Halifax City hall through the memorial arch
Budget Committee

Council approves planning for switch to service-based taxation

CFO recommends switch to fiscal sustainability framework
 | December 15, 2020

Budget Committee (Special), Dec. 15, 2020

Meeting recap (the important stuff):

City Council has given the okay for the city’s accountants to start planning for a switch to service-based taxation. 

Right now residents pay property taxes, which the city then uses to fund the various business units of the city to deliver services. For anyone who’s a part of community-based Facebook groups, especially in rural areas, they’ve seen the absolutely unhinged rants about paying taxes for services not received. The change would mean how your tax dollars are spent would be more easily traced to a service delivered, and only people who receive benefits from that service would pay for it. 

On the assumption this plan survives the budgetary process, it will take years until the change is seen by the people in the HRM. It’s a fundamental restructuring of the city’s financial organization. 

This change is part of a larger change in the HRM’s financial planning proposed by the city’s bean counters. They would like council to approve their fiscal sustainability strategy, so they can better prepare the city’s finances to make sure plans like HaliFACT 2050 can be fully funded. One of the major financial hurdles cities in Canada face is that they exist entirely because the provincial governments legally allow them to. Cities have very little ability to generate revenue from taxes. 

Even taxes that go mostly to municipalities, like property taxes, can still be adjusted or syphoned by the provinces, without city council being able to do anything about it. 

Who said what (paraphrased): 

Russell: We have no public engagement because no one signed up by the deadline of 4:30 PM yesterday, so on to the fiscal update. 

Jane Fraser (CFO): I’m presenting our Fiscal Sustainability Strategy. Our new strategy was shaped by growth of the city pre-COVID, and directives from council. This is like a financial speed limit, too slow and you won’t get there on time, too fast and it’s too risky. We’re looking at debt levels and fairness/equity in taxation. At this time we’re not accepting recommendations on policy direction, this presentation is for information. Jan. 20 is the time for recommendations and approval. I’m going to turn this over to Bruce Fisher to start the presentation. 

Bruce Fisher (Manager of Financial Policy and Planning): The sustainability strategy is essentially telling us if we can maintain our financial strategy long term. This is important because as we grow we’ll earn more money, but we’ll need to provide more services which will cost more money. Our tax base is sustainable, our debt is low, but the capital capacity isn’t large enough to fund some of the major things the city wants to do. Halifax’s tax rates are pretty competitive on a national comparison. Halifax has paid down its debt quite significantly and so the debt servicing costs have also dropped. This means that Halifax can borrow. Halifax needs a new plan because the old plan is becoming less relevant due to our growth. Halifax was one of the fastest growing cities in the country. Council also has massive new plans, like rapid transit, that require increased funding. It’s not clear how the city can fund these initiatives under the current plan. So we’re at risk of falling behind in fiscal sustainability. We recommend: 1) Stronger long-term financial planning, a one term budget, three year outlook and a generational plan. 2) Tax and revenue strategy, our tax base isn’t enough. 3) A new approach to our larger aspirational goals, like transit and climate change prevention, so we need to change our reserves. We’d like to change budgeting to be tied to services, not business units, this requires major changes which would happen in 2023/24. We need new sources of revenue, like the Infrastructure Bank or FCM Green Fund, but this requires provincial approval. 

Russell: Can someone put this on the floor? 

Slide of Bruce Fisher’s presentation on HRM’s fiscal sustainability

Outhit: (Reads the motion for agenda item 4 as written) The chart that you included about comparing ourselves to other cities, does that tax bill slide include the money that goes directly to the province? What’ll change to the strategic reserve fund we already have if we switch to the new plan? How are they different? Will they be used differently? 

Fisher: The benchmark of the taxes slide includes everything, including the provincial parts. When people move here and their tax bill goes up, what’s happening is that if you move from Vancouver, a $1 million home is the midrange home price, but a $600,000 home here is at the top of the range of home price, so it’s a higher tax bracket. The difference between the two funds is one of scale, the existing one is good, but it’s not big enough to do more than one thing. The

Outhit: The decision to spend 80% of revenue on maintenance, when do we change that, if we need to spend money on building new things? 

