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Zalepa offers primer on regional budget

Coun. Gary Zalepa helps us understand the regional budget, and what is driving it for 2021. There are three components of the region’s budget.
Coun. Gary Zalepa helps us understand the regional budget, and what is driving it for 2021.

There are three components of the region’s budget.

One is the levy operating, which comes from property tax payments, the second is the rate operating, which is comprised of water and wastewater charges, and the third is the capital budget, which covers asset repair and replacement.

In June 2020, regional council provided guidance for a budget draft for 2021 with a two per cent target set over 2020 levels. This included a total program of services, costing roughly $1 billion, covering the public health department, emergency services, social services, senior services, long-term care, children’s services, affordable housing and homelessness, our conservation authority, regional police, water, wastewater, waste management, roads, transit, economic development and planning services, capital repairs and maintenance, council and administration.  

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Over the course of five to six months, there was an extensive public engagement process, with council workshops and committee meetings. A thorough review by departments was conducted, using the lens which COVID-19 had imparted.  

Budget drivers for 2021:

• COVID-19 costs for 2021 estimated at $17.9 million, funded by the province to include a pandemic response team within Niagara Public Health;

• Emergency Medical Services (EMS) transformation for improved patient care, while mitigating potential increased costs for ambulances;

• A dedicated increase towards capital infrastructure of $2 million to address the risk in the capital funding gap (identified in prior budgets);

• Contribution towards West Lincoln Memorial Hospital redevelopment, of $12.6 million ($3 million per year);

• Use of $4.3 million in reserves to mitigate operating pressures on taxpayers.

Of the approximately $1 billion in the budget, $405.3 million is levy-funded, through property taxes. This budget reflects a 1.8 per cent increase for 2021. The remaining amount comes from the province, other fees, reserves and use of debt. The typical NOTL home, assessed at $550,000, will see the regional portion of their property taxes increased by approximately $60 in 2021.

The region’s rate budget, comprised of water and wastewater budgets, was set at 2 per cent above 2020, and the waste management budget was 4.5 per cent above.  Average households in Niagara can expect to pay about $7 more for waste management in 2021. 

Now for the budget commentary, which requires some additional analysis. The budget figures reveal that spending on regional administration has averaged an annual increase of 0.4 per cent for the last five years. This is well below inflation, and is an excellent testimony to effective internal management, but potentially signs of an underfunded organization. Next, there is an operating reserve balance available in 2021 of approximately $14 million, which is well below the recommended level. This raises the potential financial risk for the region from a future emergency or other unexpected events. Further, there is an infrastructure funding gap of over $800 million on the 10-year capital program. That means there is no secure funding plan to repair or replace major infrastructure assets, like water and wastewater systems.

Politicians who promise zero tax increases, absent of a plan to fund the above risks, with knowledge of the above facts, should not receive your popular support.

Niagara region is potentially on course to not meet its future capital repair and replacement needs. In short order, should the funding gap not be addressed, a financial stress will occur which leaves no option but for the region to either use debt, reduce services or significantly raise property taxes to fund that repair and maintenance of important infrastructure, like water and sewer plants. That debt, if employed, will have to be paid by the operating levy which erodes levy available for services, and a downward spiral ensues.

Contained in the budget drivers was a commitment to fund the West Lincoln Memorial Hospital redevelopment. Over the next four years the levy budget will have to contribute $3 million annually to fund the amount. Governments funding hospital construction are generally supported by people. But which governments should contribute, and how much? The province should clearly provide the majority of the funding. Local municipalities should fund some of the amount. The funding amount becomes less clear for regional governments that include a wider geographical area.

To deal with the dilemma of how much funding a regional government could contribute, council requested a contribution funding policy to be developed. This was presented last week. It was a well-designed, comprehensive plan, which measured the benefits to the region and provided a recommended funding level considering benefits to residents across Niagara region. Unfortunately, the majority of council opted to ignore that policy, and the suggested amount of $8.4 million, and subsequently approved an amount of $12.6 million. I voted to support the contribution policy and voted against the council-approved amount. Implications on this decision go far beyond the immediate funding of West Lincoln Hospital.

Failure to set a contribution policy sets up a major financial concern for regional taxpayers going into 2021. The region can expect funding requests for at least one other hospital in south Niagara. The lack of a contribution policy could potentially see the Region contributing $50-60 M or more towards that future project.

This means that NOTL residents will be contributing to a West Lincoln hospital, and a future south Niagara hospital, based on assessments of almost $1.1 million for WLMH and between $4.3 million and $5.2 million for south Niagara, possibly $6.3 million over the next four years (based on 2020 region tax rates). 

These pressures cannot be sustainably managed through property tax increases or by service reductions across Niagara. Niagara region and its municipalities require significant re-engineering and should focus on reviewing service delivery. This will create an opportunity to re-evaluate which local government is best suited to deliver specific services and at the most efficient level. In combination, the province, with federal involvement, needs to redesign how it funds municipally-delivered services, the goal being to reduce the current pressures on the property tax levy, and free up levy to pay for local services, while more broadly spread taxes such as income and sales taxes should fund things like hospitals and infrastructure renewal. 

This is a path forward to balance property tax rates with affordability, sustainably fund local services, and adequately fund the infrastructure gap into the future.           

Ask a politician what their plan is.