Inflation and aging infrastructure add percentage points to taxes for Saanich

There is a heavy price tag attached to maintaining and running municipal infrastructure. In BC, taxpayers are on the hook for it.

On Aug. 18, Saanich council finalized the district’s 2024 budget that will include a property tax increase of 7.93%. The hike translates to a $271.08 increase per household per year.

Municipalities across the CRD are facing growing demands for services, including roads, water, sewer, protective services and parks and recreation among other community services that outstrip their ability to raise revenues.

Unlike provincial and federal governments which have sales tax, income taxes and various other taxes, municipalities are limited, through the BC Community Charter, to resourcing infrastructure management through property taxes tied to property assessment values. Those governments are allowed to budget operating deficits which they then have to borrow for. Municipalities are not, which is why managing municipal assets plays such a significant role in fiscal planning—and taxes.

In his initial response last week, to news of the hike, Saanich Mayor Dean Murdock said, “We’re going to have to take a closer look at how aggressively we go at our asset management, our infrastructure replacement, even some of the work that we’re doing on improvements on our roadways.”

Under the Canada Community-Building Fund and its Community Works program, municipalities in the CRD will receive up to $300 million in federal infrastructure funding in 2024-2025 on a per capita basis. Funding under its new Community Works Agreement begins at $855,018 and increases to $889,218 in 2028. While this federal infrastructure investment helps, it only goes so far and the icing on the ‘needs’ cake is simply spread too thin.

“The reality is a lot of places, like our rec centres and other facilities, are 50-plus years old and were built with a lot of federal and provincial funding flowing into the district. All of those things now either need replacement or substantial renovation, and that’s all landing squarely on the shoulders of taxpayers,” said Murdock.

In his report to the committee on Aug. 8, Saanich financial director, Paul Arslan, said the tax increase is largely “due to an ongoing transfer of responsibilities from the provincial and federal governments, and to increased expectations from residents.” This, and a disruptive four-year cycle of municipal elections, risks consistent oversight and long-range tracking of those responsibilities.

In 2007, Saanich developed an infrastructure replacement funding strategy whose goals, a spokesperson said, were met in 2019. However, work to update the funding strategy was delayed in anticipation of hiring an asset manager.

For Saanich, the nearly five-year delay in asset management planning along with a concurrent rise in inflation rates, mean labour and material costs are now outsized factors in this recent tax hike for Saanich residents. Construction inflation now outpaces the Consumer Price Index, an indicator based on the prices a consumer pays for a ‘basket’ of consumer goods. Labour Costs in Canada have also reached an all-time high of 132.60 points in the first quarter of 2024.

Saanich’s $190-million operations budget of 2024 includes $12.8 million in additional spending from last year. A report from Arslan in April notes 36% of the increase is driven by inflationary cost increases for labour, materials and supplies for both maintenance and replacement of capital assets.

In the intervening 50 years since the halcyon days of provincial and federal funding inflow, the Saanich engineering department only hired a professional asset management program manager in 2022. In July 2023, council approved an asset management strategy and implementation plan that included asset inventory and related replacement costing.

Like other busy councils in the CRD who are preoccupied with details of business arising and the evolving demands of constituents, Saanich has been caught on its heels when it comes to infrastructure and responsive risk management. In June, Victoria council moved to kick-start a referendum on whether or not to build a new Crystal Pool at a cost of $168.9M. Labour costs, inflation, and updated environmental regulations hiked the price of that project from a 2018 estimate of $69.4M to $200M.

The existing Crystal pool is 53 years old.

Rapidly evolving priorities mean councils are often focused on more immediate cost analysis and fail to address longer-range asset life-cycle risk. To manage those risks, they need data and the expertise to impactfully deal with it.

There is work to be done

According to the Saanich Asset Management Strategy (2023), the municipality “needs to improve its Asset Management (AM) practices in the areas of natural assets, levels of service, risk assessment, integration of climate change considerations, and AM plans.”

Financial information on assets in Saanich, according to the strategy, is currently maintained in a variety of software programs, such as JD Edwards and Excel spreadsheets and not all assets in the jurisdiction have a unique identification number.

These systems are not linked, so there is no single source of authoritative information on asset data. In response to new accounting requirements, Saanich developed an Infrastructure Replacement Funding Strategy that clearly anticipated these gaps in maintenance costs and ever-increasing asset replacement values (excluding natural assets).