With inflation and rising interest rates, times are tough for Quebecers’ finances. And also for those in cities.
After “good years” in which low interest rates spurred lucrative residential development, Quebec municipalities are having to adapt to a much more hostile environment.
Elected officials and civil servants today must complete a budget while spending rises, revenue falls and interest rates skyrocket. And all this with the knowledge that many of their citizens are already struggling with the cost of living.
“I have never seen so many colleagues tearing their hair out as this year,” testifies the president of the Union of Municipalities of Quebec, Martin Damphousse.
In recent months, terms such as “optimization,” “rationalization,” and “strictness” have made a comeback in town halls, pointing to a trend toward “municipal austerity.”
“No matter what beautiful words we give ourselves, they all mean the same thing. We are talking about a reduction in services and we hope it will be as small as possible.”
— Martin Damphousse, President of the Union of Municipalities of Quebec
From one town hall to another, local elected officials are scrambling to limit the tax increases announced to taxpayers as much as possible. “The last thing a council wants to do is raise taxes,” explains Mr Damphousse.
Through reassessments and needs assessments, cities reduce non-essential or even unnecessary spending.
In Montreal, city employees were forced to host “free for the city” Christmas parties given the difficult budget. The Saguenay municipal council has decided to save money by cutting the grass cutting budget.
In Lévis, we are “re-evaluating the relevance” of each position after retirement and are already planning to reduce part of the budget reserved for leisure activities such as neighborhood parties. In a message to its officials, the city of Lévis asks them to “minimize [les] financial expenses and obligations, provided they do not have a negative impact on performance.
“We will have to make difficult decisions,” agrees Lévis Finance Committee Chairwoman Isabelle Demers. As everywhere else, we promise not to restrict services.
“We’re not going to remove the entire candy bowl, but there might be a little less candy in there.”
— Isabelle Demers, President of the City of Lévis Finance Committee
In Sainte-Brigitte-de-Laval, “we are reinventing ourselves,” explains deputy general manager and city treasurer Ariane Tremblay. Volunteers were put in charge of maintaining the ballfield, and management was specifically warned against spending money on new services.
“With every issue we ask ourselves whether it is essential. When it’s parallel, we make decisions.”
— Ariane Tremblay, deputy general manager and treasurer of the city of Sainte-Brigitte-de-Laval
Like many communities on the outskirts of large cities, Sainte-Brigitte cannot rely on commercial or industrial taxpayers to foot the bill. “If we increase our taxes, it will directly benefit families. »
Feel like skating
Professor of urban and real estate management and head of the Faculty of Administrative Sciences at the University of Laval, François Des Rosiers, believes that local elected officials are engaging in “fancy skating” by promising to maintain services in an economic context.
“We’ll try to make it seem as small as possible, but at some point cutting means cutting.”
— François Des Rosiers, Professor of Management and Municipal Taxation at the University of Laval
The expert is not afraid to speak of a “phase of contraction and compression” for cities in view of the interest rate increases imposed by the Bank of Canada in recent years. “The goal of monetary policy right now is to slow down the machine to slow inflation.”
“When elected officials try to cut non-essentials, they are responding to the economic context. It’s mathematical,” explains Professor Des Rosiers. “We lived on a stable path with extremely low interest rates for 20 years. “We had the impression that it was normal,” he emphasizes.
Expenses increase, income decreases
From snowplow fuel to labor costs, municipalities are no exception. “Everything costs more,” elected officials and experts surveyed by Le Soleil agreed. Tenders from cities regularly come back with significantly higher bills than budgeted.
“Practically every day we have a contract that is 25% or 30% higher than planned,” explains Isabelle Demers, who prepares the budget for the city of Lévis. “And that’s it. From housekeeping to asphalt work.”
Added to this is the shortage of bidders. While in the early 2000s cities had to expect companies to compete for public contracts, today certain tenders find no takers or only have one bidder.
“Sometimes that means prices double or triple what was forecast.”
— Martin Damphousse, president of the Union of Municipalities of Quebec (UMQ) and mayor of Varennes
And all this while interest rates are rising. Like taxpayers, municipalities are contacting major banks to borrow the amounts needed to finance infrastructure projects. And the renewal of tariffs awaits them.
“We are preparing to pay much more to service our debt,” warns Isabelle Demers, recalling the sums Lévis borrowed to build its new police headquarters. Loan deals negotiated at an interest rate of 1.90% could be extended at 5% or 6%, she explains. “We’re talking millions of dollars here.”
The Bank of Canada’s interest rate hikes are also slowing the flow of money into city coffers.
In view of significantly less favorable credit conditions, real estate developers are delaying certain projects. This means less taxes for the municipalities. “Instead of starting payments in January, a developer delays payment for six months. That’s six months less taxes,” explains Isabelle Demers.
Interest rates are also slowing real estate transactions. After years of cities being able to count on unexpected income from transfer taxes, i.e. welcome taxes, we now have to do without them.
“We are talking about a temporary situation, but temporary can last a long time.”
— François Des Rosiers, Professor of Management and Municipal Taxation at the University of Laval
Salty increases are coming
In this context, all stakeholders interviewed by Le Soleil are of the opinion that Quebecers can expect significant municipal tax increases in the coming weeks.
The cities of Montreal and Laval have already announced increases of 4.8% and 4.7%, respectively, for their 2024 budgets.
For his part, Quebec Mayor Bruno Marchand said an increase in average taxation below 5.5% would be “a gift” for taxpayers. A statement supported by many elected officials, including those from Lévis.
“We need to tax more realistically,” warns Isabelle Demers. We have asked for too little in recent years because we wanted to give citizens a break. This year we will have no choice,” she sets the table a few weeks before presenting her budget.
Quebecers also face rising service fees, such as those for water or waste disposal. To avoid underinvestment in these essential budget items, cities are required by law to pass on the entire bill for these services to citizens.
The economic context could also mean new taxes. In Sherbrooke, where we promised not to increase taxes by more than 3%, the city council is toying with the idea of a new asphalt license fee.
Asked for comment, Municipal Affairs Minister Andrée Laforest emphasized that “cities are autonomous in their financial planning.” “They must make the necessary decisions,” the minister’s office continued in a written statement, affirming, “a “to be an excellent partner for the municipalities”.
“It all comes down to math […] One way or another, Quebecers will face tax increases and benefit cuts in a context of contraction or compression,” concludes Professor Des Rosiers.