Two years of tax freezes have left Brampton with few options to deal with the financial fallout of COVID-19
It’s no secret the spread of the COVID-19 pandemic has put municipalities in a dire financial state.
The City of Brampton was forced to shut down its recreation centres, transit was an essential service offered for free and 2,000 part-time staff were laid off in an effort to ease the financial burden. The City also made changes to user fees, and deferred property tax payments in an effort to help residents and businesses, many of whom have had their own struggles to deal with.
The moves were welcomed by residents, especially those left unemployed as their workplaces were ordered to shutter their doors because of emergency measures put in place to slow the spread of the novel coronavirus.
So far, municipalities have been forced to treat their financial wounds on their own, leaving Peel’s two big cities projecting deficits in the tens of millions by the end of the year, as the virus continues to spread and a second wave looms on the horizon.
Due to the impacts of COVID-19, the City of Brampton is facing a deficit between $44 million and $55 million at the end of 2020.
As preparations for Brampton’s 2021 budget begin, the virus is weighing heavily on the city’s financial future. In a report presented to council Wednesday, staff laid out how tax dollars currently slated for capital projects – such as roads, new City facilities and other infrastructure – might have to be redirected to ease the deficit created by this year’s sharp drop in revenue.
In the 2020 budget, $84 million collected from the tax base was put toward needed capital projects. The report does not clarify if any ongoing projects or renovations through the capital budget would be impacted if council chooses this option. There are plenty of projects that rely on tax-based funds, including the extension of the Balmoral Recreation Centre and the refurbishment of bus shelters that could be impacted.
What seems like a main priority, however, is to replenish the General Rate Stabilization (GRS) reserve. The money in this account is dedicated to cover the costs of any unforeseen emergencies in the city, and the spread of the novel coronavirus has certainly caused a number of these. If financial help doesn’t come from Ottawa and Queen’s Park, the City will have to use this fund to make up for the lost revenue.
According to numbers released in April, the city will face a $51.1 million deficit if normal services resume by October 1, and nearly $55 million if restrictive measures don’t end until January 1. As of March 31, there was $71.8 million in the reserve, according to the staff report. There is enough to cover the deficit created by COVID-19 this year. However, this is a one-time escape. Relying solely on the GRS reserve will cut the savings account down to $20.6 million under the October 1 scenario and $17 million under the January 1 scenario.
According to staff, to restore the reserve to pre-COVID levels, it will take a 1 percent property tax levy each year over the next decade, or a 10 percent tax bump in 2021. Following two consecutive years of tax freezes, Mayor Patrick Brown, who has been a conservative politician championing low taxes for decades, has said he does not want to put the burden on property owners.
Mayor Patrick Brown has said the financial impacts of COVID-19 on the city's budget should not fall on local taxpayers.
However, draining the GRS reserve will leave the City extremely vulnerable in 2021 to any unforeseen circumstances, i.e. a second wave of COVID-19 and the reintroduction of emergency measures that could close businesses and city facilities once again.
There are many other potential problems. Staff have said the failure to address downtown underground infrastructure replacement and repairs has already led to many burst pipes, and a major break could be catastrophic. Climate-related events have also become an increasing problem over the past decade. Not having an emergency fund is akin to a homeowner with nothing to help in the event of a basement flood, damaged roof or broken down furnace in the middle of winter. It’s a dangerous reality.
Staff are stressing the need to address the insufficient reserve funds. “A one-time draw down from the GRS Reserve in 2020 to cover the forecasted shortfall will leave the City vulnerable to a prolonged extension of the current pandemic and/or other unforeseen emergencies, without the need for accessing other City Strategic Reserve Funds or previously allocated tax supported capital funding,” the report states.
Other possibilities include abandoning the annual two percent infrastructure levy and one percent transit levy for one year. But the report did not clarify if these levies would instead go toward the GRS reserve or other funds.
City staff are also working on the possibility of a third consecutive tax freeze for 2021. This is something Brown has pushed throughout his entire two years in office, despite signs the city was in a dire financial state – even before COVID-19.
