HRM 2020/21 Budget 2.0

Budget 1.0, and the introduction of the virus

We had just about completed the 2020/21 budget.

Budget 1.0 had expenses of about $1 Billion, or about $100 Million each month, and we had revenue to match this. We had a solid budget where there was a 1.4% increase in the average property tax bill, all of our “wants” had been sorted out, and there was no additional debt. We were scheduled to meet on March 24 to pass the budget. The draft capital plan is here; the business unit operating budget reports are CAO (here), Legal (here), HR (here), Finance (here), OAG (here), Transit (here), CCS (here), Libraries (here), TPW (here), Parks (here), Planning (here), Police (here), and Fire (here); the expected assessments are here. As we went through the budget we requested adjustments that went in to the “parking lot” for future consideration. The list of those items in the parking lot is here.

It was a good budget.

Then, on Friday, March 13 the virus became very real for those of us who work at city hall and, by extension, all of us across HRM. Someone who worked at city hall was in close proximity with someone who may have the virus. Through an abundance of caution, we were advised to self isolate. City hall staff was told to head home, and most of them have not been back to city hall since. Although that person had a negative test result, our world had changed. The virus had arrived in Nova Scotia.

We are in the middle of a pandemic and the province is in to a state of emergency. Many businesses have shut down, and as a result many people are either out of work or are working from home. Restaurants, barber shops, dentists, many personal care workers, many office workers, many employed for summer work — are either working from home or have been laid off. Many companies have closed their doors temporarily and some have closed them permanently. Many people have been laid off or furloughed and are struggling with their own personal finances.

So what can we do, and how can we help?

When the virus hit, our priorities changed. The top three immediate challenges were: 1) What operational changes are being made? What is closed and what is open? How will HRM be able to provide service residents? How will we communicate this? 2) City council (and any sub-committee) could no longer meet in person, so how do we meet? 3) What will happen to property tax, both residential and commercial, after businesses close and people get laid off?

It took time to address the first one, and to work with the province to get the necessary clarifications, but after a couple of weeks we got things sorted out.

We also worked out that we were allowed to meet virtually and we worked out the format to meet virtually. We could now discuss the property tax issue and make a decision about it.

Property tax was more difficult.

The provincial and federal governments have recognized the financial challenges that individuals and businesses are having, and they are helping out. Programs have been introduced that will provide a life raft for the short while. Those programs can be found at canada.ca/coronavirus and novascotia.ca/coronavirus respectively.

HRM has also recognized the financial challenges, but we aren’t able to help out in the same way. We have delayed the due date for the current property tax from April 30 until June 1. This delay of a month will give some people the ability to sort through things before they have to pay. We have also reduced the interest for late payments from 15% to 10% and we have eliminated NSF fees. There are also programs available for those who just aren’t able to pay their property tax.

This only gets us so far. We will still need to collect tax, and we will be collecting less than we had planned. We need to head back and look at the budget, this time very carefully.

Preparing for Budget 2.0

Even with the pandemic we still have to operate transit, road repairs, police, fire, waste pickup, and many other services. We are also unable to use debt financing as easily as either the federal or provincial government. They can operate on debt. We have to operate on more of a cash budget — generally speaking, we cannot spend money unless we already have it.

We have to make sure that our revenue matches or exceeds our expenses, and that we can continue to pay our expenses for months to come.

The majority of the revenue for HRM — 82% — is from property tax, both residential and commercial. Many businesses are closed (and some will not re-open), and we know that the commercial tax amount will take a hit. Many people are either out of work or are furloughed, and so we know that the residential taxes collected will take a hit as well. We don’t know what our revenue from property tax will be until Jun 1 for the current bill and Oct 1 for the next bill.

The remainder of the revenue is from fees and other sources. Transit, alone, raises $3M per month. With the onset of the virus, we suspended transit fare collection, parking meter collection, all summer rec programs, and more. We aren’t sure when those are going to restart. As a result, we don’t know what another 5% of our revenue is going to be.

We now have to decide what our expenses are, even though we don’t know what our revenue is.

The first meeting to rework the budget was on May 13. The agenda of that meeting (here) includes a report of the budget impacts (here) and a presentation (here). Over the next few weeks we will be going over that report, especially Attachments C and D. Attachment C lists the capital projects for the 2020/21 budget year, and attachment D lists recommendations to the operating budgets of the various HRM departments. Our job will be to decide on a revised budget.

