Inflation hitting municipal budgets, creating ‘perfect storm’ for tax increases

·5 min read

It’s not only individual consumers getting hit by rising prices for goods and services these days – municipalities are feeling the pinch of a shrinking dollar as well.

“The current increase in prices has had some impact on our day-to-day operations,” says Nakusp CAO Wayne Robinson. “Most notable is the cost in fuel for operating Village vehicles and machinery.”

“Diesel powers the construction industry plus all of our heavy operations– moving garbage, excavation/repairs of waterlines, power generators, etc.,” explains AJ Evenson, the senior project manager for the Regional District of Central Kootenay. “Every project gets much more expensive as all granular material, concrete, asphalt, etc. is trucked into a site or removed from a site by trucks which use diesel.”

“Fuel cost increases are directly affecting operating costs across all departments,” says the RDCK’s new General Manager of Finance Yev Malloff. “There has been a significant impact on the delivered costs of supplies and equipment, where fuel surcharges are sometimes now higher than the base item cost.”

Inflation old news

But it’s not just fuel costs, which are an important but relatively new driver to this round of inflation.

Municipal governments were among the first to see prices skyrocket for goods and services more than two years ago. In 2020, things really took off, with the pandemic disrupting supply chains, and high demand for contractors pushing prices up for major projects.

Evenson says a workforce shortage has seen government forced into competition with private industry for labour, while the ongoing supply-chain crisis has pushed up the price of goods from offshore.

“Things like blowers, generators, fabric buildings, pipe, conduit, steel, UV units, etc.,” he says. “We tender out stuff, find out that it’s not available and then start looking for alternatives, just like the private sector and contractors. So we’re competing again with them and overpaying for whatever we can find that’s a suitable alternative.”

Nakusp saw the full impact of that earlier this year when it cancelled a water reservoir project, largely because the escalating costs made it too expensive to justify. Recently, it got sticker shock on another project, to replace a culvert under Broadway Street downtown.

“The original project was supposed to cost under $150,000 – already an inflated cost due to the pandemic – and the lowest bid came in over $180,000,” recalls Robinson. “Bids ranged as high as $300,000 – we were concerned we would need to cancel the project.”

Over in Kaslo, a project to remediate the banks of the Kaslo River has been a logistical and budgeting headache for several years.

“Part of the project was tendered last year and the costs were double the original cost estimates,” says Kaslo CAO Ian Dunlop. “We have to reduce the scope of the project to fit the available funding, but we are now waiting for provincial approval again. Hoping to start the work this fall.”

The same issue is hitting the regional government.

“We have had to go back to the board for additional funding for several projects, including the HB Mines remediation project [near Salmo] and work at the Creston landfill,” says Malloff. “Currently, project delays are mainly due to supply chain issues for equipment/supplies and the stretched availability of staff and contractor resources.

”That puts the RDCK in a tight spot, as “many RDCK projects are of compliance or regulatory nature without the option to delay or cancel,” he says.

Juggling the books

Municipal officials are nothing but flexible, however, and have downsized or adjusted projects to fit available funds. They’ve also accessed their own reserves or pots of funds from other levels of government to adjust budgets, and are looking for other savings.

“We are working on a number of initiatives to improve procurement processes and to identify cost-saving opportunities that should help offset some of the cost pressures we are experiencing,” says Malloff. “Also, we may be considering longer-term financing for some projects and equipment purchases that previously would have been funded by reserves or shorter-term borrowing.”

But that can only go so far, and for so long. With inflation hovering around 6 or 7% (as of August 2022), municipal leaders will be facing some tough choices come budget season this winter.

‘Perfect storm’

Municipalities are required by law to provide the services everyone needs in a safe and responsible manner. Garbage has to be disposed of, sewage treated, and water must be kept clean and flowing (water treatment chemicals alone have risen 30% this year – not something a town can cut back on). Roads, parks and facilities must be maintained. And it all has to be paid for, and municipal governments can’t run up ongoing deficits. If inflation rises by x%, then next year’s tax bill has to increase by x%, or there has to be an associated decrease in services.

“I can see all local governments everywhere having to make hard choices,” says Robinson. “Any tax increase that is less than inflation means an associated decrease in service levels. Add to this that we have more obligations placed on us by the Province and the feds every year, and the labour force is tightening and it is hard to recruit or even retain the staff we have – because elsewhere may pay more.

"This is a perfect storm for significant tax increases, or decreases in municipal services.”

Compounding the problem

With inflation rising, workers need more money to protect their purchasing power. No doubt the era of workers being satisfied with a 2% increase has come to an end. And any extra salary costs – usually the biggest driver in any municipal budget – will have to be covered by taxpayers. And that will likely help drive further inflation, pinching taxpayers even harder, and putting more pressure on officials to find cuts.

John Boivin, Local Journalism Initiative Reporter, Valley Voice