Blair MacDonald, January 20th, 2017 – As a former Councillor and member of the Town Finance Committee for 8 years, I am reasonably familiar with the state of Rothesay finances.  Sometimes when one is directly engaged in an organisation, one gets caught up in the details without considering the longer term and the big picture.

I have carried out some limited analysis of the 2017 budget which I hope will stimulate some thoughts by residents, Town staff and Councillors. First, an observation about public participation:

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Poor Attendance at the Public Budget session – apathy or lack of awareness?

The 2017 draft budget was presented in a public session on December 5th. Unfortunately, there were only 4 members of the public (former Mayor Bishop and myself being 2 of them) in attendance.

Was the low attendance due to a lack of interest on the part of taxpayers or were they not aware the meeting was being held?

Perhaps in future years, this event will get front page billing on the Town website, a press release or a similar medium.

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Spending outpaces the Town’s revenue growth.

The 2017 operating budget is up by approximately 3% over the 2016 projected actual results.

This increase will be funded by:

• a 1.63% increase in the assessment base($239,000),
• a 1 cent raise in the tax rate($130,000) and
• the balance from a 2015 surplus of $285,000, a one time event. (To replace this amount in 2018 through property taxes would mean a 2 cent impact on the tax rate).

The detailed Town presentation is on the Town website under “Mayor and Council” then December 5th under  “Archived Council Agendas/Documents”. (Or simply click the preceding linked text)

In that document, readers can see the breakdown of the major categories of revenue and expenditures with the 2016 and 2017 budget comparisons as well as a projection of the 2016 financial results.

The majority of the Town’s revenue comes from the municipal tax of $1.21 per $100 of assessed property value.

The increase in the assessment base has averaged 1.5% over the past 5 years. This compares with a 9.8% increase in 2010 !! Times have changed.

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How can operating expenses continually increase more than revenue? 

With expenses including wages increasing at the rate of 3% or more annually, one could ask how can operating expenses continually increase more than revenue?  There is a flexible account in the budget called “capital expenditures out of revenue” (for expenditures such as road resurfacing, equipment purchases etc). In 2010, this amount was $3,000,000; the comparable amount budgeted for 2017 is $2,250,000. This means that fewer projects are being financed on a “pay as you go” basis.

For the first time ever, funds are being utilised from the special federal gas tax funds for street resurfacing instead of being used for major capital projects such as the new waste treatment plant which benefits all residents.

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Where has Rothesay controlled its spending to match the declining growth in revenues?

So with declining increases in the assessments, how has the Town done in controlling day to day operating costs? Having been on Council for 8 years and on the Finance Committee for all 8 years, I should know the answer but must confess I didn’t until I recently examined the growth in operational costs over the past 8 years, including the 2017 budget..

What I found surprised me and is set out below in summary form:

The 6 operating category totals for 2009 and 2017 are as follows:  (in thousands of $)

The % increase is over 8yrs. To get an idea of how Rothsay’s spending compares, the cost of living increased 12.75% over that period.

Per Statistics Canada , the annual cost of living for the 8 years from October 2008 to October 2016 increased by 12.75% or an average of 1.51 % annually. Looking at the Town of Rothesay expenditures from 2009 to the end of 2017, operating expenses (excluding fiscal services) will have increased by 33.8% or an annual average of 4.22%. This is  nearly 3 times the annual cost of living increase.

The difference might not appear to be significant  but time and compounding  have a huge impact on expenditure  growth. With an annual increase of 1.51%, the budget doubles in 48 years versus only 17 years when the annual rate of increase is 4.2%.

With an annual increase of 1.51%,the budget doubles in 48 years versus only 17 years with an annual increase of 4.2%.

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Spending growth is not uniform across town operations.

• 85% 0t the Protective Services budget (Fire & Police) consists of salaries and benefits with most of the 36.7% increase over the 8 years due to increased staffing and contract settlements.
• General Government Services is up 42.2% with a significant portion of that salary and benefit increases  and additional staffing similar to Protective Services. In addition, the loss of School District 6 as a tenant and the lack of a replacement means taxpayers are on the hook for most of the Town Hall operating costs.
  

• The increase in Transportation Services costs( street, sidewalks, snowplowing, Comex, street lighting etc.) has been relatively modest given again that salaries and benefits  would have increased in the 30% range.

The increase in Transportation Service costs (streets, sidewalks, snowplowing, Comex, street lighting etc) has been relatively modest given again that salaries and benefits  would have increased in the 30% range.

• Environmental Health Services  consists of waste and compost collection and disposal, clean up campaigns and curb-side recycling .Most of these services are supplied by outside contractors after public tender calls. This is likely a factor in the relatively modest 19.7 % increase.
  
