Craig's Current - 2024 Budget Edition

Hello, Residents of Ward 12, 

This month’s newsletter is focused on the 2024 Operating and Capital budget that Council passed on February 15, 2024. It’s a long, detailed read, but for those who would like to read a shorter version, I’ve broken it into five sections that go into progressively greater detail. I hope you find this format helpful. The five sections are as follows: 

Section 1 – Overview 

Section 2 – Summary of the 2024 Property Tax Increase 

Section 3 - Why did the Proposed Property Tax Increase Start at 14.2%? 

Section 4 - How Did the 14.2% Proposal Get Reduced by 8.41% to 5.79%? 

Section 5 – The Cost of Artificially Low Property Taxes From Years Gone By 

Right off the top, let's address the big question on many minds: is spending on new priorities driving the budget increase? The simple answer is, no, it is not. The fact is that the financial realities facing municipalities have changed drastically, and these are the factors driving property tax increases. And Hamilton is not alone. 

A summary of the new financial realities Hamilton must deal with through the 2024 budget: 

1. Inflation. The pressures come from employee costs and the even greater inflation experienced for capital costs. Significant inflation has increased costs but does not provide revenue tools to offset costs like other levels of government have available to them (e.g., sales taxes) 

2. Development charge (DC) exemptions legislated by the Province (Bill 23) 

3. Underfunded discretionary DC exemptions. A result of decisions made by previous terms of Council to minimize property tax increases for many terms. We are now paying for those decisions. 

4. Underfunded capital investment. Also, a result of decisions made by previous terms of Council to minimize property tax increases in years past. We are now paying for those decisions. 

5. The housing and homelessness crisis and a declining portion of funding from the Province while the crisis grows. 

You can watch a more thorough answer about these financial realities from General Manager Mike Zegarac during the General Issues Committee  - September 20, 2023 

Through the remainder of this report, I'll walk you through several aspects of the budget so you can get a good understanding of the 2024 budget and why I supported it. 

Why are property taxes going up by an average of 5.79% for 2024? Here's the high-level breakdown: 

1.64% (28% of total): The portion attributable to municipal costs (i.e., the cost of running the City) and the best comparator to increases in previous years. See the following sections to read how this low number was achieved despite the challenges highlighted above, and why the same strategy is not a sustainable solution. 

2.55% (44% of total): Provincial downloading due to Bill 23. The Province legislated that developers receive exemptions for development charges (DCs). Exemptions to developers mean that property taxpayers must foot the bill.  

1.6% (28% of total): A necessary investment in the housing and homelessness crisis, which is a provincial responsibility, but there are insufficient provincial funds to deal with the growing crisis. 

Further details on the 5.79% increase 

The City’s portion of 1.64% represents just 28% of the increase on your property tax bill. Here is a further explanation of what the remaining 72% is paying for: 

An increase of 2.55% (44% of the total increase) is attributable to Bill 23 (provincial legislation) which downloads costs for growth onto property taxpayers. Since the 1950s, Ontario has had provincial legislation that requires 'growth to pay for growth'. If a developer builds a new subdivision, then that subdivision must pay its fair share for all the services it will need (roads, drinking water, sewers, emergency services, recreation centres, parks and so on. These are called development charges (DCs) and, via Bill 23, the Province has shifted a significant portion of this cost from developers to municipalities. Cities are legislatively obligated to pass on these costs to property taxpayers. 

Some developers have called Hamilton's DCs 'ridiculous' and will complain that the City is overcharging developers and driving up home prices. However, DCs are meticulously calculated through very detailed studies which are constrained by very specific provincial rules. Cities are not inappropriately collecting money from developers. As noted above, DCs pay for new and upgraded infrastructure that a city requires as its population grows. If DCs did not exist, property taxes would be significantly higher, and/or all of the services you expect from the City would be offered at a much lower standard. 

An increase of 1.6% (28% of the total increase) is a necessary investment in the housing and homelessness crisis which is growing worse while provincial funding for it is shrinking. Property taxpayers should not be burdened with these costs since housing is a provincial responsibility, but this is the position we are in. Without this spending in 2024, the homelessness situation in our city will get worse and will be even more expensive to fix. 

