City of Ottawa should draft 2023 budget with a 2 to 2.5 per cent tax hike, report recommends

Ottawa City Hall (File photo)

Ottawa city council is being asked to direct staff to develop the 2023 city of Ottawa budget with a 2 to 2.5 per cent increase in property taxes next year.

And the first budget for the new term of council will include proposed efficiencies and mitigation measures to address COVID-19 and inflationary pressures, including a pause on discretionary spending and deferring capital projects.

Council will vote Wednesday on the proposed 2023 budget directions, timeline and consultation process, with the draft budget being tabled on Feb. 1, 2023. The city treasurer brings forward a report outlining the budget timetable and budget directions in advance of each yearly budget.

The report from Treasurer Wendy Stephanson recommends the 2023 draft budget be developed with a municipal tax increase of between 2 and 2.5 per cent, with the library, public health, Ottawa Police Services Board and Transit Commission also being asked to develop draft budgets with a 2 to 2.5 per cent increase.

Transit riders would see a 2.5 per cent increase in OC Transpo fares next year, according to the report. Mayor Mark Sutcliffe promised to freeze transit fares during the municipal election campaign, but would need to present a motion at Council or Transit Commission to freeze fares in 2023.

A 2 per cent property tax increase would cost the average urban homeowner an extra $82 a year, while a 2.5 per cent hike would increase property taxes for the average urban homeowner by $104 (including the police and transit levies).

The 2022 city of Ottawa budget under former Mayor Jim Watson included a 3 per cent hike in property taxes.

Sutcliffe ran on a campaign promise to cap property tax increases at 2.5 per cent,  and pledged to find $35 million in savings by cutting vacant positions and reducing work with consultants and other external services. 

In a report for council, Stephanson warns the 2023 budget will face pressures from salary increases through contract settlements, and inflationary increases on fuel, utilities, contracts, and capital impacts, and staff will develop the budget to mitigate and address these financial pressures.

"The current external economic conditions and supply chain pressures have resulted in unprecedented inflationary pressures impacting all City Services," Stephanson said.

"Significant increases on fuel, construction indices, parts and supplies will have a significant impact to the 2023 Budget pressures."

Stephanson's report says the city expects some post COVID-19 budget impacts to continue into the new year, with OC Transpo not anticipating ridership to return to 100 per cent next year as remote work continues.

"Since 2020, COVID-19 resulted in significant financial challenges for the City, challenges never faced before. While the City implemented financial mitigations to close the gaps, funding was received from senior levels of government to fund the COVID-19 deficits through the Safe Restart Agreement and other government funding up until 2022," Stephanson said.

"In 2023, the City is anticipating funding from senior levels of government for some impacted areas, not all. Staff will prepare mitigation measures for consideration by Council."

The report warns that besides Ottawa Public Health, the upper levels of government have not announced any funding for other city expenditures to address COVID-19 related costs.

Mitigation measures to address possible COVID-19 expenditures include deferring capital projects, a discretionary spending pause, further efficiencies and possible one-time reductions in expenditures.

Total taxation revenues are projected to increase in 2023 by $81.365 million (2 per cent tax increase) to $91,945 million (2.5 per cent tax increase). After allocating funding for police, transit, Ottawa Public Health, the Ottawa Public Library and the auditor general, the city will have $49.270 million (2 per cent tax hike) to $55.675 million (2.5 per cent tax hike) to fund all other tax supported programs.

A two per cent tax increase would provide an extra $15 million to OC Transpo and $13.4 million to Ottawa Police in 2023, while a 2.5 per cent hike would mean an extra $17 million for the transit service and $15.2 million for police.

The 2023 draft budget will be presented to council on Feb. 1, with council finalizing the budget on March 1.

In October, a report for the finance and economic development committee projected a $12.2 million budget surplus for 2022. OC Transpo was projecting an $85 million budget deficit due to the drop in ridership.