We will, basically, be revisiting many of the decisions that we had already made.

Attachment C contains recommendations that will save $53M now, and defers a further savings $55M until a later time. Attachment D lists each business unit and identifies $50M in savings.

As council, we need to control costs. We have to go through all of these line items and identify what cuts will be made. Some of these make sense and are easy to accept. Others are very difficult.

My high level priorities

I have looked at the line items in these lists, both the recommendations from staff and the items that are not included in the recommendations. As I was going through these line items, I was weighing them against my own values and priorities. The three priorities in my list, that are more important than the economics, are:

Health and Safety
Food Security
Shelter

If a line item does not fit within one of these three then I look at the economics of it. With the economics, I am assuming that the recovery will take quite some time, that businesses will be closed for a while, that people will be out of work for a while, and that we will not see the property tax or other revenue for a while. If this is prolonged then we may have to tap in to our savings (“reserves”), in the HRM financial model) or make other decisions, but that’s a decision for later on.

When considering all of this, there are three things that I determined that I would not do:

Increase debt
Spend money from reserves
Increase taxes

We may need to increase debt or spend money from reserves later on. I want to make sure that we will have costs controlled and will not have to do that now. We have a forecast for rain, but it’s not time to dip in to our rainy day fund yet.

Cost Benefit Analysis

For every line item, I will be looking at it from the perspective of a cost benefit analysis.

What is the financial and social cost of it?
Does that exceed the financial or social benefit of it?
If it does then consider it for being cut.

In some cases this will cause us to have hard conversations around the council table. In some cases I’ll agree with fellow councillors but disagree with staff, and in other cases it will be the other way around. In some cases I will make decisions that are difficult for my community to accept, and in other cases my community will accept the decisions easily.

Major budget decisions so far

We are making some major decisions that will impact our lives as residents of HRM. I have a specific reason for each of the decisions that I make, although the decision is sometimes difficult. Here I will list the significant decisions and my justification for my vote.

