[This is the fourth in a series of posts on service costs in Local Service Districts (LSDs) in New Brunswick. I suggest reading these previous posts, which add context to the information presented below:
In 2011, the New Brunswick government moved towards reform of the system of local governance by adopting some elements of the Finn report. By gradually transferring responsibilities (and tax points) for provision of local services to Regional Service Commissions, the Province hoped to relieve itself of certain costs and also transfer decision-making for certain politically sensitive issues to the regional commissions. Financial analyses carried out by the Province in previous years indicated that property taxes collected from rural New Brunswick (in particular the unincorporated Local Service Districts) were insufficient to cover the costs of local services. This means that once local service delivery is completely transferred the Regional Service Commissions, property taxes in at least some parts of rural New Brunswick may rise, and rise considerably.
Among the documents released as part of the process of transition to the new system was one entitled ‘Responsibilities for Roads’. In brief, this document sets out an eight year transition period during which responsibilities for local road maintenance and repair would become a local responsibility. The Province would no longer fund snowplowing and maintenance of what it deemed to be local roads. Those would become the responsibility of rural municipalities, towns and villages and/or Regional Service Commissions. There would certainly be some tax implications in this transfer, especially for rural areas with falling populations and a weakening tax base.
The ‘Responsibilities for Roads’ document was once found at this URL:
However, it seems to have been removed or relocated. I had previously downloaded a copy of the document and have placed the text below (and here’s a link to the downloaded pdf – Responsibilities_for_Roads). I don’t know why the document has been removed – perhaps the government is no longer intent on downloading responsibilities for local roads, perhaps the issue is deemed too politically sensitive for display, or perhaps the plan is ‘under review’.
[Note: I suggest reading these two previous posts, found here and here, on this subject for additional background material.]
Do residents of Local Service Districts (LSDs) in New Brunswick pay too much or too little for the services they receive from governments?
That is a question that has been raised before in this Province and we will see it raised again across New Brunswick, especially now that the Province has moved forward with some of the recommendations of the Finn Report, namely the creation of the Regional Service Commissions (RSCs). The latter are charged with delivering ‘local’ and ‘provincial’ services on a regional basis. For LSDs, that means that services that have been provided to residents of LSDs by the Province (e.g. road maintenance, snowplowing, policing) are gradually being transferred to the RSCs, which have been given the task of providing those services on a cost-recovery basis.
For several decades, the Province has levied a tax rate (referred to as the ‘Special Provincial Levy’) of $0.65 per $100 of assessed value on LSD residential properties to pay for those services. Over the next few years, that $0.65 will gradually be shifted from the ‘provincial’ to the ‘local’ portion of property taxes and the RSCs will be given the task of recovering enough in tax revenue to pay for those services. Will the existing LSD tax rates provide RSCs with enough revenue to cover service costs? As the cost of a number of those services has increased significantly, LSDs that have experienced a slow rise (or decline) in the assessed value of properties may see substantial hikes in property taxes to make up any deficiency in revenue.
The Finn Report (also known as Building Stronger Local Governments and Regions: An Action Plan for the Future of Local Governance in New Brunswick) was released in December 2008 and contained a number of recommendations regarding local governance in New Brunswick. The Report was produced by the Local Governance Commission that had been established in September 2007 by Premier Bernard Lord and was headed up by Jean-Guy Finn. The Graham administration (which held office when the Report was released) failed to act on the Report but a number of those recommendations were eventually adopted by the Alward government in 2011.
With respect to Local Service Districts (LSDs), the Finn Report relied heavily on the findings of the 2008 Review of Local Service District costs carried out by the Office of the Comptroller (Review of Provincially Provided Services in Local Service Districts May 2008). The main finding in the Comptroller’s Report (which was actually an update of a similar report done in 2002) was that the costs of services supplied to LSDs by the Province were significantly greater than revenues available from property taxes collected from LSD residents and businesses. That is, the analysis suggests strongly that the Province is funding service delivery in LSDs by using other revenue sources available to it (e.g., income tax revenue, or property tax revenue from non-LSD residents), as well as property tax revenue collected in LSDs.
The reforms put in place in 2011 will result in transfer of various service delivery responsibilities from the Province to Regional Service Commissions and/or local municipalities. In other words, many (if not all) of the ‘Provincial’ services delivered to LSDs and rural communities will, over time, become ‘local’ services rather than the responsibility of the Province. It is hard not to conclude that a motivation for these reforms was a desire on the part of the Province to see that these ‘local’ service costs were paid for by local property taxes, rather than income and other tax revenues. The Comptroller’s Report is thus important, as calculations in the Report appear to support the idea that property taxes are not covering the costs of service delivery in LSDs. A major source of the shortfall in revenue appears to result from the fact that the $0.65 assessment (per $100 of property value) for provincially-supplied services has not increased for several decades.
The Comptroller’s Report is not available directly from the Government of New Brunswick website. I obtained a copy and have converted it into a web document, as shown below. This involved stripping away much of the formatting of the original report, but some re-formatting has been done to add clarity. I believe the text and data have been reproduced accurately, but, if any errors are found, please advise me.
[Note – this is the second post on LSD service costs and governance. I suggest reading the first post in this series prior to this one. Additional posts on this topic will follow.]
A few months ago, the government of New Brunswick released its plan for reforming local governance. This has been a long time coming and it appears that fiscal pressures have finally forced action. While problems in local governance and cost-sharing have long been recognized, political resistance to change has prevented action until now.
The Province has a significant and growing debt, and, given stagnant economic growth, there is little room for optimism. While a reversal of the corporate and income tax cuts of a few years ago, plus a rise in the HST, might balance the books for now, those measures will provide only a brief respite for the Province’s fiscal managers. The main driver in the decision to move forward with the formation of the Regional Service Commissions was, I am sure, the desire to off-load certain costs to property owners, especially those in rural areas, where villages and local service districts have relied upon the province to provide local services at below cost. This reorganization provides an opportunity for the Province to eventually free itself of a cost burden. Moreover, the property tax hikes that are coming down the road (especially for rural residents) will be the laid at the feet of local governments rather than the Province.