for Saint John and a more prosperous

JULY 2018

We will shape a sustainable future for Saint John and a more prosperous outlook for New Brunswick. We can achieve this through thoughtful and timely municipal reform, much greater policy alignment, local revenue generation authority and strategic implementation and transitional support from the Province of New Brunswick. i A 2018 PROVINCIAL ELECTION WHITE PAPER

TABLE OF CONTENTS 1.0 Looking Forward 1 2.0 Our Current State 2 3.0 Shaping Our Future 4 STRATEGIC POLICY CONSIDERATIONS 3.1 Implementing Fair Taxation 4 3.2 Changing Provincial Labour Legislation 3.3 Supporting Regionalization 6 IMMEDIATE OPPORTUNITIES 3.4 Supporting the Implementation of the City s Roadmap for Smart Growth 7 and Population Growth Framework 3.5 Enabling New Revenue Streams from Saint John Energy 7 3.6 Waiving the Annual Government of New Brunswick Assessment Charge 8 3.7 Funding Regional Facilities Capital Assets 8 3.8 Repealing the Special Assessment Practices for Canaport LNG 8 3.9 Subsidizing Saint John Transit 9 3.10 Integrating Saint John Transit and Parking Commissions 9 4.0 Our Call to Action 10 Key Reference Documents available at www.saintjohn.ca/councilpriorities Council Priorities 2016-2020 Roadmap for Smart Growth (2017) Population Growth Framework (2018) Municipal Property Tax Issues in The City of Saint John (Kitchen & Slack, 2017) City of Saint John Fair Taxation Report (2017) A 2018 PROVINCIAL ELECTION WHITE PAPER ii

1.0 LOOKING FORWARD Now is the time to have an informed discussion about our City s future and our Region s future with each of our Province s political parties and our local electoral candidates. First, and most importantly, we must demonstrate that our City s costs are under control. This will mean difficult choices about how to spend limited resources over an extended period of time. Through informed long-term financial planning, we need to focus on our highest needs, become more efficient and find ways to accomplish more with less. In other words, we need to be creative and live within our means. Second, the Province must be open to fundamental legislative change which will empower us, as a municipality, to move forward in a sustainable manner. Specifically, we need the Province to remove barriers to diversifying and growing our municipal revenue streams, including the for profit restrictions embedded within the new Local Governance Act. For example, we need to find ways to unlock the value within SJ Energy though new revenue streams and issuing dividends to the City. We also need the Province to help New Brunswick municipalities curb uncontrollable municipal protective service wage escalation resulting from provincial arbitration legislation. We need to compensate people fairly and we need to attract and retain the best people we can, but wage increases cannot be allowed to continue to outstrip our ability to provide quality services to our citizens at a fair and competitive tax rate. We need property tax reform coupled with the Province vacating the practice of collecting the provincial portion of property tax within municipal boundaries. This will allow Saint John to lower tax bills for all property owners, make New Brunswick more competitive for new investment and facilitate local infrastructure, public safety and quality of life investments. By providing leadership in managing costs and applying new revenue streams to reducing the tax rate in the City, Saint John will be able to demonstrate that its fiscal house is in order. Then we can have a credible dialogue with respect to the regionalization of municipal services within the greater Saint John region. The regionalization discussion needs to explore the concept of proportional representation of the current municipalities in a new local government structure which respects the various priorities, cultures and expectations of those communities. Services must be combined to deliver efficiencies which are not attainable under our current structures ironically, the City of Saint John works more closely with the Cities of Fredericton and Moncton than it does with the outlying communities of Grand Bay-Westfield, Rothesay and Quispamsis. Our future lies in finding efficiencies in running a combined regional municipality that will also serve as an East Coast magnet for attracting growth; offering both quality urban and suburban lifestyle choices, where all residents contribute fairly and equitably to the region s quality of life, core services, essential infrastructure and long-term sustainability. 1 A 2018 PROVINCIAL ELECTION WHITE PAPER