Brown has enjoyed support from the public who like tax cuts, but while it helps him politically, his moves have put more strain on the City’s bottom line, while about $200 million was cut from the capital budget this year, and the list of badly needed work keeps growing longer.
Future projects that the City has planned also can’t be funded in the tax environment Brown has created, unless money is provided by higher levels of government, which are now also struggling due to the pandemic.
Throughout the emergency, Brown has said residents should not be solely responsible for the financial impact of COVID-19. “No one wants to see a tax increase at a time when there's a significant financial hardship,” Brown said Wednesday in response to a question from The Pointer. His response, suggesting a tax freeze would be to help during the crisis, belies the reality that he campaigned on a tax freeze in 2018, and pushed two consecutive freezes long before the novel coronavirus.
To accommodate the mayor’s position, in 2020, the city cut capital spending by 48 percent from initial projections, forcing the delay of crucial projects like the new Howden Recreation Centre, over $500,000 in needed bridge repairs, and a desperately needed $135 million transit maintenance and storage facility. The city’s financial master plan, approved in 2017, states significant tax increases are needed (in the range of three to five percent) in order for the City to manage its basic needs. This projection already includes the two percent infrastructure levy, which Brown often points toward when asked how the city will come up with money when major repairs are needed.
An external financial report in 2015 said excessively high labour costs inside City Hall, with rich pay packages, large numbers of staff in departments that had not streamlined operations and numerous benefits paid for by taxpayers such as car allowances for council members and some senior staff, were the main cause of the City’s financial woes.
Nearly 60 percent of the city's operating budget is dedicated to salaries and wages of municipal employees and politicians.
The present group of councillors and Brown have dramatically increased their own labour costs since they took office. They approved an extra $1 million for their councillor budgets shortly after being elected. Councillor Jeff Bowman pointed out at the time that it was a contradiction to tell staff to tighten belts while elected officials did not do the same. He did not support the move.
And while labour costs have continued to climb, Brown has pushed his popular tax freezes, which means something eventually has to give.
While the mayor did not say he already plans to push for another freeze in 2021, Brampton councillors will be left with little choice but to increase property taxes if higher levels of government don’t offer a helping hand to municipalities.
“I really hope the provincial and federal governments don't put municipalities in a position where they have to have a significant tax increase because of the failure of leadership in the provincial and federal level,” Brown said. Under the Municipal Act, municipalities can’t run deficits.
Essentially, Brown is saying he does not want the city’s property owners to be taxed higher by his government, but he doesn’t seem to mind if the very same residents are taxed higher by Ontario and Ottawa, to come up with the money he’s looking for.
While the federal government has acknowledged the need to help municipalities, it has yet to take concrete action. Last month, an olive branch was extended to municipalities with the feds accelerating $2.2 billion in federal gas tax funding, money cities were already going to get.
In a joint letter from mayors across the province, calls for emergency financial support to the tune of $10 billion dollars were also renewed. “The time is up for federal-provincial wrangling about how to share the costs. We strongly encourage the federal government to address this in their fiscal update,” the letter states.
But the fiscal “snapshot” presented by federal Finance Minister Bill Morneau and subsequent announcements from the Prime Minister did not include any specific details pertaining to financial aid for municipalities.
“To increase taxes or cuts in services, these would be the worst options. We don’t want to continue spending and slow the economic restart,” Trudeau said, failing to acknowledge what increased taxes might look like for municipalities.
The fiscal update showed the country's deficit has risen to $343.2 billion. A large portion, $212 billion, is attributed to support the government continues to provided to individuals and businesses, including the Canada Emergency Response Benefit (CERB), with reports indicating $80 billion will be spent by the end of that program alone, including the eight-week extension that took it through August.
But even with the silence from federal and provincial politicians on aid for municipalities, Brown says he remains hopeful, noting municipal leaders are continuing to be told by senior federal and provincial cabinet ministers that help is on the way.
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