Halifax regional council began the difficult task Tuesday of paring its proposed operating budget for 2020-21 by more than $85 million to offset COVID-19 revenue losses.
“It’s been a very tough time,” Jacques Dube, chief administrative officer of Halifax Regional Municipality, told council before presenting a recast operating budget.
“The municipality has reduced some services for March, April and May and will continue to operate at a reduced capacity for the foreseeable future."
As of February, council had approved in principle an operating budget that included expenditures of $832.41 million and projected gross capital spending of $179.8 million.
At that time, the average single-family home tax bill was forecast to rise 1.4 per cent to $2,003 and the average commercial property tax bill was to rise by 1.4 per cent to $43,185.
The Conference Board of Canada reported that HRM’s economy grew by more than two per cent in each of the past three years and employment growth averaged a healthy 3.6 per cent over the past two years, creating a total of 18,000 new jobs.
Then the COVID-19 pandemic reared its ugly head, leading the conference board to project a 3.4 per cent decline in real GDP for 2020 while the unemployment rate is expected to jump to double digits.
Growth in personal income per capita is expected to slow to 1.1 per cent in 2020, down from 2.4 per cent last year.
Transit losses
The provincial state of emergency and social distancing requirements forced the municipality to reorganize many services. Spring and summer recreation programs, for instance, are no longer offered, leading to a $5.73-million loss in program revenues.
Parking meters are being provided for free.
Halifax Transit has been deemed an essential service by the province but transit fares are no longer being collected, leading to a projected transit revenue loss of $20 million for the fiscal year. Ridership and revenues from transit fares, when they are reinstated next month, are unlikely to return to pre-COVID numbers for a year or more, Dube said.
The transit losses are part of an overall projected loss of $44 million in revenue for the fiscal year. The overall losses include $7.65 million in deed transfer taxes, collected when the municipality accrues 1.5 per cent of the purchase price of each property sold.
Interest income, suspended parking fees and other revenue streams make up the remainder of the $44 million projected loss. Added to that projected loss is $31.4 million in debt charges and $10 million in debt that is unlikely to be collected.
“This is money that we will never recover,” Dube said.
"We have a $10-million house but we are burning the woodwork for heat. We have no cash. That’s the situation we could find ourselves in.”
- Chief administrative officer Jacques Dube
The municipality responded by reducing municipal staffing levels by 1,400 people for the fiscal year and deferring the interim tax bill due date from April 30 to June 1. The municipality has said it incurs 100 million per month in operating expenses and that 82 per cent of its revenue comes from property tax revenue.
Dube said the municipality counts tax revenues in its budgetary calculations even if it has not yet been received.
“We are asset rich but cash poor.,” he said. “Jane’s (chief financial officer Jane Fraser) analogy is that we have a $10-million house but we are burning the woodwork for heat. We have no cash. That’s the situation we could find ourselves in.”
The CAO said legislation dictates that municipalities cannot run deficits.
“Senior management has taken every effort to ensure there are not widespread layoffs of permanent staff,” Dube said. “However, as our services change and adapt, staffing levels may be adjusted accordingly.”
The objective with the recast budget is to keep the average tax bill increases the same as were forecast in the initial budget.
Dube said the municipality analyzed commercial and residential assessments and estimated that it will lose $98 million in commercial taxes and that 25 per cent of residential households will not be able to pay property taxes, representing another $90 million loss.
$188 million
"That’s where the $188 million comes from, it’s an estimate based on the best information that we have at this time.”
That is the number HRM identified when the Nova Scotia Federation of Municipalities and the Association of Municipal Administrators were working with the province for an estimated total amount of funds that all 49 municipalities would need to stay above water. The province has made $380 million available to municipalities in low interest (1.1 per cent) short-term loans that would have to paid back over a three-year period. HRM could qualify for as much as a $188-million loan amount.
In the meantime, the 13 municipal business units were asked to shave their budget expectations to bridge the budget shortfall.
The recast Transportation and Public Works budget is reduced by $7,101,800 from its February forecast of $89,777,000, bolstered by deferred capital projects like road, street and bridge repairs.
Halifax Regional Police will reduce its budget by $5.5 million and Halifax Fire by $5.38 million.
Dube said other funds could come from the federal government in infrastructure money and cash requested through the Canadian Federation of Municipalities for emergency transit money and billions to keep the struggling municipalities liquid. If that is the case, Fraser said the budget could be rejigged and some of the items that have been removed to cut costs could be reinstated.
Dube said HRM could also dig into some of its reserves but the municipality is reluctant to do that because it isn’t certain how many people and businesses will be able to pay their second property tax instalment in October. Municipalities are required to pay back money taken from reserves with interest.
“No one knows how deep this is,” Dube said of the pandemic’s economic effect. “We may have to borrow cash in October to remain liquid. The challenge we will face next year will be much tougher. If we spend all the cash we have in reserves now, we might be faced with increasing taxes significantly and incurring more debt.”
Council will continue to deliberate budget changes Tuesday with the goal of passing the recast budget by May 26.
