Municipal financial model ‘not sustainable’: report

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Local Government Minister Glen Savoie won’t say which financial reforms he’s considering to help as many as 29 local governments and rural districts who are at risk of financial shortfalls over the next three years.

But an independent report, released Friday after weeks of questions from media, municipal leaders and opposition MLAs, concludes that the current financial model for local governments is “not sustainable.”

The 36-page report, produced by economic experts Pierre-Marcel Desjardins and André Leclerc, cites the challenges of the current equalization model, the growing need for infrastructure renewal, and the “problematic” reliance on property taxes to cover rising expenses as a result of municipal reform.

Unfortunately, although the report’s conclusions are not surprising, they are nonetheless alarming.

Yvon Godin

Among the solutions, the report notes, the province could implement are sharing its revenue from cannabis sales, the gas tax and traffic fines – all ideas several municipalities and their respective associations have raised over the years.

Savoie wouldn’t commit to any of those ideas Friday, saying he wanted to first consult with municipalities before deciding on the second phase of the province’s municipal finance reforms. Those changes are supposed to be ready for Jan. 1, 2025.

“The whole reason for having this report done was to make it the basis of the conversations that are going to come forward for Finance 2.0,” Savoie said at a virtual press conference.

“Once we get into that and we start to talk with the municipalities about what their challenges are, then we can start to make sure that we’re figuring out solutions that work for everybody or for the people who are having those challenges.”

The report projects between 12 and 29 of the province’s 89 local entities could run a budget deficit from 2024 to 2026. These deficits could range from between $664,000 and $2.8 million based on different expenditure growth projections.

“Unfortunately, although the report’s conclusions are not surprising, they are nonetheless alarming,” said Yvon Godin, president of L’Association Francophone des Municipalités du Nouveau-Brunswick (AFMNB), in a press release.

Municipalities wait for a roadmap

New Brunswick municipalities were expected to discuss the next round of financial reforms at a summit scheduled for Sept. 21, but the event was abruptly called off amid provincial election speculation.

Savoie said his government postponed the summit due to a “misalignment” between the expectations of the different stakeholders. However, he plans to hold the summit in the new year, but on Friday, he wouldn’t commit to a timeline.

Municipal associations are anxious to get to the table, according to Dan Murphy, executive director of the Union of Municipalities of New Brunswick.

“The report lays out one in three municipalities that are going to find themselves in financial difficulty for the next three years, so there’s an urgency to act here,” he said.

“We’re all looking for that roadmap, and we’re all willing and ready to participate in those discussions.”

In a Friday press release, the New Brunswick government indicated that struggling councils “will need to balance their budgets by reducing their expenses, finding other sources of revenue and/or increasing their tax rates.”

Some francophone municipalities are already cutting jobs and increasing their tax rates in an effort to balance their 2024 budgets, Godin noted.

“We’re down to the bone in a lot of places,” Murphy said. “What we need is different revenue tools and increased fiscal capacity in our communities.”

Some financial changes have already been made by the province to support the municipal reform process that saw 340 local entities fold into 89 municipalities and rural districts as of Jan. 1 of this year.

Municipalities are now able to set their non-residential and heavy industry tax rate multipliers as high as 1.7 as opposed to a once fixed 1.5, but the City of Saint John is looking for more flexibility, namely the elimination of that cap on multipliers and the power to create new tax classes.

“That’s certainly all going to be on the table,” Savoie said.

His department will be working with Finance and Treasury Board, as well as Service New Brunswick, on municipal finance reforms. Both the finance department and the Crown corporation have a role in the provincial property tax system.

“They are going to be the ones that will really help guide us in terms of how long this takes or how complex this might be because there may be necessary legislative changes or there may be only required to be tax table changes or regulatory changes.” Savoie said.