TOWNSHIP OF ESQUIMALT STAFF REPORT
MEETING DATE: March 11, 2024 Report No. FIN-24-006
TO: Committee of the Whole
FROM: Ian Irvine, Director of Financial Services
SUBJECT: 2024 Financial Plan Policies and Objectives
RECOMMENDATION:
Recommendation
That the Committee of the Whole consider options in the attached policy document and as outlined in Staff Report No. FIN-24-006 and recommend that Council direct staff to include the Committee’s identified changes in an updated Revenue, Tax, and Financial Sustainability Policy document and a separate Reserve Fund Policy for Council’s approval.
Body
EXECUTIVE SUMMARY:
The purpose of this report is to advise the Committee regarding financial and tax policies and determine whether any changes are required to the existing document and format.
BACKGROUND:
The Community Charter Section 165 states that the Financial Plan must set out the policies and objectives of the municipality for the planning period. Specifically, the documentation must discuss sources of funding, property tax distribution and permissive exemptions. The Township’s 2023 Revenue, Tax, Budget and Financial Sustainability Policies and Objectives discusses these and other areas such as growth and revitalization strategies, fees and charges, and financial sustainability.
The policies and objectives in this document are those of Council and will provide staff with direction regarding the financial plan execution. During recent years, Council has made very few changes to the document. However, it is important for review to occur annually to ensure Council’s desired approach in each area is accurately reflected.
ANALYSIS:
While there are content requirements, there is no prescribed format for the financial plan policies and objectives documentation. The Township has historically consolidated all information within a single document but the potential exists to create one or more additional documents focused specifically on certain topic areas such as reserve funds, financial sustainability, debt, and taxation revenue. While having all information in a single document can be considered convenient, it can also be cumbersome and specific information about a specific topic or policy can be difficult to reference. Regardless of whether the policies and objectives are compiled in one or several documents, Council will have an opportunity for review and approve all relevant policies as part of the annual budget process.
While the desired format needs to be determined, there are also certain policy decisions that need to be clarified prior to inclusion in the final document. While any of the currently documented policies and objectives can be amended by Council prior to financial plan bylaw adoption, there are topic areas and policies that have been raised recently during Council discussions and budget presentations. These include the business and residential tax burden, treatment of non-market change revenue and annual capital reserve fund contributions.
Business to Residential Ratio
In 2020, Council approved a policy stating its intent of adjusting tax rates to gradually work towards a 2.50:1 business to residential tax ratio. While policy decisions can be made that will impact the ratio, the actual relationship between Class 1 and Class 6 tax rates also relies on assessment values and how tax rates are determined. If Council does wish to shift the tax burden from business to other property classes, including residential, there are options available.
There is no one correct way of tax rate setting as it is a matter of policy and choice. In past years, Council has occasionally reduced Class 6 business rates at the expense of other property classes. While this served to reduce the ratio in the current year, the ratio increased in the following year due to changing assessment values. Having a longer term impact on the ratio would require a commitment to either adjust Class 6 rates each year, phase in rate reductions over a longer time period or dedicate other revenue sources, such as non-market change, to reduce the impact of any Class 6 rate adjustments.
Non Market Change
Currently, BC Assessment provides each municipality with information regarding values not previously included in the assessment roll. These new values are considered non-market change (NMC) and generate an additional revenue source for the Township. While each municipality receives information about their NMC, there is no uniformity regarding this revenue is treated.
Similar to the Township, there are municipalities which apply NMC to the total tax requirement and effectively keep the tax rates at lower levels. However, other municipalities choose to utilize this revenue for operational or capital purposes either through directly funding supplemental operating requests or a transfer to a capital reserve fund. Another potential option is to apply NMC to specifically reduce the Class 6 tax burden at the expense of the other property classes.
Infrastructure Contributions
Council has, as part of the financial plan, approved an annual contribution to the Infrastructure Reserve Fund based on the previous year’s tax revenue increase. During an update on the Township’s long term infrastructure, Council directed to increase the reserve fund contribution each year to reflect a minimum 1% cumulative increase to help address overdue infrastructure replacement and future capital requirements, similar to other regional municipalities. Currently, a 1% ($320,000) contribution is included in the financial plan, but a formal policy change would provide staff with clear direction when drafting the financial plan each year.
Separate Reserve Fund Policy
The creation of a separate Reserve Fund Policy would provide guidance with respect to the development, maintenance, and use of the Township’s Reserve Funds. This document could include a summary of each reserve, its intended purpose as well as how funds are contributed and removed. As information on reserve funds are not specifically required as part of the financial plan, this policy document could be standalone as a reference to departments and Council regarding the various funds in place.
OPTIONS:
1. That the Committee of the Whole consider options in the attached policy document and as outlined in Staff Report No. FIN-24-006 and recommend that Council direct staff to include the Committee’s identified changes in an updated Revenue, Tax, and Financial Sustainability Policy document and a separate Reserve Fund Policy for Council’s approval.
2. That the Committee recommends that staff prepare, for approval, a single document with Council’s desired policies and objectives.
3. That the Committee request additional information from staff for presentation at a future Council meeting.
COUNCIL PRIORITY:
Good Governance and Organizational Excellence
FINANCIAL IMPACT:
There are no financial implications associated with the decisions required in this report.
COMMUNICATIONS/ENGAGEMENT:
Based on the discussion and Committee recommendations, a draft Policies and Objectives document will be created for review by Council. The document, once approved, will be attached to the Financial Plan Bylaw. This documentation will be attached to the Council agenda on April 8 as well as the April 22 meeting when the bylaws are brought forward for first, second, and third readings.
TIMELINES & NEXT STEPS:
The 2024-2028 Financial Plan Bylaw must be adopted prior to May 15 each year. Based on direction from the Committee, an updated Policies and Objectives document will be prepared and presented to Council at its April 8 meeting when tax rates are scheduled to be discussed.
REPORT REVIEWED BY:
1. Deb Hopkins, Director of Corporate Services, Reviewed
2. Dan Horan, Chief Administrative Officer, Concurrence
LIST OF ATTACHMENTS:
1. 2023 Revenue, Tax, Budget and Financial Sustainability Policies and Objectives