With financial pressure on the horizon, city council has requested a draft 2025 budget with a maximum 3-4 per cent tax increase.
Maintaining levels of service, managing growth, and various city initiatives were among the financial pressures discussed at a 2025 budget preparation meeting Monday afternoon, with city staff seeking preliminary direction from council ahead of turning their eye to developing draft budgets over the summer.
In a report to council, city staff estimated a 2.89 to 6.88 per cent tax hike in 2025 – compared to the 1.73 per cent hike in the 2024 budget – and laid out numerous budgetary pressures the city faces moving forward.
The city’s 10-year capital and reserve forecast projects city reserve balances could potentially decline to negative $254 million by 2034, with 687 possible capital projects – totalling $789 million – forecasted over that span.
Staff laid out numerous methods to mitigate that possibility, including reprioritizing certain capital projects, debt financing to smooth costs over a longer period of time, as well as funding city reserves via rate and tax levy hikes across the next ten years.
“Some risks to be considered would be, obviously, that lower reserves can impact our cash flow and also investments; some projects definitely can't be deferred, and that financing is somewhat costly and can limit our flexibility,” said city CFO/treasurer, John Henry.
With regard to debt financing, the city’s debts are slated to climb substantially over the next 10 years.
“Currently, the city has issued about $45 million in debt, but the forecast calls for an additional $103 million, so this would bring the overall total to $140 million over the forecast,” Henry said.
Under current projections, the city’s debt ratio could climb to 10 per cent by 2032, which is more than double the 4.07 per cent projected for 2025, but well below the provincial limit of 25 per cent.
“Moving to (the provincial) level does open up $190 to $300 million in financing, but there is definitely a cost associated with interest and also … flexibility in locking in funds over a greater period of time,” Henry said.
With regard to closing the capital and reserve funding gap via utility rates and taxation, staff said an annual 2.32 per cent levy hike would be required, on average, over the next ten years, as well as 4.94, 6.19, and 14.6 per cent annual hikes, on average, for water, wastewater, and stormwater, respectively.
“A strategy is definitely needed to address this gap,” Henry said. “For example, we can take a look at the tax rate stabilization amount, and then of course a combination of all the items we mentioned above.”
Other pressures include increased budget asks from service partners, with staff estimating that an additional $1.4 million, or 2 per cent levy impact, could be required if budget asks continue rising according to their recent trajectory.
In 2024, police services contributions increased by 6 per cent, or $527,000, while Simcoe County services contributions increased by 10 per cent, or $887,000.
The 2024 budget included a $101 million operating budget – with $73 million funded through the levy, and $28 million funded through fees and other revenue – and a $69 million capital budget, with a levy increase of 1.73 per cent over 2023.
However, the city also projects $1 million in assessment growth over the course of 2025, and noted inflation is set to cool after skyrocketing in recent years.
Staff anticipate an inflationary impact between 1.8 and 2.4 per cent — or $1.3 to $1.7 million — compared to figures over 8 per cent in 2022.
“In general, the market is still somewhat unstable, but I'd say it's stabilizing and looking much better,” Henry said.
Some financial pressure will also be relieved by provincial Bill 185, the Cutting Red Tape to Build More Homes Act, which mitigates pressure placed on municipalities by Bill 23, which introduced numerous development charge exemptions.
“On June 6, the province did reverse many of these exemptions through Bill 185,” Henry said. “This will definitely benefit the city; however, many exemptions do remain.”
Following discussion, council debated on an appropriate levy increase for the 2025 draft budget, with several members of council calling for a 2 per cent hike, and others – like Coun. Tim Lauer – suggesting the 6.88 per cent hike originally projected by city staff.
“I’m more than fine with that coming forward, and then being a slasher as opposed to an adder,” Lauer said. “We are, I think, not acknowledging what's been going on in the real world, which is inflation and lots of it. Sooner or later somebody's going to have to pay for this.”
“You're not saving anybody any money, in my opinion, holding the rate down without significant service cuts.”
Other members of council stressed some in the community may not be able to handle substantial tax hikes, but city staff said a hike as low as two per cent could result in the city needing to forward a “skeleton budget.”
“At this point in time, should you direct staff to come back at 2 per cent, it will be a skeleton budget with service cuts,” said Amanpreet Sidhu, deputy CAO. “If you provide a range higher than that, that may include other things.”
After voting down 3.5 per cent and 2 per cent as proposed tax hikes for the 2025 draft budget, council agreed on a range of 3-4 per cent.
