TOWNSHIP OF ESQUIMALT STAFF REPORT
MEETING DATE: February 9, 2026 Report No. ADM-26-008
TO: Committee of the Whole
FROM: Dan Horan, Chief Administrative Officer
SUBJECT: 2026-2030 Financial Plan Options and Way Ahead
RECOMMENDATION:
Recommendation
That the Committee of the Whole recommend to Council:
o That the proposed increase of 13% for the 2026 budget be supported;
o That staff be directed to prepare a project backgrounder/impact assessment to initiate the 3rd party benchmarking analysis for revenue;
o That staff be directed to prepare a project backgrounder/impact assessment to initiate the 3rd party benchmarking analysis for operating budget/service delivery;
o That staff be directed to brief Council on staff’s potential initiatives on efficiency/effectiveness prior to development of Council’s 2026-2030 strategic plan; and
o That staff be directed to prepare any further budget related information needed for Council’s 2026-2030 Financial Plan deliberations.
Body
EXECUTIVE SUMMARY:
At the January 12 meeting Council, staff were directed to develop information about what 7% and 9% tax rate increases (down from the proposed 13%) for the 2026-2030 Financial Plan would look like. This report provides that information for Council deliberation.
Staff have modelled the options and assessed the risks and impacts. A path to achieving between 7% to 7.5% is described, but this approach would require reductions to necessary supplemental budget requests and to core operating budgets.
Staff assess that the cumulative effect of the reductions needed to reach 7% to 7.5% would carry significant risks to service delivery and organizational capacity. Staff have laid out what those reductions would look like and the associated trade-offs.
The report also recognizes Council’s feedback about the challenges of budget analysis in Esquimalt and seeks direction about any further staff work that Council requires for this year’s budget deliberations. Staff also make recommendations about potential work that might inform more in-depth financial plan analysis for future years.
BACKGROUND:
Most of the Township’s cost pressures are structural. This means the cost pressures come from what is needed to deliver existing services and meet legal and safety obligations, rather than the result of discretionary or optional spending. This can make the budgeting process in Esquimalt challenging. While percentage increases in taxes in any given year get the most attention in the public discourse, that figure alone cannot be used as the measure of success of a budget or a five-year financial plan. This is well understood by staff and Council but the challenge remains about how to communicate this more broadly and more effectively. Financial plans should be measured as best as possible against the likelihood that the budget will deliver on Council’s priorities and desires for service delivery. The challenge is both meeting expectations in the short-term and in the long-term while also clearly communicating the options, trade-offs, risks and finally impacts of decisions.
In Esquimalt, many of the community’s expectations are captured in the Council Priorities Plan. The central budget question then is not whether a particular tax increase is higher or lower than in prior years, but whether the proposed financial plan allows Council and staff to consistently deliver the services and outcomes Council has directed, at the levels of service the community expects. This is no easy task. Where budgets do not align with those expectations, the result is deferred work, gradually reduced ability to deliver expected services, and increased organizational risk.
At the beginning of the 2025 budget cycle, the CAO provided Council with a brief strategic snapshot confirming the pressures that exist because of the gap between the community’s expectations for service delivery and the organization’s capacity and resources. That gap existed at the beginning of this term of Council but continues to exist because of several factors: significant increases in workload and complexity arising from provincial housing legislation (i.e. Bill 44) and other community development work; the adoption and growth of an ambitious Council Priorities Plan; and the addition of new projects and initiatives during Council’s mid-term refresh. Collectively, these factors signalled a sustained increase in demand on the organization. These realities are well understood by Council and staff, but they remain central to understanding the tension and challenge that exists as Council assesses staff’s recommendations for the five-year financial plan.
