all revenue sources, capital expenditures and supplementary capital reserve transfers resulting in the required funding from tax sources (more easily followed than Hastings Highlands’ budget documents).
- Madawaska Valley budgets have no surpluses but do use modest reserve transfers to reduce expenses in 2024 and mitigate the overall tax levy increase. Reserves were depleted from $5.95 million in 2023 to a projected $5.21 million in 2024, a net reduction of $714,888. This was the result of a $2 million transfer into 2024 projects (all detail provided) and a $1.26 million replenishment of the reserve accounts.
- Modest increases / decreases in expenses in 2024.
- Discretionary reserves used to supplement expenses.
- $5.95 million in discretionary reserves at the end of 2023, reduced to $5.2 million in 2024
- Overall comment – a budget that balances expenses against the needs of residences by utilizing discretionary reserves to reduce expenses and the resultant tax levy increase during difficult economic times, but with a limited increase in spend.
Potential Questions:
- Hastings Highlands – why are you rapidly increasing asset repair spend in 2024 and also increasing Reserve Account transfers? Is this the right strategy in a township with only 4,300 residents and a 2020 median income of $34,400? How can you justify this increase against the 2023 actual financial results for the Township?
- Madawaska Valley – are you comfortable with drawing down reserves to balance the reduction of the tax levy with the long term security and condition of the assets in the township?
KAPOA members may register your concerns and questions regarding the Hastings Highlands Proposed Operating Budget at 2024 Operating Budget | Municipality of Hastings Highlands.
While the MV Operating Budget is already approved, you can always reach out to your Council member with your questions.