We've done a lot of work to reduce the initial staff-proposed increase of 14.2% - reduced it by nearly 60%, in fact, - but why did the initial staff report in Fall 2023 start so high?  

If you've been reading the news, you'd know that this number was not unusual compared to other Ontario municipalities in 2024. The financial reality facing municipalities has changed dramatically through 2023 and into 2024, and Hamilton is dealing with many costs that it did not previously have to contend with. To reiterate the high-level drivers of the increase mentioned in the introduction, they are: 

1. Inflation (wages, collective bargaining obligations, contracted services, construction costs, etc.) 

2. Provincially mandated development charge (DCs) exemptions  

3. Historical underfunding of discretionary DCs exemptions (controlled by the City of Hamilton) 

4. Historical underinvestment in Hamilton's infrastructure (roads, water treatment, buildings, etc.) 

5. The Housing and Homelessness Crisis amidst a decrease in provincial funding while the costs continue to increase. 

What was the breakdown of the proposed 14.2% increase? 

5.4% - Provincial requirements and downloading of provincial costs to Hamilton (nearly 40% of the increase). 

4.0% - Employee costs: obligations in collective bargaining agreements, cost of living increases, and benefit obligations. 

3.1% - Housing and homelessness crisis. Again, housing is a provincial responsibility and not only has provincial funding not kept up with historical levels, but it is also decreasing as the crisis worsens. 

1.1% - Implementing the provincially legislated Asset Management Plan and the first step in a 10-year plan to address severe historical under-funding in our City's assets (roads, water, etc.) 

0.9% - Historical under-funding of discretionary development charge exemptions 

0.5% - Investment in emergency services to keep up with population growth 

This adds up to more than 14.2%, but positive impacts resulting from the growth in our tax assessment base from new buildings and other accounting details reduced the number to 14.2% 

You can read more details on these items in the January 2024 edition of Craig's Current 

Council and staff took bold steps to limit the overall impact on property taxpayers, despite the large portion that is out of our control. Those steps included:  

1. The Mayor issued a directive for staff to find efficiencies and funding strategies to significantly reduce the burden on property taxpayers. Staff leveraged financial reserves and developed a multi-year strategy (see below).  They also found significant operating efficiencies and savings worth $15.8M, contributing roughly 1.3% to the decrease. The output of this work was a reduction in the increase to 7.8% (6.4% lower, or a 45% reduction) 

2. Council decided against setting aside funds to support significant renovations in each of the local hospital networks. The staff proposal was a 1% property tax hike and although there was unanimous support for the great work our hospitals do for our community, the majority did not support a 2024 municipal investment in healthcare which is a provincial responsibility. This decision reduced the proposed increase to 6.8% 

3. Several Councillors, including me, were very sensitive to the cost-of-living pressures felt by many across our City and worked with staff to find other savings to further reduce the tax increase. On February 15, four additional motions reducing the increase by an additional ~1.1% were presented and carried, bringing the average increase down to 5.79%. 

Reserve Strategy - $216 million Removed from the Property Tax Levy from 2024 to 2027 

As noted above, the use of reserves was a key factor in reducing the property tax increase. Reserves exist to fund known future expenditures and/or to have funds available for emergencies or surprises. Staff examined existing financial reserves and determined which ones could be used to reduce the immediate burden on residential taxpayers without creating financial risk. They recommended winding down reserves that no longer had a specific planned use meaning the recommended plan was prudent and low risk. 

The following is a summary of the multi-year plan showing where reserves are being applied to offset City spending.  

Housing Sustainability and Investment Roadmap (HSIR) - $72.3 million 

These funds enable the delivery of Supportive Housing, the Family Shelter System, and emergency overflow capabilities (due to inadequate shelter space) to temporarily house families in hotels (2024 - 2026). It also funds the City's Encampment Protocol approved in 2023 for the next three years, and what is called an 'End of Mortgage Strategy' (2024 - 2027). That strategy keeps Hamiltonians housed when buildings reach the end of their affordable housing agreements (often 25 years).  The City supplements rent payments relieving the existing tenant from the full pressure of unaffordable market rent thus reducing the risk of displaced families and a worsening homelessness crisis. 

