Yellowknife city councillors took $2 million from the city’s general fund to help decrease the coming year’s tax increase from a proposed 13.44 percent to 5.56 percent.
After years of comparatively low tax increases, last month city staff said a 13.44-percent tax hike was “a realistic and transparent reflection” of what’s needed to maintain current services and work toward the city’s objectives.
In most years, the tax increase initially requested by city staff is gradually whittled down by council.
By Wednesday night, councillors had succeeded in reducing the coming year’s increase to 11.75 percent by cutting spending in areas like Covid-19 contingency funding, corporate rebranding, and emergency dispatch software.
To further reduce that increase, the only significant option available was a one-time solution proposed by city staff: use some extra money in the city’s general fund.
The city’s budget policy states the general fund should remain between 10 and 15 percent of budgeted expenses. Currently, the balance sits at around 25 percent due to higher revenues and lower-than-expected costs in 2020.
Any money taken from that fund and used to cover expenses next year represents money that does not have to come from Yellowknife’s tax base – its residents. But taking too much from the fund could leave the city financially vulnerable in future years.
Having agreed on the basic principle of using the fund to cut the tax increase, councillors debated whether taking $1.5 million or $2 million would be better.
A majority of councillors voted in favour of the larger figure, with only councillors Niels Konge and Stacie Smith opposed.
Konge proposed the $1.5-million option, saying the accompanying tax increase would better reflect inflation and city spending. He pointed out much of the extra money in the general fund was due to government transfers related to Covid-19, a problem he said is not likely to go away in 2022.
Julian Morse, who supported proposals for both figures, said he backed drawing down $1.5 million this year and spreading out the surplus funding rather than increasing taxes more next year.
“It seems to me like it wouldn’t make a whole lot of sense for us to actually have a lower tax raise this year than next year,” he said. “That just seems to me like we’re kicking a decision down the road or we’re kicking accountability down the road.”
Shauna Morgan said she supported the $2-million figure as the city needs to limit the duration for which it holds on to surplus funding.
“Holding on to this money this means other individual residents and taxpayers can’t save money for the future, too,” she said.
With the balance in the general fund still above 15 percent, Morse said a discussion needs to be had about that budget policy.
“We’re intrinsically making a policy decision as we make this budget decision tonight,” he said.
“I think this is something for future councillors to think about: this philosophy behind how we manage the general fund, and what percentage of the general fund balance we keep in coffers for a rainy day.”
City staff cautioned against taking more than $2 million from the general fund, for example taking enough money to bring the fund down to the 10-to-15-percent mark compared to budgeted expenses. Staff said the municipality needs an extra cushion during the pandemic.
Meanwhile, residents should expect two years of tax increases significantly higher than those in most recent years.
City staff forecast this year’s tax increase could be followed by one of eight percent to 10 percent next year.
For the past decade, residents have either had no tax increase or an increase of around one to two percent annually.
Councillors will approve a final 2022 budget on December 13.