Let’s Talk About Taxes
Earlier this week, Council received a presentation regarding our current economic outlook. I’ll be honest - it was sobering. We have some very hard decisions to make during budget deliberations in the fall, and coming out of the pandemic is going to be a long road. I wanted to share some thoughts I had around the state of things, as well as paint a picture of what we’re working with in the coming months.
What influences our tax rate?
There are many considerations that go into setting the tax rate. A few of the main ones are: revenue generation, service levels, system efficiency, and population growth and inflation.
Revenue generation has taken a hit due to COVID. While we have some access to grants from other levels of government, at the end of the day, the City only really has two primary tools, property tax and user fees, to generate the revenue we need - the latter of which may still take some time to return to pre-pandemic level. On top of that, Provincial dollars are being held back more and more - the Municipal Sustainability Initiative, Municipal Reserve, and traffic safety dollars have all taken a hit. At the same time, we need to keep researching ways to diversify ways to generate revenue, tools that other municipalities are using and exploring around the world. Unfortunately, our city’s capacity to move in this direction is strictly limited by the provincial legislation (Municipal Governance Act).
Service delivery is being downloaded further and further to municipalities, and expectations are increasing. Those expectations come at a cost - just to maintain the current service delivery standards, we’re already looking at a 3.4% tax increase taking inflation and population growth into account. This includes services like snow and ice control, transit, and road maintenance. At some point, we may have to have conversations around what is reasonable for local government to deliver, because looking at what we’re bringing in and the ever-growing laundry list that the City has to take on has become a major challenge for us.
3. Thirdly, we have system efficiency to think about. It’s a common notion that government has too many employees, and over the past few years City Administration has done a lot of work to cut inefficiencies and reduce our overhead as much as possible. Since 2013, we have aggressively reduced our overhead (internal facing services such as HR, IR, financial services) from 12% to 6%. But we’ve gotten to a point where the City is given more and more work, and if we keep trying to trim our overhead we’re looking at a much less effective organization as a whole.
These considerations all have major implications and challenges, and pairing that with population growth and rising inflation means we have some very tough decisions to make around what we can (and can’t) offer.
Priorities
We are making some big decisions on the next 4-year budget cycle this fall. This time around, Council will be doing a Priority-Based Budgeting approach for the first time at the City. This is an exercise that makes sure we are providing the money for the services Edmontonians want most, rather than using a randomized list for budget items as Council has done in the past. This will make sure we’re putting our money behind our top priorities. Recently, Councillors took part in a survey where we had $100 to theoretically spend on City services. The results are laid out in the graph below. Each of these areas are important for Edmonton’s future, but with our current economic reality, it’s going to be a challenge come fall. That’s where priority-based budgeting will hopefully help steer us.
Next Steps
This conversation is not over. We’re really just starting to get a pulse on what this Council, and the people we represent, feels is important. But this was certainly a wake up call for all of us. We have a lot of work to do and face high expectations from Edmontonians, all the while dealing with an economy in recovery mode, higher inflation, population growth, and less revenue generation.
Right now, the City is doing focus groups with stakeholders, and broader public engagement with residents will be coming in early summer. The City will release a public survey around that time, so please make sure to keep an eye out for that.
Over the next few months I’ll also be looking to hear from you. I’ll be on the doors, doing community conversations, and meeting with residents. And as always, please reach out with any thoughts or questions. There are big decisions ahead!
