The Real 2018 Budget Facts:
Residents are going to be hit with a second tax increase in excess of 5% this Council term.
Note*: Oak Bay Watch has been informed by residents experienced in accounting designations that Oak Bay's Annual Budget reporting is unclear. We also understand not everyone is well versed in Budgeting and Accounting so we have done our best to explain the real story-line behind the 2018 Annual Budget and inform you about the financial information that is verifiable.
The main 2018 Budget topic at the April 5th and 12th Estimates Committee meetings centered on how much funding was to be dedicated to infrastructure improvement. According to the Mayor the state of Oak Bay’s infrastructure was finally going to get the Council attention it deserved. 1% of the 2018 operating budget was to be allocated for infrastructure improvement. Council had finally recognized what all of the indicators show: that infrastructure systems have been very neglected and are now in a “crisis state” that must be addressed. It is not clear why this has been so hard to grasp, after all infrastructure under-funding and depreciation has been clearly explained in the following:
- The Official Community Plan 2014,
- The District’s Annual Reports 2011 - 2017,
- An extensive Opus Consultant Infrastructure Report June 2016
- Resident survey results 2014 - 2017,
After the Estimates meetings, the 2018 property tax bill stood at 6.9% reported by Councillor Murdoch and this included predetermined, non-deferrable taxes hidden in the water bill. However, at the April 23, 2018, Council meeting, the Mayor announced the 2018 property tax increase was only 4.5%. He did not explain how it was possible to suddenly reduce the tax burden by so much. Was it in fact decreased? The Director of Finance provided this explanation: the Council approved 1% of the 2018 operating budget for infrastructure restoration was now not to be included in this year’s budget. However, she did not explain where this infrastructure funding will come from.
The “clever accounting” part comes in at this point. It is likely the Federal gas tax will be one of the primary funding sources, however, it was supposed to be an addition to the 1% spent on infrastructure. So what’s the matter with this? Well, plenty!
“Unless you plan to move or hold property as an investment”
True, the annual Federal gas tax must be used for Infrastructure. However, it has been collected already when we filled up our cars. It’s intended to help out municipalities and to “supplement” what they intend to spend on their infrastructure improvement. It should not be used to pay down operational over-spending or the failure to collect development, amenity and park acquisition charges. The Bowker/Cadboro Bay Road Condo Development, if negotiated adequately and competently, alone could reduce property taxes by 1 or 1 1/2 %.
In effect, Council did what Councillors Murdoch, Braithwaite and Zhelka complained about last year - using already collected reserve fund tax dollars to pay down the 2017 property tax to make it look more acceptable to taxpayers. They explained these taxes would have to be collected again in the future when they have less purchasing power. While, politically, the lower (on paper) property tax amount looks better in an election year, it nevertheless involves an unsound, un-recommended practice and is deceptive reporting. Attachment #1 explains what past and present Directors of Finance have had to say about avoiding this “Use of reserve fund practice”).
The recently provided draft Audit reported a 2017 salary increase over 2016 for General Government (Administration) in excess of a million dollars (An ongoing, annually-compounding budget expense?).
Could this be the result of Administration adding a number of new positions including assistants. The Mayor even has an executive assistant. The Oak Bay News (April 27, 2018) reported this year’s tax hike as 5.7% (inconsistent with the Mayor’s 4.5%). This also exceeds the 5.1% the Mayor announced in the Oak Bay News on May 1st 2015. However, then his explanation for this big tax hike differed (see Attachment #2) vastly from his 2018 explanation. He now explains the lack of development was the reason taxes could not be held in line.
The Director of Finance memorandum to Council on April 5, 2018 offers another explanation: it implies that this year's exceptionally large tax increase was primarily a result of the Police, Fire and CUPE contracts expiring and would be paid for out of the 2018 Budget. The memo states: “Collective bargaining contingency for Police, Fire, and CUPE (all collective agreements have expired); this alone equates to a 2.55% tax levy increase”.
This statement is misleading and could easily be misinterpreted to read that these contracts expired this year and settling them was almost half of the 5.7% of the property tax increase reported by the Oak Bay News. The Oak Bay News certainly interprets it this way because their budget report states, “The (2018 tax) increase stems from a 2.55% raise to police, fire and municipal contracts….”
The Real Story Line:
While 2.55% of this year’s (2018) Budget increase would represent a large portion of this year’s total budgeted increase, it is misleading to present it as being responsible for the exceptional tax increase. The fact is only a small portion of this amount will be attributed to the current 2018 Budget. (see Attachment #3).
In accepting this misrepresentation at face value the Oak Bay News provided the public with inaccurate information. This may have led residents to believe such a large tax increase was inevitable this year due to staff wage settlements and not controllable by Council but, rather by mediation salary negotiations.
While the ambiguous financial reporting makes verification difficult, both the previous Director of Finance and the current Director have had to deal with these same contract expirations (Police, Fire and CUPE). Each contract has taken several years to ratify. The first batch of these multi-year contracts was negotiated in the last Council term 2011 - 2014 and the latest is still being negotiated in the current 2015 - 2018 Council term.