CFO: It’s for the capital budget discussions, what can happen is what’s happening with the roads. We’re investing in complete roads, which we’re building, but we’re undercutting the street maintenance budget to do it. This is why we need separate funds.

Mason: When I was elected in 2012 the biggest issue was that the city had plans to do things, but no plans to fund them. I’m happy to see this strategic plan which should address that. I’m really excited that this process will give us a better understanding of how we can fund things. I know you talked about transit tax, we talked about that in 2016, I’d like to see transit fully funded by tax rates, and having rural people not paying for it at all if they can’t use it. These changes would give us a better understanding of how much we actually pay for our services. 

Cuttle: I’m excited for this financial plan. The change from business units to service focused funding seems like a huge change, how will that work? The average tax per single-family home, how many other cities have an assessment cap like we do? I think we need some discussion around how this will affect individual households as opposed to an ‘average’ household. There needs to be a difference between ‘smart growth’ and ‘growth growth,’ we need to be smart about this. We can’t be costing things in silos, as we’re currently doing. Right now the only link is in language that references other policies. Has there been any thought to changing the tax levees or should they be changed depending on rural/urban/suburban?

CFO: Service-based budgeting is a huge change, one of the things we need is a complete transformation of our HR and financial organization. We have a pilot project ongoing, giving us information. This would be a four year process, and it’d be a process. Learning, making recommendations, and migrating our capability. We are the only ones in the country that have an assessment cap. We are also the only ones who do an annual assessment. There’s a lot of variation across the country. You’re right, we need to grow smarter. If we know developments are going in, should we be looking now at land for things like fire stations? Yes. On the tax levee, we’re currently thinking of a flat amount on existing rates. 

Austin: This is a much nicer way to start budget season instead of arguments over percentages. I have an issue when politics interferes with good governance, I think in City Hall we tend to avoid that. We’re talking climate change and integrated mobility, having a very clear plan to explain to people how we’re spending the money is very good. Kudos to the demise of one year budgeting. I am a little skeptical about business unit vs service-based, so I’ll wait to hear more about that. Renewal vs growth, I don’t want to throw that away, it’s never as exciting to spend money on fixing things instead of cutting ribbons. But if we don’t fix things, we end up spending more. So we need to strike a balance. If growth is causing more pressure, we need to look at more revenue, not cutting maintenance. 

Hendsbee: The Entra report, remember that? We did the whole report, we did the whole thing, but we didn’t do anything with it. The tax structure is wonky. Oyster Pond pays for transit, but they’re 25km away from the closest transit stop. We need to change the way we’re doing things. I’m hoping that we can change the way tax for services, to better serve rural communities. 

CFO: That’s the intent of the service-based tax reform. 

Savage: I’m also skeptical about the change to service-based taxation. There’s a number of things in our budget that are outside of the control of council. Assessment of properties isn’t in our control. The provincial component of the tax bill has gone up, even though we don’t get that. I think our growth has been planned, more or less, with some notable exceptions. We’ve been holding the line in property taxes, but other cities have been going up faster. We’ve been taxing lower while spending more on what could be called ‘the social areas.’ And we’ve been paying down our debt, we can use that now. We’ve been trying to figure out where the dividend from the growth is, we haven’t seen it in commercial taxes. It’s primarily coming from the deed transfer tax. We need to continue to grow in a sustainable and just way. 

Fisher: I think you’re right on the tax. We haven’t seen the rapid growth in commercial tax that we’ve seen with the larger economic growth. You’re right about deed transfer. But that’s it for our revenues, property tax and deed transfer tax. 

CFO: The apartments are being taxed as residential, not commercial, so that could explain some of the commercial tax lagging. 

