The City of Vancouver will need to look at service cuts or property tax hikes in the range of nine per cent per year over the next five years if its fiscal situation doesn’t change, according to a new report.
The warning is included in a 2024-2028 budget outlook prepared by the city’s director of finance, and due to be considered at a council meeting next week.
“The outlook for operating expenditures is driven by higher fixed costs to provide existing service levels, full year implementation of key initiatives from the 2023 Budget such as the hiring of additional police officers, renewal of infrastructure and public amenities and Metro Vancouver levies,” the report sates.
“These financial challenges have exceeded the City’s ongoing measures to reduce costs, resulting in higher than historical tax increases. To balance the budget over the Outlook period at the current state service levels without further actions, an average property tax increase of ~9% each year would be needed, which equates to an additional $116 per year for a median strata property.”
Vancouver homeowners were hit with a 10.7 per cent property tax increase this year, up from an initially projected 9.7 per cent.
In the run up to the 2022 municipal election, mayor Ken Sim told Glacier Media property tax increases of 10 per cent were “not sustainable.”
The report anticipates capital expenditures of $730 million in the five year outlook period, amid a “significant increase” in project delivery to meet population growth and city goals like the Climate Emergency Action Plan.
That capital plan faces a plethora of cost pressures, it found, including price escalation for construction materials and supply costs, a tight labour market and rising wages, and the need to buttress infrastructure against increasingly severe weather.
On the operating side of the budget, the report says revenues from program, licence and development fees are expected to climb by three to five per cent and utility fees by 10 per cent over the five year period.
Other revenue sources, however, like parking fees remain threatened by people’s changed travel patterns after the pandemic.
Expenses are forecast to eclipse that growth, the outlook warns.
The city needs to pay for the 100 new police and 100 mental health workers Sim’s ABC has pledged to hire, along with 33 new firefighters and the city’s new plan to revitalize Chinatown, it notes.
Operating costs are rising faster than inflation, and wages are rising quickly amid inflationary pressures and a labour shortage it notes.
And the city is still working to replenish its Stabilization Reserve, which took a major hit during the COVID-19 pandemic.
The report says city staff are working on “sustainable multi-year planning strategies” to address fixed cost pressures and service needs, and looking at new opportunities to generate revenue and to advocate for funding from senior levels of government.
Staff are also supporting the Mayor’s Budget Taskforce, a third-party group made up of accountants and business leaders Sim has pledged will go through the budget with a “fine-toothed comb” looking for efficiencies.
“Staff are acutely conscious of the implications for tax and utility rates and are focused on identifying opportunities for new revenues and operating efficiencies,” the report states.
“However, absent substantial reallocation or reduction of existing operating funding or reductions in capital investment, the delivery of a balanced budget over the coming years will depend on property tax and utility fee increases that exceed historical averages.”
Speaking at an event to announce a new city hall satellite office in Chinatown on Thursday, Sim defended the ABC council majority’s spending priorities, including hiring scores of new police officers and mental health nurses.
“We have a humanitarian crisis going on and the old ways did not work. We had to make a bold stand and do something differently,” Sim said.
“And you know what, if it works really well it will be the greatest thing we’ve ever done, and if it doesn’t work, we can reassess and look at things differently, but something had to change. ”
Sim said the city was dealing with the same difficult economic conditions as everyone else, and that he had faith his budget task force would come up with both savings opportunities and the chance for new revenue sources.
“It’s early days. That was an initial budget estimate and we look forward to really digging deep in those numbers to see where the opportunities are,” he said.
The budget task force is slated to return its findings in September.
Vancouver Coun. Pete Fry told CKNW’s The Jill Bennett Show that the city was looking at both new revenue opportunities and for help from the provincial and federal governments, but “the reality is that unfortunately, taxes are going to be going up.”
“We’re starting to face this reality that we’ve underfunded a lot of infrastructure and that that combined with keeping up with some of the commitments that were made by the new mayor and council, we’re having to figure out ways to pay for a lot of this stuff and it is going to cost money,” Fry said.
Fry said cities everywhere are facing infrastructure challenges, particularly amid high inflation.
He said as a fast-growing city trying to add large numbers of housing units, Vancouver will need to expand its infrastructure to meet the needs of an increased population. At the same time, as one of the region’s older cities, it faces growing costs to replace or upgrade older infrastructure, he said.
“And then of course, we have things like climate change that are driving a whole new level of infrastructure needs that we that aren’t even just about renewal anymore,” he said.
“We’re talking about mitigating sea level rise and those kind of things. And we’re seeing, you know, areas like the seawall and and coastal parts of our city where we’re seeing tides and storm surges and sea level rise are actually starting to break down significant pieces of infrastructure.”
While the potential for annual nine per cent property tax hikes may raise eyebrows, the report notes the outlook is just a “starting point” as council begins the 2024 budget planning process.
Residents will also have a chance to weigh in on that upcoming budget through Talk Vancouver surveys between August and September.
Council is slated to receive and debate the outlook at its meeting on Tuesday, June 27.