Column: End tax hikes that create poof funds

by Ed Cowley, freelancer

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The town of Morinville tax rate hike of 5% this year was not necessary—actually there was no need to raise the taxes at all according to figures in the First Quarter Report.

From January 1 through to March 31, the town spent $2,021,284 on salaries while it had budgeted $2,874,665. That resulted in $853,381 left sitting on the books unused.

Each 1% increase in the tax rate generates just over $100,000, so council could have amended its budget to hold taxes at the 2021 rate. It simply had to kill the increased revenue from the planned tax hike and remove the same amount from the budgeted salary expenditures. This would still leave more than a couple hundred thousand dollar float in the salary column for the rest of the year in case the second, third, or fourth quarter went over budget.

The 2022 First Quarter Report failed to show comparable figures from the previous year, however, the town had actually spent $1,997,744 on salaries while budgeting $2,610,783 in the first quarter of 2021, leaving unspent $613,039 for salaries. The town ended the year $400,000 on the positive side of what it had budgeted (with a tax rate hike of 1%).

Three councillors opposed that tax hike—Rebecca Balanko, Stephen Dafoe, and Scott Richardson. They were the only members of council re-elected in the fall of 2021, with four first-term council members joining them on the current council.

The impact of unnecessary tax rate increases compounds. The 1% tax hike from 2021 never expires. The starting point for the tax rate in 2022 was actually 1% higher than the starting point in 2021. The 5% tax rate increase approved by council for 2022 means the tax rate starting point for the 2023 taxation year builds on that plateau—6% higher than the 2021 starting point.

It is critical that council look at the figures which impact residents and taxpayers rather than being pulled down into the whirlpool of details within the budget process. As the governing body they need to monitor the big picture, set the targets and require management to do its job: manage. In both 2020 and 2021 the town paid over a quarter million dollars in salary (including benefits) for a single employee. That thousand dollar per work day person was the town manager (CAO), so why would council itself be preoccupied with operational details? The manager has sub-managers for support; who have sub-managers for support. There are already too many layers of management; Council needs to govern, not manage.

Incidentally, when the town ends the year $400,000 better than budgeted (or any amount) those are just ‘poof’ funds.

‘Poof’, they disappear.

The system used by the town is to plan on a consolidated budget (changed in name to ‘Combined Budget’ now) of both the ‘tax supported’ services and ‘utilities’ however, at year-end if there is a net excess on the bottom line beyond the budget figure, suddenly the consolidated budget is irrelevant. There is a great wringing of hands due to the ‘tax supported’ budget having a huge deficit. The excess funds are put into reserve accounts without even need of a council resolution at year-end. There is no debate and no transparency because numerous policies direct that excess funds go toward various utility reserve accounts. The utilities generate water, sewer, and stormwater bills and are high enough to create huge revenue for the town. Services such as streets and sidewalks are deemed ‘tax supported’ services and will never generate revenue, so will always accumulate a deficit.

As long as this year-end gamesmanship is going on, it is crucial that council not approve tax rate hikes resulting in excess ‘poof’ funds. Council can budget for contributions to reserve accounts but needs to end the whole process of ‘poof’ funds at year-end. If the governing body wants to put the year-end excess revenue into reserve accounts, it should debate the action in public and pass a resolution at a public meeting. The policy statements on reserve funds need to be rewritten to provide transparency. No more year-end’ poof.’

Council will be starting to work on the 2023 budget shortly if council members haven’t already.

In 2021 a 1% tax hike was not needed.

In 2022 a 5% tax hike was not needed.

In 2023 a 0% tax hike is needed.

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1 Comment

  1. A huge problem for councils as a whole, country wide, is they come into politics knowing little to nothing about municipal governance and therefore are beholding to the administration of the day to teach them. This leaves a bit of a conflict of interest situation. Many do not understand all the money matters they deal with (along with many other issues) and take lead from CAO. CAO has their neck on the line so benefit from councils lack of knowledge (and time to study the financials) to pick up on voodoo economics. An example from my time on council was the practice of putting our budgeted road repair money into a reserve fund even though those fund were going to be fully spent annually. This made our reserves look good at budget time, but confused council as to our true financial position. Another example not necessarily budget related is this imagination basket that our council had. We would fill it up with jobs for admin. They would say it’s full and something needs to be removed if something more was to be put in. THEN they would add stuff to the basket that took staff time to prepare meaning they were not working on the over full basket. Some of these revelations come to you after you step away and see things from afar.
    Council needs to to trust and at the same time be weary of what ADMIN is saying and doing.
    I have much more to say but my finger is tired. Lol

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