Mayor confident ‘budget bomb’ can be defused if part of $58.8M budget surplus directed to tax reduction

Back to back record surpluses in the municipal budget has London Mayor Josh Morgan considering using some of it to lower taxes.

Back to back record surpluses in the municipal budget totalling almost $90 million has London Mayor Josh Morgan planning to stray somewhat from City Hall’s policy for utilizing unspent tax dollars each year.

According to a report summarizing the 2024 Property Tax Supported Budget, the city posted a staggering $58.8 million surplus, representing 4.4 per cent of the gross budget.

The 2023 operating budget surplus was $28 million.

Morgan believes the $58.8 million from last year should be divided across a number of priority areas.

“We have to set some aside to cover some DC (Development Charge) obligations from statutory exemptions that the province makes us do, [and] we should put some through policy to ensure that we’re offsetting debt, unfunded liabilities and the infrastructure gap in the future,” the mayor explained.

He added, “Given the size of the surplus, and given the budget increases that we’ve had last couple of years, I think a portion of that ($58.8 million) should be devoted to some relief for taxpayers.”

Using surplus dollars to fund ongoing annual expenses in the municipal budget has often been referred to as a “budget bomb” because when the one-time money eventually runs out, council is left with a financial gap to fill.

Morgan expresses confidence that savings can be found over the coming years to backfill the short-term tax relief, thereby defusing any future financial impact.

“That’s why you got to be very cautious with this, and that’s why we can’t take our foot off the gas on finding the permanent savings to backfill those over time,” Morgan admitted. “But we could provide relief for a couple of years in the back end of this budget year and find the permanent savings to make them sustainable into the future.”

However, a staff report does not recommend any tax relief.

Instead, it suggests retaining $16.6 million in the Operating Budget Contingency Reserve to fund statutory Development Charges exemptions.

The remaining $42.2 million (3.1 per cent of gross budget) would then be divided up according to the surplus/deficit policy:

• 60 per cent contribution to the Debt Substitution Reserve Fund ($25.3 million)
• 3 per cent contribution to the Community Investment Reserve Fund ($1.3 million)
• 7 per cent contribution to the Unfunded Liability Reserve Fund ($7.2 million)
• 20 per cent contribution to the Capital Infrastructure Gap Reserve Fund ($8.4 million)

The report goes on to warn, “It is important to highlight that many of the factors driving the 2024 surplus position will not recur in 2025 or may not persist in future years.”

The mayor has already committed to a 2025 property tax increase below 5 per cent.

He hasn’t decided how much of the surplus he would support redirecting towards tax relief, but tempers expectations.

“I’m not talking huge amounts of money that we’re going to have to find, but we can provide some relief and bring down that budget on the back end,” Morgan explained.

A long list of programs and departments contributed to the surplus.

The largest contributor ($28.8 million from Financial Management) is described as a “surplus in provision for tax appeals & uncollectible taxes ($10.8 million) due to delay in property reassessments resulting in lower appeals and assessment at risk, investment income surplus ($10.5 million) from higher interest rates than budgeted, personnel & contingency savings ($5.7 million), and other miscellaneous factors ($1.8 million).”

Other significant contributors include:

• Community and Social Support personnel savings ($1.8 million)
• Ontario Works net surplus ($4.2 million) due to higher than budgeted provincial funding and transition to London Regional Employment Services,
• Child Care net surplus ($2.9 million) primarily due to 2023 revenue adjustments
• Personnel savings ($3.0 million)
• Utility savings ($1.0 million) due to lower fuel prices
• Provincial Offences Act ($2.9 million) surplus primarily due to implementation of new accounting standard
• Higher than budgeted user fees primarily in W12A landfill ($3.3 million)

The report also warns of significant financial impacts if the trade war with the United States impacts economic growth and the price of goods.

“Direct impacts would be in the form of increased costs of goods or services purchased by the city that are subject to tariffs. Indirect impacts, on the other hand, could be even more significant and result from changes in economic conditions,” the report reads.

The Infrastructure and Corporate Services Committee will consider the report on the 2024 budget surplus on April 30.