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VAUGHAN: Tax rate decreases are great until they’re not

Albertan municipalities like Lacombe could face tough realities with further provincial cuts

Setting a tax rate is a no-win for municipalities, especially when they constantly rely on unsteady funding from the provincial government.

Recently, the City of Lacombe attempted to show some restraint by acknowledging the pressures on ratepayers by setting the 2020 tax increase to 0.9 per cent, below the CPI level of 1.4 per cent, which they have set as their benchmark goal.

The loss results in a relatively minor shortfall of $20,000 for the city — which will be made up in a variety of ways none of which will be overly will be a serious threat to major public services provided by the city.

The problem, as identified by Councillor Jonathan Jacobson, is what the City will do if the Alberta Government continues make cuts and alterations to municipal funding.

Funding from the Municipal Sustainability Initiative (MSI) is the key tool used by the Government of Alberta to fund municipalities. With the energy sector continuing to struggle in the province and whispers of another recession surrounding the country— the fear of further cuts to MSI should worry residents of Lacombe and indeed, residents of all Albertan municipalities.

Jacobson outlined his concern with tax rate cuts during hard times by showing how it could affect future budgets.

“If provincial funding dries up, we will have to make a decision between substantial tax increases or significant service cuts. If you go the increase route, to go from 1.4 per cent to say 2.8 or 2.9 is a little bit more reasonable than 0 per cent to 4 per cent,” he said.

In essence, having a steady funding model that can swallow provincial cuts over time is easier on the taxpayer, and city administration who make municipal budgets, than making short-term cuts now that will result in large, burdensome increases later.

Here’s the thing, municipalities are required by law to have balanced budgets. This means municipalities cannot run deficits when times are tough. If MSI dries up, the essential services provided by the City of Lacombe residents of Lacombe rely on would need to continue to be funded by City without deficit spending — meaning the City would have to raise taxes or make cuts to less essential services.

From the way things look, it is certainly in the realm of possibility that municipalities like Lacombe could see provincial funding diminish — meaning prudent and responsible fiscal management is required now.

While 0.9 per cent is obviously better than 1.4 per cent in terms of the ratepayer right now — the difference is minuscule enough that Lacombe residents should consider the alternative.

Politicians will be praised for the lesser tax rate now, but they will be skewered if a significant municipal tax rate is required down the line as a result of provincial cuts.

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