How Much Does It Cost To Run A Local Service District (LSD)?

[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.

Local Service District budgets prepared by the Government of New Brunswick can be found here (Scroll down to Annual Report of Municipal Statistics – LSD financial information is found near the end of each year’s report). At the time of writing, the most recent published report was for 2012. Those budgets do not have line items for certain provincially-provided services. For 2013 and later budgets, the Province will be moving portions of those services to those budgets. For example, costs of road maintenance and snowplowing are estimated by officials of Local Government to be roughly $0.40 of the $0.65 tax rate (the remainder is allocated largely to policing with a relatively small amount for administration costs). A portion of that $0.65 will be moved from the ‘provincial’ property tax to the ‘local’ property tax each year over the next several years. Thus, the ‘provincial’ portion of the tax will shrink and the ‘local’ portion will grow. The critical issue here is ‘cost recovery’; the RSC, or the local municipality, will have to ensure that it has the funds to pay for these services. Will the $0.65 levy be enough? Will the 60% of that levy allocated to roads be enough?

Why does that matter? Well, I am afraid that quite a few LSD residents are unaware that the Province intends to turn over local road maintenance responsibilities to LSD residents, just as they have to existing municipalities. The intent of the ‘road agreement’ is to provide a plan by which responsibility for ‘local roads’ will be transferred from the Province to a strange creature called a ‘municipal entity’. The latter is just a term that encompasses the Regional Service Commissions and any municipalities (current or new) that are formed from LSDs. The ‘road agreement’ is designed to offer ‘municipal entities’ an eight year transition period during which the Province continues to maintain local roads in LSDs. After that period (eight years would bring us to the 2019 or 2020 fiscal year), either the RSCs or the local municipality would be responsible for both road maintenance and raising the tax revenue to pay for roads. If your LSD has a large number of kilometers of roads to maintain and an insufficient tax base to pay for them, then a significant property tax hike might be required to provide those funds.

Thus, the answer to the above question depends upon at several variables: 1)  the number of kilometres of local roads in an LSD (presumably the Province will continue to maintain certain Provincially-designated roads, or reimburse the RSC for maintaining them); 2) the relative condition of those roads; 3) the assessed value of properties in the LSD; and 4) the actual cost of providing the road maintenance and snowplowing services.

What are the costs of maintaining and snowplowing roads in New Brunswick? The Province estimated in 2012 that the snowplowing and salting of roads cost about $3550 per km of road. Data obtained (under a Request for Information) for DTI District 5 (the area of which overlaps quite a bit with Regional Service Commission 11) shows that the District maintains approx. 5400 km of roads. The summer maintenance budget for 2014 was approx. $3 million. Those numbers suggest a per km summer maintenance cost of $556. The winter plus summer maintenance costs would therefore be approx. $4100 per km per year. Costs for a given road, of course, will vary according to condition of the roadbed, the number of times the road is plowed per winter, and so on. The 2008 Comptroller’s Report estimated ‘local’ road costs in LSDs to be $3,854 per km. ‘Regional’ local roads had higher costs, so the bill to LSDs (or municipalities or RSCs, as the case may be) will depend on which roads are deemed to be a provincial responsibility and which are deemed to be a local responsibility. In District 5, approximately 75% of total kilometers were ‘local’ (i.e. not arterial or collector roads).

It is worth noting that the province has assumed in its LSD budget process that $0.40 of the provincial tax rate covers the cost of road maintenance. But LSDs vary in tax base, kilometers of roads and type of road. It stands to reason that, when RSCs or municipalities take over responsibility for funding road maintenance, some LSDs will find that they have sufficient tax base to cover road costs whereas other LSDs will be in a deficit position. Residents in the latter LSDs may find property taxes rising in order to pay road costs. If residents can get an approximation of road kilometers in their LSD, and then multiply that by the above per km cost estimates, they can get a rough idea of what their road maintenance budget would be. And remember, the above road cost estimates are for maintenance only; those estimates do not include capital costs for major road-renewals or bridge replacement. Those costs also need to be recovered from property taxes.

Of course, the provincial portion of the property tax levy was not designed to just cover roads. Policing and general administration costs are also provincial services. The 2008 Comptroller’s Report details these costs, and, in particular, how they have increased in recent years. Estimates of resident population and property tax base in your LSD can be found in the Annual Reports referred to above. Those numbers should give you a rough idea of whether your tax base is sufficient or not (remember that ‘local’ services (waste removal, planning, etc) also have to be paid for).

The $0.65 levy has not been adjusted upwards for decades, and it is hard to see how rural properties in many parts of the Province could have increased in value sufficiently to cover those increased costs. Property tax hikes might be in your future.

Facebooktwitterby feather