Councillor Mason’s supplementary staff report – voted against the staff report – The requested staff report seeks an outline “that retains funding for all proposed hiring and restores vacancy management to normal levels”, and then describes mechanisms to do that. The essence of this is a layoff freeze, and uses some of our rainy day fund to do that. At this stage I am concerned about keeping essential services running, and making sure that they are able to keep running through the pandemic. I am not interested in putting a layoff freeze ahead of any funds that we need to keep the city operating.
Bi-Weekly Green Cart – voted for bi-weekly green cart pickup – This was a difficult decision that I ultimately agreed with. We have bi-weekly green cart pickup. This decision was to save $1.1M and continue with bi-weekly green cart pickup through the summer instead of having weekly green cart pickup. There were a number of factors in this decision. One of them was that the service was being continued (unlike the next decision about hazardous waste). This still allows residents to get rid of the compost. There are also other options for residents, like backyard composting. Lessening the frequency of this did not provide an unacceptable risk to the health and safety of those in our community.
Hazardous Waste – voted to open the Bayers Lake depot – We will be gathering hazardous waste in our houses through the summer and, by the looks of it, until we sort out what a “new normal” is. We have recently seen some examples of residents dumping garbage, and we have also seen residents dumping hazardous waste. Both of these were because the facility to take them to had been closed. I asked for the hazardous waste facility to be open so that we would have an option to get rid of this hazardous waste. This falls clearly within my priority of health and safety.
Senior Snow Removal Program – vote to keep this program – This program provides extra service for seniors, who have limited income, to have their walk and their oil tank shovelled at the city’s expense. These seniors would not be able to get it shovelled easily on their own, and so would either be housebound or would have a difficult time getting through the snow. Additionally, oil delivery would not happen if their oil tank was not shovelled out. This is a program that I consider to be essential to the health and safety to those who need it, and if these seniors run out of oil and have pipes burst then it also impacts their shelter.
Stump Removal – voted against stump removal – We have recently finished clearing up the stumps that were left in place from the fallen trees due to Hurricane Juan. We have been working on clearing up the same thing from Hurricane ~~Donair~~ Dorian. The top priority clearing has been done — anything that would be a health or safety hazard. This means that the stumps that we would be removing are not a health and safety hazard, and that I could not support 40K for them.
Hand Shovelling – voted to continue hand shovelling – Machinery is used to clear the vast majority of the snow. There are some areas that the machinery can’t do, such as push buttons on traffic lights, some accessible cutaways, and various other areas. HRM pays to have these areas shovelled by hand. Having clear streets and sidewalks falls clearly in to the health and safety criteria that I mentioned above. This was one of the easy decisions.
3 positions to support HalifACT 2050 – voted against the expenditure – As part of the budget adjustments we had increased the budget by 109K to support three additional staff to help develop the HalifACT program (today we were told that it was actually 137K). The Planning & Development department had included these positions in their cuts, and a motion was made to restore these positions. I recognize the importance of HalifACT 2050 and that we need to solve the environmental issue. We are also in an immediate financial crisis and need to look at every expenditure. I was not convinced that the addition of these three positions would cause any change in the HalifACT targets, the planning, the effectiveness, or anything else. Because of this it did not meet the criteria that I have specified above, so didn’t warrant a positive vote.
Streetscaping – voted against the expenditure – This 400K expenditure was for unplanned and opportunistic work to improve streetscapes. There are a few other streetscape projects that are on the books, and this does not affect those. This expenditure was also not related to maintaining a “state of good repair”. This money could be deferred for a year or cancelled amid our budget uncertainties and would have no detrimental effect. It certainly did not fall within the criteria that I specified above of health & safety, food security, or shelter.
Heritage Research Planner – voted against the expenditure – This position was added to this year’s budget as part of the budget adjustment list, and the Planning & Development department determined that it could be part of the reduction for budget 2.0. Without this position the work would have to be done by a contractor and would cost less. I support heritage, but this doesn’t fit within the criteria of shelter that I’ve listed above, and so I could not support the additional expenditure.
Halifax Fire and Police – voted in favour of looking at options – Halifax Fire and Halifax Police both brought forth a plan to reduce their operating budgets by 5.5M. A motion was made, in both cases, for them to come back with their plans to reduce it by 4.5M and by 3.5M. Halifax Fire and Police fall within Health and Safety, and so I supported seeing the new report.
Downtown Dartmouth land purchase – voted against the purchase – We are looking to reduce our spending as much as possible. This land purchase was to help move the Downtown Dartmouth Infrastructure Renewal project forward. That didn’t fit within the Health and Safety, Food Security, or Shelter criteria that I had established, and I was not convinced that it was a required expenditure at this time.
Councillor District Capital funds – voted to reduce our funds – The District Capital funds are those funds used to help community groups or other capital projects. Where some amounts are not used they are carried forward from one year to the next. These funds are requested and expended at the discretion of the councillor, and I was not convinced that the full amount was required.
Corporate Accommodations – voted to reduce the HRM office budget – HRM leases space in Scotia Square and owns Alderney Gate. The reduced budget had a provision that would allow for a move of offices within Duke Tower and it allowed for some renovations to the space at Alderney Gate. While these were time sensitive, neither of these fit my criteria of Health and Safety, Food Security, or Shelter, and I was not convinced that the expenditure was required at this time.
University Ave Fire Station – voted to defer some maintenance – The fire station at the corner of University Ave and Robie Street had fallen into a state of bad repair, and it desperately needed some renovation work. This work was costed, planned, and budgeted. A lot o this work was done, bringing the station into a state of good repair, but the work was not complete. Although I appreciate and support our Fire Services, this work was not required at this time.
NACTO Membership – voted to continue our membership – NACTO is the National Association of City Transportation Officials which is a professional group that we are able to gain a lot of transportation and road works information from. This allows us to make better decisions about our street infrastructure. As such, this does not fall in to the categories of Health and Safety, Food Security, or Shelter, and so I looked at it from an economic standpoint. The cost of membership was $15K(USD) and we gain information that is far more valuable than that. The cost of membership is low enough, and the value of it is high enough, that I was convinced that it was worth the expense.

Conclusion – I need your help

In one day — Friday the 13th of March — this went from the easiest budget that I have ever worked on to the hardest budget that I have ever worked on. The effects of the virus arriving in Nova Scotia will impact us for years, and we have to make some very difficult decisions now.

With this post I have described the budget situation and my rationale for making decisions.

Please get in touch with me at paul.russell@halifax.ca or at 902-240-0442 to let me know if you agree or disagree with my approach. I want to make sure that I am representing our community properly.

Thank you