New Brunswick to overhaul how it funds municipalities

New Brunswick is looking to change the way it distributes provincial property tax to municipalities for the first time in nearly a decade.

The new community funding model will see core grants, or the amount received by every municipality based on tax base, phased out over five years and equalization grants remain.

During a technical briefing Tuesday morning, local government minister Daniel Allain told reporters that it’s a return to the original intent of the community funding system.

“It’s to make sure that we help, as the federal government does to the provinces, that we help municipalities that need not a handout but a hand up. That’s number one,” he said.

The equalization grant, first introduced through the Equal Opportunity program in 1967, is used to ensure an equal level of service delivery across the province.

That grant will remain, with $75.6 million in funding in each of the next five years in order to provide a measure of stability as the province moves from 340 municipal units to 90 at the beginning of 2023. That funding will only be provided to municipalities who received equalization in 2022. Amounts received will be calculated based on if a given municipal unit’s tax base has grown at or below the provincial average.

The core grant was only added during the last overhaul of the system in 2013, which Allain called a “compromise” for municipalities, with the intention that it would be eliminated once additional tax room was created.

With municipalities now able set a separate tax rate for non-residential properties, at 1.4 to 1.7 per cent of the residential rate, Allain says that additional fiscal capacity has been provided.

The core grant will be decreased by 20 per cent each year for the next five years. That money will then flow to regional service commissions to help pay for a suite of new responsibilities that include economic development, cost sharing of recreational facilities, regional transportation and regional tourism marketing.

The commissions have mostly been responsible for regional solid waste collection in the past, though some have already taken on other responsibilities, leading the province to standardize what each is responsible for across the province.

Shifting responsibility to local government

Alex Scholten, the president of the New Brunswick Union of Municipalities, worries that the reductions in core grant funding will make it difficult for some municipalities to afford those new responsibilities, which could lead to tax increases, he says.

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“There’s I think 28 municipalities that wont get any core funding, any equalization payments,” Scholten said.

“They are incurring some new responsibilities … without revenues accompanying that.”

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Deputy minister in the department of local government Ryan Donaghy says that the tools to collect those additional revenues if needed have already been created through the introduction of a more flexible non-residential property tax rate.

“That tax room will more than offset that core funding and we’re still keeping the core funding in the pool, so we actually, if you look at it comprehensively, have more maneuverability than they had before this,” he said.

But Scholten says that change will only work for municipalities that have a significant amount of non-residential properties to levy taxes from.

“Those changes aren’t going to be experienced broadly,” he said.

“We do know that the costs for the new mandated services will be broadly experienced by everyone.”

Allain argues that the new responsibilities are just shifting money already being spent by municipalities to regional service commissions, so the direct funding of the RSCs will balance out the loss of direct revenue from the core grant.

For the first year the 12 RSCs will split just over $6 million. Each year after that the money cut from a municipality’s core grant will go into a special account for its RSC, which will then be able to apply for funding for projects from that fund. The province will also chip in 50 per cent for those projects.

Green Party MLA Kevin Arseneau says he is concerned about the way the province is shifting responsibilities to local governments.

“We are starting to see the government having a finance model that’s going to help them offload responsibilities onto municipalities, then to say that we could bring our taxes down but municipalities are gong to have to take the hit as they finance their new activities that the [provincial government] was already taking care of,” he said.

Opposition parties are also concerned that the government has already moved to limit debate on the bill introducing the changes to 10 hours, saying it wants to pass it by next week in order to give municipalities time to set their budgets.

“This is actually a huge bill that impacts every New Brunswicker,” said Liberal leader Susan Holt.

“We’re going to (be) limited in our ability to question and amend a significant piece of legislation that affects every New Brunswicker. We’re going to do our best to represent the people who are worried about this being an increased cost … but we’re being constrained.”

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