Enjoy 2024, Ottawa taxpayers, because the fiscal future is set to get tougher

Cities across Canada have been passing budgets with soaring property tax rates.

The average Halifax tax bill will rise by just under six per cent next year. In Calgary, things will go up bynearly eight per cent, while Vancouver residents will see a tax hike of7.5 per cent. Hamilton councillorshave been looking at a 2024 budget with an estimated 14.2 per cent tax hike.

Yet Ottawa scraped by with a modest 2.5 per cent tax hikefor next year, meeting Mayor Mark Sutcliffe's election promise to limit property tax increases to precisely that level for the first two years of his term.

There are signs, however, that it won'tcontinue.

Sutcliffe was clear during a year-end interview with CBC News that he has no further commitment to a specific ceiling for tax hikes. He did say he doubts the city will see "a huge jump in the tax increase for 2025," and pledged to keep taxes as low as possible.

How low is that? On the day the 2024 budget passed, he signaled that fiscal pressures are getting worse.

"I should say it now, the 2025 budget will be an even bigger challenge, which is why it's important that we make very careful and strategic decisions with this budget and don't overspend or overcommit to any area," he said.

He then told reporters that Ottawa needs help from other levels of government. If not, "the decisions will be a little more difficult in 2025," he said.

Sutcliffe would not say whether he'd favour service cuts or bigger tax hikes if forced to choose.

"I've always committed to taking a balanced approach to these challenges," he said. "We have to keep tax increases low at a time when there's an affordability crisis. I think that's what residents expect of us."

But he also sees a need to "make critical investments in core services," while scouring for savings at city hall.

"I think you will see in 2025 a budget that does what we did in 2023 and 2024, which is to take a balanced approach to all of those priorities," the mayor said.

Compensation the biggest cost pressure

The mayor highlighted two big fiscal pressures that are bearing down on the city: collective bargaining and OC Transpo.

Heading into the 2024 budget, there was "certainty around what the salary increases would be for the vast majority of our employees," Sutcliffe said.

But some of those contracts are coming up for discussion a big deal, as employee compensation and benefits makeup about 44 per cent of the city budget, by far the largest share of expenses.

The Canadian Union of Public Employees Local 503 represents about 11,600 members whose collective agreements are set to expire on Dec. 31, 2024.

They've locked in a two per cent salary increase for next year, but there's no telling what a new round of bargaining will yield after years of inflation.

Agreements for the 2,410 members ofAmalgamated Transit Union Local 279, which represents OC Transpo operators,are set to expire just a few months later, on March 31, 2025.

Transit pressures still heavy

Driver salaries are hardly the only challenge for OC Transpo.

With ridership forecast at just three quarters of pre-pandemic levels for 2024, and costs mounting faster than tax revenues, the transit service had been facing a$50-million budget hole.

The city could only balance the budget by pulling from reserves, cutting administrative positions and using savings from a route review that will reduce bus service by roughly 74,000 hours.

• Some OC Transpo riders feeling 'betrayed' by plans to cut bus routes

Transit commission chair Glen Gowersaid it's expected to take seven or eight years before ridership creeps back up to 2019 levels, so the financial turmoil at OC Transpo is sure to return.

"All of the same pressures that we had this year will be there in 2025 as well, and we'll have to figure out a way to manage that," Gower said.

Some of the pressures will actually be heavier. The city will only have to pay costs associated with the north-south Trillium rail line for part of next year, since it'snot slated to open until at least April, while the bill will have to cover all of 2025.

And there's an even bigger difference. For the 2024 budget, the city was able to draw on $12.7 million from the transit operating reserve. But less than $4 million now remains in that fund as a bufferfor 2025.

• OC Transpo digs into reserves, weighs layoffs to fill $50M hole

"That's not a source of money that we can keep going back to again and again and again, year after year," Gower said.

While Gower said OC Transpo is looking for new sources of revenue including selling more advertising or air rights for development over its facilities he also resisted any notion of reducingservice to balance the budget.

(OC Transpo has described the bus route review not as a servicereduction, but rather an exercise in "route optimization" that also includes adjustments to rail service.)

A working group istaking a look at the mix of property taxes and fares to fund the transit network, Gower said, and will come back with recommendations for council.

"We need a good transit system to support the growth that we're seeing in our community," he said. "So cutting back service is not an option."