Both Directors of Finance have reported annually to Council that, “contingencies are included in the budget to cover these resulting collective bargaining increases” and each year they have explained these contingencies have increased the property taxes (confirmed in Attachment #3)
Although it is clear these taxes have already been collected, it is not clear which reserve account these collected contingency funds would have been credited to, or if they are still there: however, not putting them aside annually, knowing they would be needed for the anticipated staff increases, would be unsound fiscal management.
The Mayor’s (2018) explanation above for the property tax increase, almost double the increase of most BC Municipalities, was that it is necessary because we don’t have the amount of development other municipalities have to subsidize their budgets. The Mayor, however, offered no data to support his premise.
The facts are many Districts have held the line through efficiencies, and BC Municipalities who have moderate development have not had to impose such large property tax increases. Also, it is a common fallacy that development increases the tax base and lowers taxes. This is only valid if the taxes so raised are in excess of the costs incurred to service the developments, often not the case. Particularly in Oak Bay which does not collect Development Cost Charges nor charge for amenities.
Oak Bay Watch perspective:
It is safe to conclude that according to the many Directors of Finance reports (see attachment #3) Police, Fire and CUPE multi-year contract settlements would not be paid for in a single-year annual budget. All municipalities have these same staffing contract expirations, long-term salary and benefit negotiations and, more often than not, the same wage increase percentages (parity) are agreed to BC wide.
Oak Bay Watch is aware that some Council members had expressed concern that this kind of deceptive property tax reporting may occur again in 2018 – they have not been supportive of some of the staffing increases and development expenditures in the past. It is lamentable then that the Mayor and his supporting Council members offer these tax increase excuses and they speak about improving affordability to help residents who are struggling to pay their property taxes and rents on the one hand, yet disallow tax deferment by transferring costs to the water bill and overspend and drive up taxes to achieve their own priorities on the other.
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The previous Director of Finance cautioned:
“The principal objective with respect to the use of reserve funds is to finance capital asset depreciation and avoid the use of such funds to offset ongoing operating costs, the rationale being that the latter would not be sustainable in the long term and would eventually require a property value-based tax spike”.
Oak Bay News May 1, 2017 Edition (see oakbaynews.com e-editions)
Page 1 Headline: " Oak Bay on course for 5.1% Tax Hike"
Mayor Jensen cites: “ a four-year strategic plan that advances alternative transportation solutions, inspires land-use innovations and introduces new strategic initiatives and investing in initiatives that have been neglected for many years.
The first element expected to be completed is the Floor Review and amended bylaw (This was to stop over-building on small lots) and the second objective was a review of the 400 current members of staff by the new Human Resources manager – that includes training and succession planning”.
He goes on to say: “Infrastructure objectives include infrastructure improvement, implementing a formal asset management plan, Uplands combined sewer project, the Urban Forest Strategy and future building needs assessment”. A traffic speed study and infrastructure improvements including bike lanes curb drops and sidewalks are among objectives for diverse transportation”
Note: Traffic is worse, houses that take up the whole lot are going up everywhere, land-use innovations are what?: subdivisions in residential areas, basement suite legalization, overbuilt condo developments? The Mayor is right that during his tenure on Council Infrastructure has been neglected for years. However, the "investing in it " has continued to be equally ignored for the past three years "unaffected" by the 5.1% tax hike.
Everything else referenced above by Mayor Jenson is in the early planning stages and there was no Formal Asset Management Plan to be implemented on May 1, 2015 - The Plan was not presented to the public until April 2017. Prior to this infrastructure continued to be underfunded unfortunately, outdistanced by the new increased administration staffing.
*Note: Neither of the Directors of Finance “singles out” Protective Services and salaries as the main factor for the respective annual tax increase.
2015 The previous Director of Finance Report‘s Significant Budget Components:
"In descending order, the key areas causing the increase in the taxes are as follows:
• Collective bargaining contingency for Fire, and increases for all other groups
• New positions
• Parks and Recreation net subsidy
2016 Director Of Finance Memorandum to Council – April 2016
"Significant Budget Components
Some key areas causing the increase in taxes as follows
- Collective bargaining for Fire, Police, and potential increases for all other groups ,
- Parks and Recreation net subsidy
- Annualized FTE costs for Emergency program, Human Resources, and Building and planning clerk" (FTE = full-time equivalent)
2017 Director of Finance Report‘s Significant Budget Components:
"Some key areas causing the increase in taxes are as follows:
- Collective bargaining contingency for Police, Fire, and CUPE (all collective agreements have expired); this alone equates to a 3.22% tax levy increase.
- Annualized FTE costs for Planning Tech, and Archivist
- New IT Manager position beginning mid-year" (salary $150,000)
April 5, 2018 Estimates Committee minutes state:
The Director of Finance highlighted some of the challenges included in balancing the budget:
"The Fire and Police Collective Agreements expired December 31, 2015 and the CUPE Collective Agreement expired December 31, 2016. The anticipated corresponding tax increase is 2.55% and contingencies are included in the budget to cover these resulting collective bargaining increases".