In an interview with Gagandeep Ghuman, the general manager of financial services Joanne Greenlees talks about expenses, reserves, debt and the challenge of drafting a budget that balances service expectations with tax increases.
Q. What is your sense of tax increase projection?
A. Council was serious about what a zero percent tax increase would look like, while the management proposal came in at just over 7 per cent. Right now, where we sit with the ins and outs, they aren’t approved yet, but it’s somewhere just over 5 per cent. I’m thinking it will be somewhere between zero and 7.
We are going to get down to a place in the next few meetings, and put together an information tool and get some feedback on how that sits with the public, which means if we settle at 5 per cent, we are going to have some cuts to services, there is no question about it.
Q. What are some big challenges for our town?
A. Paying for the services that public demands and they want, and so far we have had very little indication that anyone wants any reductions in services. People don’t want their services cut, but they don’t want to pay for them, and of course everyone has different priorities.
Someone might want to see flowers downtown, and not cut the grass, so ever body is different and it’s in balancing those needs that is our challenge.
Q. How about our debt?
A. If we have to meet the SODC obligations, we will have to go through the process to lend money to SODC to pay the debt. So, the way we would finance that so to speak, borrowing from the reserves to lend to SODC.
Q. And what kind of reserves do we have?
A. Yes we have sold some property. There is a few different ways that we can approach that. One is to borrow from the sale of land and the other would be to go to public, either through the alternative approval process or through referendum. And that would be the most prudent way to go, to go to the public and ask to borrow that money and take advantage of the low interest and lend it to SODC.
The way that SODC debt is structured, they have three balloon payments, which is $3 million, $3 million, and then $5 million that we have to pay annually every year.
And it’s that $3 million that affects us more than actually going and borrowing 11 million dollars or 8 million dollars, and paying it annually over time.
Q. Are we still tapping into our reserves and surplus for capital projects?
A. Not to any great extent but we are turning the corner and we have started to build our reserves and we have that resiliency and we can finance our capital program using a combination of reserves and the current revenue.
Our reserves are 19 million, and it includes the 8 million from the sale of the land.
In 2013, we decided that an increase in taxes of 1 per cent each year will go directly into the general reserves. We need several millions of dollars to come to the adequate levels, which we will determine the long-term financial plan. We need it so we can finance the smaller programs using those reserves and not going to debt for it. It’s like having a saving account. It’s a little more than saving for a rainy day, but it’s more like saving for the roof replacement instead of borrowing.
Let’s s take the home analogy, you know that you have replacement costs of the roof, in say 15 years, so ideally you would save towards that. If you want to put an addition on the house, then maybe you have to borrow.
Similarly, we need to save for things like sidewalks, etc, and But then things we need to know, the sidewalk, for instance, we need to save for that rather than just borrow.
Q. What is our debt ?
A. We are at roughly 31 million and our borrowing capacity is at 100 million and when you consider the SODC balloon payments, it eats up our borrowing capacity.
We are regulated by how much we can borrow, which is 25 per cent of our revenue and so it’s based on how much revenue we create.
We are nowhere near the limit, but when we you add SODC debt, then that first $3 million is the equivalent of servicing like 80 million dollars’ worth of debt.
So, for 30 million, it costs about 2.2 million annually in principal and interest. That $3 million of SODC brings us up to 80 million.
Q. When did the district started guaranteeing the SODC debt?
A. The first loan guarantee was in January 2010. I don’t know why…I think they felt that it was good for SODC as they were able to get fairly cheap financing using the guarantee from the district. They wanted to finance it in the most economical way.
Q. Last time we talked, you mentioned that SODC debt can eat into our borrowing capacity?
A. Yes and that debt is a concern. We are living it now. In this year, we have to make a $3 million payment, unless transaction happens. SODC doesn’t have the revenue to pay that.
Q. On the budget side, what are some of the big expenses?
A. We have the impact of RCMP and labour and that was phased in those raises we had. Then, we have normal inflation, labour contracts, salaries, cost of living for 1.5 per cent, and then CUPE is 1.
But labour is only half of our expenditure, so it would impact the budget by 1 per cent. The other largest reserve is the equipment replacement fund.
Q. What kind of staff do we have at the district?
A. This year, the impact on budget of labour contracts prior and current is 2.4 per cent. In 2013, there were 175.1 FTE. In 2014, the management recommendation takes it up slightly. What the community needs to understand is we need to identify services the community can do without and staff reductions would follow.
Q. The impression is that we have a lot of government employees ?
A. Do you want my job ? (laughs) Do you want the hours that we put in here? We have to look at more than just population. It’s about services we deliver. May be we deliver too many services, and maybe we are delivering way more services than other communities of our size. And that is what we are talking about here.
We try to put forward to council about what services we have that are nice to have and are important to the community, but they are not mandatory but things that we have chosen to do. Economic development isn’t mandatory, and it happens to be a council priority, so we can afford the services we want, but it’s not required.
We felt that it wasn’t very meaningful to go to public and say we will cut five staff members and save you ‘x’ number of dollars. I think the public would have no idea what impact it would have on their services.
When we reduce staff, we also reduce services…the question is what services we can live without…
And for cost, the other thing is, we are just over that 15,000 and we have to pay 90 per cent of RCMP, which is our major cost.
Q. How busy is staff here ?
A. I’d say majority of people at the DOS are bordering burn out. I think most of the people here are working far too many hours and are under tremendous stress. There is too much demanded of staff.