Blackburn: Moving from business unit to service-based is a huge workload. What experience, if any, does the team have in this sort of transformational budgeting? Are there examples elsewhere in the country of places that have done this? 

CFO: Calgary has made the change. We don’t currently have that experience, primarily because we just don’t have the capacity to collect the data we need. If someone asks “how much does it cost to provide transit?” We need to talk to a lot of departments who all play some sort of role. 

Deagle-Gammon: I’m a little concerned about the transfer from business unit to service-based, but it’ll take a while to implement, so we’ll have the experience by then. We have parts of HRM that don’t have service, or adequate service, when you transfer to a service-based model does that balance out?  

CFO: It’s transparency and accountability, so it should. If we increase a tax we can point exactly to where it’s being spent and people can know what they’re receiving for that increase. 

Fisher: It’s a great communication exercise. A lot of people don’t feel like they’re getting a service, even if we’re providing it, if it’s not as direct as picking up garbage at the end of the driveway. 

Cleary: I just want to be sure we’re not being myopic about who gets services. If you think about transit, for example, you don’t need to ride transit to benefit from transit. If more people take transit, commutes will be faster as more people take the bus instead of drive. The reduction of greenhouse gas emissions from electric busses benefits everyone. More transit means business owners can put less parking. Not everyone uses libraries, but everyone benefits from a literate city. There is no better time to do this than right now when we’re putting together the transit plan. 

Morse: It will save the city a lot of money if we get denser, so it’s critical to consider density. But I’m very concerned about quality of life issues when we do that, and I also want to make sure people have adequate services: green spaces, libraries, schools. Will we be raising enough money on density like this to reinvest it in the communities that are getting denser? 

Fisher: We don’t generally target tax revenue like this, which is why we want a sustainability plan. That’s the challenge of budgeting, getting enough money off of growth to be sustainable.  

Lovelace: Making the switch to a service-based model requires a good communications strategy. We need to consider a new way to increase the commercial tax base, because communities like those in District 13, aren’t good places to start a business if there are no services like transit. So I’d like to know if there’s a way to increase the commercial tax base in areas like this. 

Fisher: The commercial taxes are significantly (2.7 times in urban areas) higher than residential. Growing the commercial tax base is the challenge. People don’t always need bricks and mortar to be a commercial entity. 

Cuttle: In the strategic report there wasn’t a slide about our actual revenue from taxes and how that’s changed year over year, will that be presented so we can get a better context for our fiscal situation?

CFO: You’ll see that as part of the fiscal framework, Jan. 12, 2021.

Cuttle: As we move forward, I think we need to broaden our perspective to make sure the city functions as a whole. We haven’t seen a lot of investment in the outlying communities, we haven’t seen that in Spryfield for example. Until we make the whole city function, we won’t be efficient. 

Russell: I like the switch to a service-based model. We have no further speakers, so, vote on the motion? 

M/S/C – Unanimous – Aye

*Meeting adjourns*

Interviews:

N/A – COVID

Present:

Councillor Paul Russell, Chair (District 15)

Councillor Kathy Deagle-Gammon (District 1)

Councillor David Hendsbee (District 2)

Councillor Becky Kent (District 3)

Councillor Trish Purdy (District 4)

Councillor Sam Austin (District 5)

Councillor Tony Mancini (District 6)

Councillor Waye Mason (District 7)

Councillor Lindell Smith (District 8)

Councillor Shawn Cleary (District 9)

Councillor Kathryn Morse (District 10)

Councillor Patty Cuttell (District 11)

Councillor Iona Stoddard (District 12)

Councillor Pam Lovelace (District 13)

Councillor Lisa Blackburn (District 14)

Deputy Mayor Tim Outhit (District 16)

Mayor Mike Savage

Absent: 

N/A

Previous meeting minutes and current agenda:

Current agenda

Previous meeting


A former Naval Officer turned journalist, Matt Stickland is committed to empowering his community to ensure that everyone has access to the information they need to make their city a better place.

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