• Environmental Development includes the Town Planning office and the grant to Enterprise Saint John. Also included in the 2017 budget is $100,000 for a revised Municipal Plan. Without the $100,000 amount ,this budget would be up 78% with salary increases and additional staff the primary reason.
  
• The Recreation and Cultural budget (arena, parks & gardens, fields/playgrounds, Regional Facilities) has increased 43.2%. Under the Regional Facilities Agreement, the suburban municipalities share in the operating deficits of the major facilities in Saint John(Harbour  Station, Aquatic Centre, Trade & Convention Centre, Arts Centre ,Imperial Theatre). For 2017, the Rothesay share is $398,000, an increase of $145,000 since 2009. Admin costs(wages/supplies) have increased by $100,000 or 71% since 2009.
  Parks & Gardens has increased 81% in the 8 year period from $313,000 to $568,000 plus another $110,000 for sports fields and playgrounds. Part of this includes the addition of 2 full time gardeners to the staff as well as addition of a greenhouse to Town assets.

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The above comments are a snapshot of the Town’s general operations and only relate to direct operating costs. In addition there are the costs of capital items  required to carry out the operations and finance costs where funds were borrowed to acquire the capital items. This would include vehicles, equipment, buildings, trails etc. For example, a truck with a useful life should be recognised as part of the operating costs of the department where it is utilised during the 5 year period. Currently this is not being done.

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What big picture points/conclusions can we take from this?

• Do residents expect their tax dollars to be spent effectively and efficiently and using the same rationale as they themselves would use?
• It appears that government expenditures have a way of creeping up-especially when tax revenue is increasing-and once a program or expenditure is in place, it seems to stay even when the good times end.
• Are residents concerned about the level of Town spending and what the future may bring if expenditures increase?

Whether it is an increase in the assessment or the tax rate, the result is the same – an increased property tax bill.

Whether it is an increase in the assessment or the tax rate, the result is the same – an increased property tax bill.

A recent study of government expenditures in the Atlantic Provinces by the research institute AIMS would appear to confirm similar expenditure trends as Rothesay has experienced.  The Provincial Governments have talked a good austerity story but not practiced it.  In fact the costs have kept increasing significantly above the cost of living increases and the revenue to pay for them.  Atlantic Canada thus has a  long history of operating deficits and increasing debt. It is ironic that deficit ridden Provincial Governments legislate that Municipalities have to balance their budgets annually.

Given that contracted services have shown some of the lowest cost increases, should more services be contracted such as grass cutting, gardening, street cleaning & repairs, snow clearing now done in-house, data services etc?

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Is it time to seriously look at the amalgamation of the 2 KV towns?

• Quispamsis General Government 2017 budget (With 50% larger population) is only 16% greater than Rothesay

• The Rothesay 2017 Recreational admin and Beautification budget is actually 14% greater than that of Quispamsis

• The 2017 Planning and & Building inspection budgets  are roughly equal.

Is it time to seriously look at the amalgamation of the 2 KV towns or at least a consolidation of services common to both Towns such as recreation, planning, roads, parks and field maintenance, snow clearing etc ? 

The 2 Towns already have joint Fire, Police and Library operations. These functions are operated as independent bodies and are recognized as being top performers in their respective fields.

A quick look at the 2017 budgets for both Towns identifies $5,750,000 in total costs for both Towns for General Government admin costs, Recreation /Parks admin costs and Town Planning costs-basically a duplication of costs for Towns with a total population of approximately 30,000. Again, this does not take into account the duplication of equipment and facility capital or financing costs.

As for the Town of Rothesay itself, some quick comparisons with Quispamsis were enlightening given that the population of Quispamsis is 50% greater:

• Quispamsis General Government 2017 budget is only 16% greater than Rothesay
• The Rothesay 2017 Recreational admin and Beautification budget is actually 14% greater than that of Quispamsis
• The 2017 Planning and & Building inspection budgets  are roughly equal.

I would caution that there may be differences in how the Towns account for their operating costs.

For example, I know that Rothesay’s financial reporting system does not enable the Town to properly/accurately  allocate all costs to the appropriate costs centers.

Thus while Rothesay has a 2017 budget amount of $470,000 for “Snow & Ice Removal”, Quispamsis has an amount of $1,968,000 for “Winter Road Maintenance”. The Rothesay amount includes only contract plowing plus salt and sand purchases but no amount for the plows owned and operated by the Town, wage costs, fuel and maintenance costs etc. Presumably Quispamsis has an appropriate reporting system which captures all the appropriate costs thus resulting in a much higher budget amount for winter road maintenance.

At a later date, I will have a few comments on the Utility Budget(Water  and Sewer)

Blair R MacDonald FCPA-FCA – January 20th, 2017.