In early 2025, staff presented a budget that reflected the articulated needs and pressures coming from the Council Priorities Plan and community expectations about service delivery. The proposed budget included a tax rate increase of 14.04%. Council determined that this increase was not feasible and directed staff to defer approximately $1.57 million in operational and staffing-related costs, resulting in an approved increase of 9.9%. Most of those reductions were achieved through deferrals rather than permanent eliminations, meaning the underlying cost pressures were not resolved but were instead pushed forward. Consequently, the 2025-2029 Financial Plan adopted in May 2025 included a projected tax rate increase of 12.7% for 2026. This figure has now been updated to 13% as staff’s understanding of the operational needs for 2026 was refined. This figure represents the cost of sustaining existing service levels and continuing delivery of the Council Priorities Plan, while addressing previously deferred items and known, unavoidable cost drivers.
The baseline financial pressures outlined above are consistent with the CAO’s previously reported assessment of the organization’s capacity and capability. His February 27, 2023 memorandum to Council (in support of a strategic planning workshop) remains the best baseline for understanding the Township’s capacity and capability:
“The CAO’s assessment of the organization during his transition into the role (beginning in early October 2022) is that the organization is poised to deliver results on a number of recently completed high-level plans and strategies. However, due to the municipality’s limited capacity and resources, focused guidance from Council on priorities will be essential for staff to concentrate action and resources on the right key issues that would deliver results that meet Council’s needs and expectations.”
Further, his May 2025 update remains relevant to the current analysis:
The Council Priorities Plan and the process that supports the plan represents the focused guidance mentioned above and continues to be the key tool for staff to deliver on Council’s expectations. The current state of the organization means staff have limited capacity to take on internal process improvements. Over the past two years, the development of critical future-state documents like workforce plans, capital plans, [infrastructure] master plans, and long-term financial plans pushed the organization to the edge of its capacity. With relatively small teams across the organization, the temporary loss of one or two staff members in key departments significantly impacted the team’s ability to maintain service levels, advance the Council Priorities Plan, and pursue internal initiatives aimed at improving efficiency and effectiveness. Despite [now] being nearly at full strength, the organization remains stretched.”
(See item 4.1: CAO 2025 First Period Report, Special Committee of the Whole, May 26, 2025)
During Council’s deliberations on the 9.9% tax rate increase for 2025, Council recognized that there would be risks and trade-offs affecting service levels and organizational capacity. Staff were directed to provide a more detailed analysis to ensure the implications were fully captured.
In response, staff undertook a focused program of work to try and capture the effects of the deferrals on service delivery, departmental capacity, and the Council Priorities Plan. Between July and October 2025, Council received briefings that included a broad discussion of levels of service and department-specific updates covering Parks and Recreation, Fire and Rescue Services, Development Services, Human Resources and Community Relations, Engineering and Public Works, and Corporate Services. An update of the Long-Term Capital Program was also planned for fall 2025 but was rescheduled to February 2026 to incorporate important work that was not yet finished.
These levels of service analyses helped clarify the risks, trade-offs, and constraints associated with maintaining service levels after the 9.9% increase in 2025. It also established a solid foundation for understanding the Township’s current operational capacity, financial flexibility, and ability to absorb additional reductions. The scenarios and insights presented in this report are informed directly by that work and reflect the current state of the organization.
Council’s first discussion of the 2026 budget occurred on January 12, 2026. After receiving the briefing from staff and completion of the question and answer session, Council passed the following resolution:
“That Council direct staff to develop additional budget scenarios for tax rate increases of 7% and 9% for the 2026-2030 Financial Plan.”
This direction from Council provides staff the opportunity to bring forward more in-depth information about how the budget is put together and how it supports service delivery and the Council Priorities Plan. The analysis below addresses Council’s request for further information about budget and provides recommendations about the way ahead.
ANALYSIS:
In response to Council’s direction, staff have provided a potential path to reduce the tax rate increase from the recommended 13% to a level that almost meets Council’s first target of 7%. The presentation at attachment 1 summarizes the changes that would be needed to meet this target. Many of this year’s supplemental budget requests would need to be deferred, and several important reductions in the already approved core operating budget would be necessary. A summary sheet explaining the details of each supplemental item that would need to be removed is included at attachment 2. A summary of the required operating budget reductions, including a description of each item, why they are considered important and the risks of not funding them has been prepared. This information is included at attachment 3.
