Cut Now, Borrow Later

CBRM council met on Tuesday to hash out details of its 5%, across-the-board tax cut but before they got into it, District 8 Councilor James Edwards moved that the cut be phased in over three years rather than introduced in one fell swoop.

This led to a reprise of much of what was said during the initial debate about the cut two weeks ago plus some additional handwringing about the horror of revisiting a decision so quickly after having made it. (What, I kept asking my computer screen, if that decision was bad?)

The staunchest defenders of the cut remained District 10 Councilor Darren Bruckschwaiger, who introduced it, and Deputy Mayor Earlene MacMullin, whose defense of it on Tuesday could equally well have been used as an argument against it. She said didn’t want to phase it in over three years because she didn’t want to have to tell her constituents that they weren’t getting that “hundred bucks” that would allow to take their kids “out to dinner.”

Both MacMullin and Bruckschwaiger admit that taxes may have to rise next year if the unusual confluence of circumstances — particularly the $15 million top-up of the municipal capacity grant, which accounted for 62% of the roughly $24 million in additional revenues Bruckschwaiger predicated his tax cut proposal on —  doesn’t recur.

But this possibility didn’t seem to bother most councilors, nine of whom voted against Edwards’ motion, with only himself, District 5 Councilor Eldon MacDonald and District 7 Councilor Steve Parsons voting in favor of it.

 

Cut now, borrow later

It was then a matter of finding the roughly $3.8 million to cover the tax cut, although Bruckschwaiger would object to that characterization because he says staff should have incorporated the 5% cut — which he first floated during budget workshops in February — into the draft budget.

Instead, staff incorporated a 1.5% cut.

So, after council approved the 5% cut, staff took a day to come up with proposals to cover it which council weighed and found wanting on April 7. Staff was sent back to the drawing board and their new proposals were debated yesterday.

In the end, council found the money by deferring funding for a number of projects and how you feel about this probably depends on how excited you are about the meal you’re going to buy your kids with your tax cut.

While it’s true that the cuts council ultimately approved aren’t necessarily going to derail any projects, they do mean the municipality will likely have to borrow more in future, as Councilor Edwards said:

If we take $3.8 million out of our budget this year, that’s not going away. That’s going to be there next year.

Consider, for example, the proposed new central library, which CAO Marie Walsh says staff considers “a priority.” (There are some interesting developments on the library file, by the way, but we’ll talk about them on Friday.)

According to Walsh, CBRM’s likely share of the cost of a new central library is $7 million, which it initially hoped to raise by borrowing $4 million and donating waterfront property it valued (without benefit of an actual appraisal) at $3 million. (As it turned out, land wasn’t even considered a valid municipal contribution to the project, but that’s another story.)

The draft budget put $3 million into a fund for the library, meaning the municipality would still need to borrow $4 million.

The revised budget cut this to $2 million, meaning the CBRM would have to borrow $5 million.

If you really like the idea of taking your kids out to dinner, then you’ll agree with the Deputy Mayor, who says, in essence, that we shouldn’t look at these figures and think that we used to have $3 million in cash for the library and now we have $2 million or that we thought we’d have to borrow $4 million for the library and now we have to borrow $5 million. No, we should think that we didn’t have any cash for the library before and now we have $2 million plus you get to take your kids to Swiss Chalet. (I’m embellishing, MacMullin didn’t specify the restaurant.)

Personally, I’d prefer we had $3 million in cash tucked away for the new library, but I don’t have kids, so maybe I’m not in a position to judge.

You can see the cuts outlined in the presentation made to council, the only change is in the rebate for low-income home owners about which, more in a moment:

Budget_Options_Continued_Updated_-_Afternoon_April_19_2022

 

 

Rebate

Council did manage to raise both the income threshold and the rebate offered to low-income homeowners. The income threshold will rise from about $25,000 to $35,000 and the rebate will increase from $225 to $300.

This was an option that had been presented on April 7 as an alternative to an across-the-board tax cut, at which point CFO Jennifer Campbell had said it would capture an estimated additional 2,400 households. The rebate of $300, she said, would “far exceed” the benefits of a 5% tax cut for low-income residents. To illustrate she used the example of New Waterford, where the existing tax rate is $2.08 per $100 of assessment and where a person would have to have a home assessed at over $300,000 for a 5% tax cut to return $300.

Somehow, two weeks later, this option became possible in addition to the 5% tax cut, simply by virtue of upping the expected increase in the deed transfer tax to $1 million, although Campbell warned that using what might very well prove to be a temporary increase in the deed transfer tax to fund a permanent increase to the low-income rebate was “a gamble.”

Council, though, clearly felt lucky.

 

Incentives

On April 17, the Cape Breton Post looked under the hood of the tax cut with help from Sydney resident Alyce MacLean, who had posted her thoughts about the cut on Facebook. MacLean made a number of good points about the cuts but I was particularly interested in her take on the benefits to be reaped by large commercial property owners:

HOOPP Realty, based out of Toronto, will receive $141,000 reduction in taxes for their property, the Mayflower Mall

Walmart Canada will save $40,000 in taxes

The top 70 valued commercial properties in the CBRM, almost all of which are located in Sydney and are not locally owned, will see a collective reduction in taxes of $900,000-plus.

This was dismissed by the pro-cut councilors as the price of “helping everyone” and the point was made more than once that under the MGA, the CBRM can’t “pick and choose” which businesses get a tax cut.

But the municipality does offer a special tax incentive for Downtowns and Business Parks that applies to the downtown cores of Sydney and all the former towns making up the CBRM as well as to the Sydport, Harbourside and Northside business parks. Businesses developing or renovating commercial property in any of these towns or parks can reap these benefits:

• Tax assessment increases of $100,000 or more are eligible for up to ten years of tax reductions
• Tax assessment increases of less than $100,000 are eligible for up to five years of tax reductions
• Total tax reduction of up to 50% over the phase-in period are possible

What I’m saying is, the municipality clearly does have the ability to provide targeted commercial tax relief (although whether such measures actually work is another question entirely).

 

Ontario

I realize we are not in Ontario, but I thought it was interesting, in the context of this discussion, that the province of Ontario announced in its 2020 budget that it would “give municipalities the ability to create an entirely new subclass of commercial taxpayers to help small businesses.”

The CBC story quoted above is about the City of Ottawa which, in March 2021, was “looking to cut property taxes for small businesses by 10 per cent, and pay for it by increasing taxes paid by big-box stores and other large commercial properties.”

Mayor Jim Watson said:

That means that multinationals like Walmart and Costco, who have done very well during the pandemic, are going to help pay for this tax discount to small businesses.