Property Tax Affordability Strategy $66.1 million 

Reserve funds are being used to offset rising employee costs over the next three years; offset a shortfall in transit revenue; fund the planned service expansion in the 10-year transit strategy; compensate for a shortfall in provincial funding agreements (2024 - 2025;) and fund the City's winter control program (plowing, etc.) for 2024-2026. 

 Extraordinary Capital Inflation $42.7 million (2024-2026) 

As referenced above, the inflation experienced with capital projects has been even more significant than what consumers have experienced. Reserves are being used to offset the increased costs of capital project implementation over the next three years. 

Development Charge (DC) Exemption Phase-in $35.4 million (2024-2026)  

As covered previously, Bill 23 legislatively transfers costs from developers to the City, and ultimately, residential property taxpayers. Reserves are being used to temporarily soften that impact. 

All of this work by City Staff reduced the 2024 residential property tax increase by 6.4%. A visual of the impact of the 4-year strategy is shown below. The use of reserves now has a strong, positive impact in 2024 and 2025, but as the use of reserves lessens in 2026 and 2027, there will be an impact. However, it will be delayed and much less than without the actions taken through the 2024 budget process.

Recent terms of Council have kept tax increases low – and created an expectation for that to continue indefinitely – by repeatedly avoiding tough decisions and kicking costs down the road.  

Our City has accumulated a funding gap on the upkeep of our infrastructure amounting to over $3 billion and, for our core assets (roads and water infrastructure), that funding gap grows by $195 million each year (see ‘Asset Management Plan’ - Table 1). As our Asset Management team continues analyzing our non-core assets (eg. libraries, Fire, Paramedics, etc), this number will increase. You can watch more on this topic here: General Issues Committee (Budget) - January 26, 2024 

What’s the impact of such a large funding gap? It means that the City cannot keep up with the maintenance required to achieve the service level standards set by the City and expected by its residents. Our Transportation assets (roads and bridges) are the most visible example. I am certain that you have traveled on a road that is in desperate need of reconstruction or resurfacing. Work needs to be done, but there are very limited funds to do so because funding has been grossly insufficient for a very long time. Roads like this exist throughout the City. Some will be funded each year, but many are not and remain in poor condition. So, yes, taxes have been kept low, but that meant we were neglecting our infrastructure and we are now paying the price.  

The same thing is happening with the core assets we don’t see like our water, wastewater, and stormwater infrastructure, and also with non-core assets like recreation centres, libraries, parks, playgrounds, etc. There is far more maintenance required than we can pay for, and we can no longer ignore it. 2024 is year one of a ten-year plan to close the annual deficit on our Transportation assets (there is a separate budget for water, wastewater, and stormwater that was approved in November 2023 and contains a similar catch-up investment strategy). Each year, a 0.89% tax levy increase will help us gradually close the gap. A similar 0.5% increase for non-core assets is planned to begin in 2026.  

The table below summarizes the planned asset management impacts, the impacts of the aforementioned DC exemptions, and the impacts of servicing requirements for new debt required due to escalating capital costs.  

In summary, yes, property tax increases no longer meet the expectation of ‘being in line with inflation’ as many have defined as acceptable. The years of limiting increases to 1.5%, 2%, or even 3% have been costly. Not immediately to the taxpayers of the day, but to all of us now. As your Councillor, I have committed to responsible spending and ensuring that the money we spend is a good investment. We cannot avoid dealing with downloaded costs from the Province, but we can control investment in our City and we can no longer ignore our crumbling infrastructure and the funding it desperately needs. The 2024 budget is a responsible step towards a better Hamilton.  

Thank you for reading this special budget edition newsletter and please share it with Ward 12 neighbours and friends. If you have questions feel free to reach out to us at [email protected] and subscribe to the Ward 12 newsletter at CraigCassar.ca. Follow me on Facebook, Instagram, and Twitter.