An unusual consequence of a 7% target (in 2026) is that Council oversight of potential reductions to core operating budgets would be necessary. In each year of this term of Council, meeting the desired budget target was achieved by reducing or deferring supplemental budget requests. Staff note that since 2012, Council has always been able to achieve their target tax rate increase by eliminating or deferring supplemental budget requests. Staff have regularly been required to find efficiencies or make changes within their operating budgets, but Council has not been required to evaluate these operational changes. Part of the reason why this is the case is that Esquimalt has been able to bring down proposed tax rate increases by relying on increased revenue from community development (non-market change) and the Federal government’s development-related increases in the payments-in-lieu of taxes. These revenue sources are no longer enough to offset the increases in the operating budget. Staff believe this is the first time since 2012 that a Council review of parts of the core operating budget is necessary to achieve a short-term tax rate target.
With the elimination of several supplemental budget requests and the application of specific core operating reductions, a target of 7.55% could be achieved. Further operating reductions of approximately $200,000 would be needed to achieve the 7% target. Achieving the 7.55% or 7% target would require numerous reductions across the organization; some of these reductions would carry manageable risk if considered on their own. Together, however, the cumulative effect of the reductions would result in significant service and operational impacts. Therefore, staff cannot recommend the reductions needed to achieve a 7% target.
At this stage, the core operating budget has little remaining flexibility. Staff consider that the organization is operating efficiently relative to peer municipalities, delivering strong outcomes and maintaining a solid customer service reputation with comparatively lean resources. Further operating fund reductions could not be absorbed without significantly affecting sustainable service delivery.
Should Council wish to seek further ways to reduce spending, the next step would be to examine, from a strategic perspective, whether services could or should be eliminated, or whether expectations for service delivery could be significantly reduced. There are few further savings to be achieved through small or incremental reductions in the operating budget. To achieve further savings, a major reduction in services would be needed; such a change is considered by staff to be strategic in nature because decisions of this nature normally require public engagement and enough time and space to facilitate Council decision-making.
Recommended Options and Way Ahead
Staff consistently report that Esquimalt delivers strong outcomes with a comparatively lean operating budget, and that the Township’s efficiency and effectiveness would compare favourably with other municipalities across the province. This assessment generally aligns with Council’s SWOT (Strengths-Weaknesses-Opportunities-Threats) analysis completed during strategic planning in late 2022 and early 2023. However, given the operational and fiscal pressures facing the organization and the importance of grounding future decisions in evidence, it would be timely to formally test the assertions about efficiency and effectiveness with a benchmarking analysis. The scope and level of effort for such work could range from an exhaustive study to a narrower and more nimble analysis. Staff consider the latter to be the best initial approach. While staff have the capability to undertake this work, engaging an independent third party would provide greater objectivity and confidence in the results. This work could inform future discussions about service levels, but it cannot be initiated and completed in advance of the statutory deadline for adoption of the 2026-2030 Financial Plan on May 15, 2026.
A key part of the assessment of whether a municipality is effective is by understanding how residents feel about the quality and quantity of service delivery. Staff are preparing a statistically meaningful survey of residents about service delivery and customer service expectations. Unfortunately, this work will not likely be completed before the statutory deadline for adoption of the financial plan.
Staff have begun working on a program of internal initiatives that could improve the Township’s operational efficiency and effectiveness over the medium to long term, particularly in areas where staff have observed that comparable municipalities have modernized their systems, processes and management practices more fully. These initiatives include electronic records management, payroll and financial system modernization, work order management, electronic ticketing, bylaw enforcement systems and more. Many of these initiatives are foundational to the Township’s future performance and would require sustained effort, dedicated resources, and Council endorsement. Staff intend to provide an initial briefing to Council on this work by summer 2026, with a more comprehensive discussion to follow as part of Council’s 2026-2030 strategic work.
