Why a major budget surplus won’t be used to lower taxes in London, Ont.

The City of London ended 2023 with a $31 million surplus in its operating budget, but despite some councillors’ hopes, the money will not be going toward lowering property taxes for 2025.

The surplus includes $28 million from property tax revenue and $3 million in the water budget. Otherwise, the wastewater and treatment budget was balanced at year-end, according to city staff.

The city has a policy that dictates how the surplus is to be used, with most of the funds going to various reserves. However, at Tuesday’s council meeting, a handful of councillors expressed support for Coun. Corrine Rahman’s idea to use $3.5 million, or half of the Community Investment Reserve Fund, to lower property taxes in 2025.

Of the $31 million, the City says about $14 million will go toward reducing the $330 million of additional debt expected to be supported by property taxes over 2024 through 2033, which was approved by councillors in the most recent multi-year budget.

Another $7 million will go to a one-time contribution to the Capital Infrastructure Gap Reserve Fund. City councillors can choose to use money from that fund at any time, the city says, to fund “future infrastructure needs.”

Another $7 million will go to a one-time contribution to the Community Investment Reserve Fund. That fund can also be used by council at any time. The City also noted that before the $7 million injection, that fund had just $200,000 left in it because it was dipped into to fund some investments in the 2024-27 multi-year budget.

The remaining $3 million will go to water debt reduction and the Waterworks Reserve Fund “to address future infrastructure needs.”

The water rate supported budget surplus of $3 million was actually below what’s been typical for the city over the last several years, with the surplus ranging between $3.7 million to $6.6 million between 2020 and 2022.

The property tax supported budget surplus, however, was exceptionally high for 2023, at $28 million. That surplus was $22.3 million in 2020, $19.6 million in 2021 and $12.3 million in 2022.

Anna Lisa Barbon, deputy city manager of finance supports, says the particularly large 2023 surplus is mostly due to three “temporary, external factors” that include higher than anticipated interest rates, delays in Municipal Property Assessment Corporation’s reassessments and delays in implementing the Green Bin program (which finally began in mid-January).

The City stressed that those three factors are temporary and unlikely to persist in the long-term.

Coun. Corrine Rahman put forward a motion on Tuesday that would cut the amount of money in the Community Investment Reserve Fund in half, from $7 million to $3.5 million, and using half those funds to lower the projected property tax increase for 2025 by about 0.4 per cent.

Ward 13 Coun. David Ferreira said he was happy to second the motion, “simply because we’re trying to lessen the burden or the load on the taxpayer looking into the future.”

Jerry Pribil, the councillor for Ward 5, also expressed support for the idea and took aim at criticisms that it was “one-time funding.”

“It’s one time if we decide to do it one time. But it doesn’t have to be,” he said.

“Throughout the year, hopefully we would have more savings we put in a pot, we can do it into the reserve fund… We have a four year (budget). This year has been set, (but) for next three years, we can paid out of this certain items.”

Pribil also raised concerns about the existing policy governing how surplus money is allocated.

The overwhelming criticism of Rahman’s motion from the councillors who voted it down was that it would not provide meaningful relief to London taxpayers and would instead lead to more pain down the line.

“It will mean that the 2026 level goes up as well. If we want to find tax savings councillors…we need to find areas where we are providing a service that’s no longer relevant for us to be providing or find ways to generate new revenue,” said Deputy Mayor Shawn Lewis.

Ward 10 Coun. Paul Van Meerbergen said the “foolhardy” idea would set the stage for a “budget bomb.”

“If in the following year a surplus of that magnitude doesn’t materialize, or to cover what you are trying to give as tax relief, then it turns around and bites you in the derriere because, there’s nothing there to support it,” he explained.

“So you end up with not only an increase which is already forecast, but an increase on the increase. And that’s hardly helpful to taxpayers.”

Mayor Josh Morgan was also against the motion, but said he was open to looking at reducing the amount of funds in the Community Investment Reserve Fund so long as it wasn’t for the express purpose of creating an “artificial decrease” in the property tax rate in 2025.

Ward 12 Coun. Elizabeth Peloza thanked Coun. Rahman for bringing the motion as it was the appropriate time and place to do so, but she noted that the Community Investment Reserve Fund was largely drained through the most recent multi-year budget process to fund business cases, particularly for the London Public Library, and that it was important to put money back into the reserve fund for future use.

She added that London knows it has future debt coming that needs to be supported through property taxes beginning this year through 2033 and that there is also a capital infrastructure gap.

“I have heard from Londoners, ‘absolutely keep my taxes as low as you can,’ but some Londoners also asking, ‘am I paying for my fair share now of what I’m using or am I putting future taxes onto future Londoners?’ Which could include their children which would make London even more unobtainable for them to be owners of their own properties or renters in the city.”

In the end, Rahman’s motion failed in a vote of five to nine.