Tax rebate from $31 million municipal surplus could unleash 'budget bomb'

A massive surplus remains from last year’s municipal budget in London, but city staff warned councillors against using it for a tax break this year.

On Monday, several councillors attending the Corporate Services Committee (CSC) and pressed staff to explain why some of the $31-million surplus from 2023 shouldn’t be used to soften the financial blow from the council-approved 8.7 per cent tax rate increase this year.

“[To] take this unexpected income and reduce the tax burden, the same way we had to burden [taxpayers] with the unexpected costs that we’ve had?” asked Coun. Susan Stevenson.

A new report to CSC explained the source of the unexpectedly large surplus and why it should be redirected in accordance with a council-approved surplus policy.

The surplus includes $28 million from the property tax supported budget and $3 million from the water budget.

 

Recommendations from the existing policy

• 50% to reduce future debt issuance ($14 million)
• 25% to council’s Community Investment Reserve Fund ($7 million)
• 25% to the Capital Infrastructure Gap Reserve Fund ($7 million)

The surplus policy for the water budget would divide the $3 million evenly between debt reduction and a reserve fund.

Mayor Josh Morgan reminded councillors that their support for his 2024-2027 budget included taking on additional debt to fund several capital projects, “$330 million new debt in this multi-year budget. We have a chance to not issue some of that. That’s a good financial decision.”

Deputy Mayor Shawn Lewis argued that tax relief requires finding ongoing savings or generating new revenue.

“Before anybody gets any ideas about going back and doing some more multi-year budget business cases — this is one-time funding,” Lewis said.

“I want to get lower tax rates, but not like this,” added Coun. Paul Van Meerbergen.

He echoed financial advice provided years ago by former City Manager Martin Hayward that eventually one-time dollars run out and leave a funding gap in future budgets.

“You can’t use one-time funding, which is what this [surplus] is, to provide an ongoing tax rate reduction,” he warned. “The net result of that is you create a budget bomb.”

 

Temporary external factors that caused the surplus

• The city’s financial investments generated higher than anticipated returns because of high interest rates
• Delays launching the green bin collection program meant operating dollars weren’t needed until mid-January 2024
• Higher than anticipated residential water consumption

Some members of CSC did express an appetite to reduce the $7-million contribution to council’s Community Investment Reserve Fund.

The general-purpose reserve fund for council initiatives had reached a $5 million balance at its peak last year.

“I’m comfortable to split that [contribution] to the community investment reserve fund,” said Coun. Corrine Rahman. “It’s not a huge reduction, but I think it’s something that we could find [in the budget] in future years.”

“We drained that reserve fund to pay for a number of business cases that councillors thought were important to see in the multi-year budget but they didn’t want to impact the tax rate,” Lewis reminded the committee.

Members of CSC voted 5-1, Stevenson opposed, to follow council’s surplus policy.

Afterwards, the mayor said redirecting some of the council reserve fund could be considered at a later date.

“There’s certainly a conversation about how we use the community investment reserve fund,” Morgan told CTV News. “I don’t think today necessarily needs to be the decision on that, because that reserve fund could be used outside of the budget process.”

Council will make a final decision about last year’s budget surplus on April 23.