Members of Council have consistently expressed concerns about whether the Township’s revenue expectations are set at appropriate levels. Though revenues at the operational level are regularly assessed and reviewed by Council through updates to the appropriate bylaws (i.e. Recreation, Engineering and Development Services), a broad benchmarking analysis has not been done to fully inform Council’s decision-making in this area. This analysis and benchmarking work would best be done by a consultant. This work would not be completed before the deadline for adoption of the financial plan.
Members of Council have expressed concerns in budget discussions about the quality and completeness of the budget information prepared by staff. Staff acknowledge that getting a full picture of the financial situation requires significant effort and analysis, including but not limited to the following steps:
o Reviewing financial statements including in the annual reports each year in June
o Reviewing the annual results of the auditor’s report, presented to Council each year in the spring
o Reviewing the materials prepared and presented by staff at budget time (Initial budget presentation, Workforce Plans, Capital Program Update, etc.)
o Reviewing the Budget Book (first created in June 2025)
Staff have worked to ensure all key budget information is now publicly available. If Council identifies additional information needs for this year's deliberations or for future planning cycles, staff are ready to respond.
OPTIONS:
The following options are provided for Council consideration:
• Option 1 (recommended):
o Support the proposed increase of 13%;
o Direct staff to prepare a project backgrounder/impact assessment to initiate the 3rd party benchmarking analysis for revenue;
o Direct staff to prepare a project backgrounder/impact assessment to initiate the 3rd party benchmarking analysis for operating budget/service delivery;
o Direct staff to brief Council on staff’s potential initiatives on efficiency/effectiveness prior to development of Council’s 2026-2030 strategic plan; and
o Direct staff to prepare any further budget related information needed for Council’s 2026-2030 Financial Plan deliberations
• Option 2:
o That the Committee of the Whole recommend to Council that a target for the 2026 tax rate increase be set and that staff be directed to capture the risks and impacts of this target for Council deliberation and discussion no later than early March 2026;
o Direct staff to prepare a project backgrounder/impact assessment to initiate the 3rd party benchmarking analysis for revenue;
o Direct staff to prepare a project backgrounder/impact assessment to initiate the 3rd party benchmarking analysis for operating budget/service delivery;
o Direct staff to brief Council on staff’s potential initiatives on efficiency/effectiveness prior to development of Council’s 2026-2030 strategic plan; and
o Direct staff be to prepare any further budget related information required for Council review.
• Option 3:
o There are several options and ways ahead that involve some but not all the recommendations outlined in the previous options.
COUNCIL PRIORITY:
This report addresses Council’s core strategic outcomes as articulated in the Council Priorities Plan.
FINANCIAL IMPACT:
The main focus of this report is to seek Council direction on the 2026-2030 Financial Plan and prepare budget documentation for review and approval.
COMMUNICATIONS/ENGAGEMENT:
Any changes made to the proposed budget would be captured in the 2026 Budget Book and republished to the Township website.
TIMELINES & NEXT STEPS:
The month of February and early March are generally available for Council discussion and deliberation about the 2026-2030 Financial Plan. Generally, specific direction to staff about Council’s desired budget are normally required by mid-March so that the appropriate financial plan and tax rates bylaws can be produced and adopted before the May 15, 2026 statutory deadline.
REPORT REVIEWED BY:
1. Ian Irvine, Director of Finance and IT, Reviewed
2. Steve Knoke, Director of Parks and Recreation, Reviewed
3. Matt Furlot, Fire Chief, Reviewed
4. Bill Brown, Director of Development Services, Reviewed
5. Joel Clary, Director of Engineering and Public Works, Reviewed
6. Mark Jeckway, Senior Manager of Human Resources, Reviewed
7. Judy Kitts, Director of Strategic Initiatives, Reviewed
8. Deb Hopkins, Director of Corporate Services, Reviewed
LIST OF ATTACHMENTS:
1. Attachment 1 - Draft Budget Scenarios Presentation
2. Attachment 2 - Supplemental Budget Requests - Summary Sheets
3. Attachment 3 - Budget Reduction Option Details