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Mayor Al McDonald has been working on a city spending plan over the past 10 months that calls for the city to reclaim their loan to North Bay Hydro, significantly reduce their debt, increase capital spending and eliminate reserve spending. PHOTO BY LIAM BERTI
The Mayor has a plan.
After working confidentially with the city’s chief administrative officer and chief financial officer over the past 10 months, Mayor Al McDonald has developed a long-term spending template for council to use in the next budget process.
The result of over 100 hours of heated deliberation was presented to McDonald's council colleagues on Wednesday night, which gives them a base budget template for a 1.98 per cent tax levy increase in 2016, a far cry from the projected 4.23 per cent tax levy increase that city staff forecasted last week.
The various agencies, boards and commissions make up roughly half of that hike too, meaning the city’s operating and capital budgets would come in at less than a one per cent increase.
“The 1.98 is even before we open the budget book, so there is some room there for council to look for efficiencies and a better way of doing business and providing services,” McDonald said after the meeting.
“I’m providing a plan that starts at 1.98 per cent, increases capital spending, and decreases our debt, so the skeleton is all in place,” he added. “Now it’s up to council to find some efficiencies in their business units and operations if they want to reduce it.”
Put simply, the preliminary long-term plan is designed to take the pressure off the tax levy, preserve existing service levels, increase capital investment, reduce the city’s debt, invest in growth, and eliminate reserve spending.
And all of that before opening a page of the budget.
To accomplish that goal, McDonald is suggesting calling in their North Bay Hydro distribution and services loans, garnering $25.6 million over the remaining three years of this council’s term.
That money would be redistributed into the city spending by splitting up $4 million into the capital budget over the three year period and another $6 million in the operating budget.
The city would still retain ownership of the company, but McDonald said he and the senior staff have already discussed recalling the loan with the hydro service and that it will have a “positive impact” on the organization.
“Depending on where the market is, their rates will go down a little bit; from a city perspective, this is reducing our debt, increasing our capital spending, reducing our levy down to 1.98 per cent, and that’s just to start,” said McDonald. “Hydro can go out and get the loans themselves at the banks and we can use that money to reduce our debt, reduce our levy, and increase the capital spend. This process started in January of 2015 and, absolutely, that was the thought right from the start.”
On top of that lump sum revenue, the city would reduce their annual debt issuance to $5 million per year from $8.5 million, eliminate the use of their nearly $400,000 stabilization fund, and continue to set an annual $200,000 savings target for chief administrative officer Jerry Knox.
They would also work at paying off and settling their hospital construction debt, which is hovering around $10 million.
On the heels of the announcement of more hospital cuts on Wednesday afternoon, the Mayor said the organization has been made aware of the plan and have been agreeable in the process.
McDonald’s long-term plan also forecasts until 2023, with the heavy lifting being done in the current council’s term so as to not interfere with the next council's mandate. The long-term plan also benchmarks the 2017 and 2018 levy hikes at 2.99 per cent and 2.71 per cent, respectively.
Even assuming a status quo budget from 2017-onwards, the starting point tax levy increases range anywhere between 2.71 per cent and 5.77 per cent, assuming the next council goes back to historical spending trends.
With all said and done, the idea would be to have reduced the city’s outstanding debt total by just under $10 million in 2024.
Another big component of the plan is annually reinvesting $3.6 in the city’s capital budget as well as up to $500,000 in the various community development plans next year.
The city has stopped adding money to those development funds in the past three years and has now fallen to the point of being wiped out with one major project.
The three programs include the downtown, brownfields and airport community improvement plans.
At last week’s council meeting, a city staff report to council revealed that they are forecasting a 4.23 per cent tax levy increase in 2016, or $3.35 million.
The most notable increase in that forecast’s required revenue is expected to come from a $500,000 slash in North Bay’s portion of the Ontario Municipal Partnership Fund (OMPF), increasing personnel costs and the capital levy.
When calculating for personnel, goods and services, financial expenses, capital transaction, local agencies, boards and commissions and internal transfer costs, their earmarked expense total for next year is $119.5 million.
McDonald was quick to point out that his pitch is well below those projections, and that’s before scrutinizing a single line item in the budget book.
As Coun. Mike Anthony, who was absent on Wednesday, pointed out via email to his colleagues, a recent consultant study in Timmins compared their taxation level to other Northern Ontario communities. In his report to council, he explained that while Timmins has the second-highest tax rate of the major cities in the North, they can manage it because they have the second-highest income.
In what they called the tax affordability perspective, which compares how much a city charges to live in it and how much the citizens make, North Bay was identified as a poor example with high taxes and lower incomes.
The ideal situation, the consultant said at the time, is to match the tax rate with the income rate.
As Coun. Shogren pointed out, the Mayor’s presentation solves a lot of problems on the macro level, but there are still a lot of decisions to be made. When looking at the financial forecasts, for example, the tax levy is expected to increase by $25 million by 2024, while their revenue continues to flat line.
“Certainly there’s a lot of good things with the plan […] but if that revenue side doesn’t change with the expense side, this could be a challenge,” he said. “Unless we get that gap narrowed between increasing our revenue and decreasing our expenses, it’s going to be a challenge.”
If council chooses to adopt the plan, it would then be up to the various committees to bring suggestions forward service adjustment increases or decreases the budget as they see fit.
The group also discussed the various agency, board and commissions’ budgets, coming to the conclusion that they will send a letter to them all requesting a budget increase of no greater than 1.5 per cent. However, the plan presented on Wednesday assumes they will come in slightly higher than that.
Moving forward, McDonald’s plan will be kept on the committee level while the councillors digest the drastic suggestions.
But if the reaction in the room was any indication on Wednesday night, the groundwork for the 2016 budget process has been put down.
