Penticton council appears to be on the verge of raising civic taxes this year by 2.5 per cent. After a long and occasionally testy debate Monday night, along with countless hours of special budget meetings, council voted 4-3 to endorse a proposed five-year financial plan that would increase the municipal portion of property taxes on the average $343,000 home in 2010 by roughly $21 a year, while also increasing garbage and recycling fees by $6 a year. If adopted, the budget will reduce the city’s 2010 structural deficit from $1.2 million to $77,500, according to the city’s treasurer Doug Leahy. “A structural deficit is really a deficit that continues year-over-year and cannot be addressed simply by raising taxes,” said Leahy, adding if the tax rate climbs too high, businesses and residents alike will no longer be able to, or choose to, live there, thus reducing the amount of revenue generated by the tax. “People won’t live there because the cost of living is so high,” said Leahy. “It is really a balancing act. You have got to be careful about the level of services and how much you are taxing.”
Although municipalities are generally not allowed to run deficits, explained Leahy, Penticton has been able to spend more than it brings in taxes, fees and tickets because unlike most municipalities Penticton owns its own electric utility, which generates millions in revenue. For years, said Leahy, the electric utility money was used only for capital projects, such as roadworks, facilities or parks. So that if the electric utility money dried up or was required to maintain the utility’s infrastructure, the capital projects could be put on hold or cancelled. However, last year, with the economic downturn reducing tax revenue while the city’s various operating costs continued to increase — certainly millions in subsidies to keep the lights on at the SOEC did not help — Penticton needed to use about $500,000 from its electric utility fund to pay for its operating budget. The city had a structural deficit. “We did not address the key issues which were our levels of expenditures, our cost drivers ... which is a very dangerous precedent,” said Leahy. “We were spending beyond our means.”
By the time council started deliberations for the 2010 budget, the structural deficit had reached $1.2 million, and so the members of city council — most of whom, recognizing the city’s financial state of affairs, had run as fiscal conservatives — began to look for ways to trim the budget. As of Tuesday night, the structural deficit was down to $77,500. Leahy said the city saved $640,000 because of the community centre closure; $400,000 by deferring money from the fleet depreciation fund; and some money from the termination of three senior management staff contracts. The rest of the money to reduce the structural deficit would have to come from the 2.5 per cent tax and $6 fee increases, recommend the treasurer.
Not everyone on council found the increases palpable. Mayor Dan Ashton voted against the budget because he said he thought the tax increase should be capped at 1.9 per cent, with the remaining money coming from an increase in various user fees correlated to the rise in costs of the services the fees are charged for. Councillors John Vassilaki and Dan Albas both voted for an eventually defeated motion to remove money designated for the demolition of Nanaimo Hall, a city grant writer, energy efficient street lights, the SS Sicamous and to help enhance Okanagan Lake. Both voted against the budget. Councillors Andrew Jakubeit, Garry Litke, Judy Sentes and Mike Pearce all supported the budget because, while none of them felt it was perfect, they all said it was a good, hard-earned compromise.
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