For your information and general interest, and in keeping with our Council Watch on Taxpayer Dollars, the following letter serves as a followup response to Mr. Gribbin's questions raised in question period at Council Meeting held July 30, 2019.
Good Evening Mr. Gribbin;
I realize this email took longer to send to you than I originally anticipated, my apologies for that. Unfortunately, it has been a very busy couple of weeks.
I will answer each of your questions, and provide a few examples for you to help demonstrate impacts to the tax rate.
Question 1: One of your comments stated that the 2020 STEP and COLA increase was estimated at $498,000.
I note the increase for STEP and COLA for 2019 was $342,000.
So, in total that's $840,000 anticipated increase in two annual increases during this Council's term.
Question: This appears to be extremely high to me as a taxpayer and I am looking for some clarification on this. I am not privy to the total payroll taxpayers are funding but hopefully you can enlighten me on this question.
Answer: Question 1: – Payroll:
Your figures of $342,000 for 2019 step and cola, and $498,000 step and cola for 2020 forecast are correct.
The total payroll in 2019 for both wages and benefits, full-time, part-time, and overtime was budgeted at $15,770,767. A portion of that amount includes step and cola adjustments for 2019, which was $342,000. For those staff that are unionized workers, their increases are structured by the union agreements. For non-union staff, the average COLA increase is 1.5% per year. The step increase is dependent on where each individual is on the wage grid. Once an individual reaches the top step of their grade (step 5), then they only receive COLA adjustments each year thereafter.
In 2019 we added several new staffing positions which added $691,577 to the payroll. This amount is included in the $15,770,767.
The $498,000 step and cola is the estimate for step and cola increases in the 2020 budget before any consideration of the compensation grid adjustment. The total wages and benefits for the 2020 budget, based on a staffing complement the same as the 2019 year, is $16,267,795. The $16,267,795 less the $15,770,767 base wages and benefits from 2019 gives the estimated increase of $497,770 or ~ $498,000.
In 2019 Council approved the implementation cost of the Job Evaluation/Pay Equity Study. The by-law represents the 45% phased-in 2019 grid or approximately $179,208 of adjustment. For 2020, the 2019-phased grid will add another estimated $82,866 to the grid, plus whatever COLA adjustment is made to the grid for that year. For 2021, the impact is estimated to be $99,354, plus the 2021 COLA. The effect of the By-law is to implement the recommended wage increases over the three-year period. This was deemed more reasonable then to implement the large adjustment in one year. The compensation review usually takes place every 3 to 5 years, however, this time it had been about 6 years.
Question 2: In your package you also included a survey questionnaire for Council and one of the questions asks "What is the maximum Town tax rate increase you would support"?
Given that the estimated tax increase stands at 10.83% (notwithstanding you state the final tax rate "will be much different") there is, rightfully, a growing concern of taxpayers that we are in for a large tax increase.
Question: Shouldn't the target maximum Town tax rate be 2.91% or less for 2020, similar to 2019 actual?
Question 2: - Target Town Tax rate %
Under the Municipal Act the municipality is required to identify all expenditures it anticipates making in the current budget year. All revenues, other than taxation are allocated first to cover the required budget expenditure. The budgeted expenditure amount remaining after deducting all other revenues is the amount the municipality must raise through taxation.
In 2019 the amount the Town needed to raise was $23,597,690, and this amount over the tax assessment base resulted in a 2.91% tax rate percentage increase.
Below is a chart that I’ll use to help demonstrate the tax rate % change. Let’s assume the amount we raised last year is $23,600,000. We know that the cola and step increases for the current year are $500,000. This means for the current year we need to raise $24,100,000. The table below shows that if we needed to increase our taxation amount by the step and cola, and the tax assessment based stayed the same as last year (no new tax assessment dollars) then our tax rate percentage increase would be 2.12%.
|Activity||Total Tax Levy Required||Total Assessment Base||Tax Rate|
|Step and COLA adjustment||500,000|
|Change in Tax Rate||0.00011013|
|Change in Tax Rate %||2.12%|
This helps to demonstrate that on average if the only thing the town needs to do is increase a step and cola amount of approximately $500,000 in the taxation dollars to be raised, and the tax assessment base is the same as the year before, we should expect a minimum tax rate increase of 2.12%. I would suggest this as “typical” wage adjustment impact to the tax rate change.
However, it would be very rare that the only adjustment to the budget is step and cola adjustments. There are many expenditures that impact the budget. Some things are one-time in nature, so they drop off one year, and new requirements are added on.
There is also the other side of the tax rate impact and that is the assessment base revenue. As the base increases, it helps to offset the increases in taxation, and hence helps keep the tax rate increase down. For example, a 4% increase in the tax assessment base would result in a negative tax rate change of -1.81% in the example above.
The forecast that showed the 10.83% increase reflects some of the planned capital projects in the “outlook” years that might impact the taxation amount required to be raised. Some of the larger projects need more discussion and planning to “smooth” the tax rate impact over the outlook years. Staff and Council work at this together through several draft iterations of the budget until all the right priorities and dollar impacts are acceptable. With the new Council just coming in during the budget process last year, and still establishing their priorities in the early part of 2019, it wasn’t possible for them to have time to deliberate the options and decide what budget items move forward and what will not for the outlook years, however, it was noted at that time that during the 2020 budget process this matter will need to be addressed.
That is where we are now, coming into the 2020 budget process knowing we have some significant expenditure requirements, and knowing we have some options about how to finance those requirements. Council is extremely sensitive and concerned with achieving a well-balanced reasonable budget that meets the Town’s service needs and is affordable for taxpayers.
If you look at the next example where we need not only step and cola, but other amounts too, let’s use $2,450,000 more in taxation, then the tax rate increase is 10.38% in this example.
|Activity||Total Tax Levy Required||Total Assessment Base||Tax Rate|
|Change in Tax Rate||0.00053965|
|Change in Tax Rate %||10.38%|
Question 3: An additional question comes to mind while I am writing this note to you.
If each percentage increase equals $229,000, presumably that also means each percentage decrease yields a similar amount?
Question: To get from 10.83% tax increase to to 2.91% tax increase for 2020 does that mean $1,832,000 needs to come out of the 2020 budget spend (rounding to 8% decrease, 8 x $229,000)?
Question 3: - To get from 10.83% tax increase to 2.91% tax increase for 2020…
The answer is almost yes, approximately $1,832,000, or $1,945,000 to be precise based on the tax base assessment amount of $4,539,019,522, would need to be reduced from the taxation requirement in order to bring down the tax rate percentage increase to 2.91%.
However, you can reduce the taxation requirement by funding expenditures through means other than taxation. For example, rather than paying for a brand new heavy duty vehicle that costs $500,000 as 50% from replacement reserves and 50% taxation (which is our standard policy), you can debenture (or take out a loan) of $500,000 over a 5 year period. This would reduce the impact on the taxation requirement significantly, and spread the cost of the vehicle over a its lifecycle. This approach also incorporates current Asset Management strategies that let the benefitting users over the period of use pay for the vehicle, rather than charging 50% of the cost to one taxation amount in one year.
I hope this amount of detail is helpful for you in understanding the budget process and the tax rate impact. It is a complicated subject, and I think it is terrific that you have inquired about the questions you had.
Jocelyn Lee, CPA, CMA
Director of Finance and Treasurer
Town of Wasaga Beach
30 Lewis Street
Wasaga Beach, On
(705) 429-3844 ext 2244
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