2.0 OUR CURRENT STATE Saint John has unique challenges. The sheer size of our geographic footprint (larger than the cities of Fredericton and Moncton combined) is costly to service. By comparison, the proportion of municipal territory per employee in Saint John is over two times that of both Moncton and Fredericton. We also have a unique mix of residential, commercial and industrial land uses, often in very close proximity, which places a very high burden on our municipal infrastructure and services. The City competes with communities and local service districts that are minutes driving distance away, clear of industry, and have tax rates that are as low as 46% less than what can be offered in Saint John. With access to a network of four lane Provincial highways, commutes are both convenient and without the limitations of traditional urban-suburban congestion and delays. The City of Saint John is on an unsustainable path. Our population has declined by approximately 3% since 2011, and a staggering 24% since 1971. We were also the only CMA in Canada to experience a population decline during Statistic Canada s most recent Census (2016). The property tax rate in Saint John is the highest in New Brunswick and will dramatically escalate if local tax base growth of 3-4% annually is not achieved. Saint John is in poor financial health. The City has the highest amount of long term debt in the Province by a large margin, resulting in large principal and interest payments. The cost of replacing the City's aging infrastructure is significant. A recent report indicated Saint John has approximately $400 million in infrastructure that is beyond its useful life and is in immediate need of replacement to prevent service failure. The City funds all infrastructure investment through debt issue because there is no room to fund Pay as you Go capital in the operating budget without increasing the tax rate. The City engaged RV Anderson to review the state of its infrastructure. The consultant concluded the City is only funding 45% of infrastructure needs and that the City is approaching a "cliff'' with respect to future service failures. The 45% incorporates a heavy reliance on gas tax funding; absent gas tax the City percentage of funding would be significantly lower. City revenues are not sufficient to sustain current operations. Tax base growth is stagnant, the Provincial Community and Equalization grant was cut by approximately $3 million in 2018, and operating expenses continue to climb, in particular labour costs. The projected shortfall will continue to escalate in years to come if a structural change is not in place we are facing a projected $15 million operating shortfall in 2021, the year the Province s interim supplemental funding agreement expires. Map shows geographic/size comparison of Saint John, Fredericton and Moncton A 2018 PROVINCIAL ELECTION WHITE PAPER 2

2.0 OUR CURRENT STATE The City of Saint John has very little flexibility to influence revenues and expenses. Approximately 78% Municipal reforms and tax rate relief of City revenues are derived from property taxes. Another are imperative to spur economic 13% comes from the Provincial grant putting Saint John growth, grow the tax base, improve in a vulnerable position due to its dependency on a revenue stream that is subject to change. Expenses are also inflexible the City's financial health and be given approximately 70% of City expenses are made up competitive with surrounding of employee wage and benefit costs, special pension communities. payments and long term debt service payments. Special pension payments are significant (5.8% of overall budget) and will continue until 2028. Strategies to mitigate rising wages and benefits are limited Limited Flexibility in Operating Budget due to a lack of control associated with public safety arbitrated settlements as well as restrictions in current collective agreements. Saint John is taking action. Common Council has established Growth and Fiscal Responsibility as critical priorities for its term, a reflection of the hard fact that we now have fewer citizens to pay for municipal services and assets and meet our budget demands. Saint John has launched the Roadmap for Smart Growth which seeks to maximize the City of Saint John's ability to achieve population, employment and tax base growth through strategic and immediate actions. The City has put in place a robust Continuous Improvement (CI) program which focuses on efficiencies and cost reduction, and our nationally recognized and award-winning Municipal Energy Efficiency Program (MEEP) has removed over $2 million in annual operating costs, while reducing greenhouse gas emissions by approximately 30%. The City is also in the midst of an Asset Management Plan for which policies have been approved by Common Council. Finally, the City is focusing on long-term sustainability with fiscal and financial policies set to ensure decisions are made based on the long term. For example, the City's permanent workforce has been reduced by 82 positions, or 9%, since 2008. 3 A 2018 PROVINCIAL ELECTION WHITE PAPER

3.0 SHAPING OUR FUTURE STRATEGIC POLICY CONSIDERATIONS 3.1 IMPLEMENTING FAIR TAXATION Based on the independent Kitchen & Slack study completed in 2017, there is not much that Saint John can do on its own to improve the fairness and equity of the property tax because property tax policy is largely governed by provincial legislation. The City does have the power to make some modifications such as substituting some user fees for property taxes, which is actively under consideration. User fees, where applicable, will give people an understanding of what the services they are using actually cost and help better manage service level demands. However user fees, on their own, will not address the City s core financial sustainability challenges. As previously noted, the City has a much higher tax rate as compared to neighbouring suburban municipalities, which reflects, in part, the lower cost of the services provided to outlying residents in those jurisdictions. The equity issue becomes even more pronounced when considering adjacent Local Service Districts (LSDs), many of whom lie within a 15 to 30 minute commute to the City core. Effectively allocating the higher costs of operating the City of Saint John within the context of the increasing challenges associated with suburban and rural sprawl cannot be resolved with simple changes or increases to the City s property tax, but rather requires fundamental changes to our regional municipal governance structure to ensure that all of the beneficiaries of local services are fairly and equitably taxed to pay for them. Kitchen and Slack also recommended that the Province should look at gradually getting out of levying property taxes both to improve the transparency and accountability of the property tax system and to provide tax room for municipalities to sufficiently sustain the delivery of citizen services based on local property tax levies. The City of Saint John is recommending that the Province implement fair and reasonable property tax reforms designed to diversify municipal revenue streams, remove exemptions for industrial equipment, introduce flexibility to establish different classes of property for taxation purposes and leave property tax as the exclusive domain of municipalities. Median Household Income vs. Average Property Tax Bill Source: Stats Canada (2016 Census) and 2018 Municipal tax rates (Government of NB) A 2018 PROVINCIAL ELECTION WHITE PAPER 4

3.2 CHANGING PROVINCIAL LABOUR LEGISLATION The City of Saint John strives to be a good employer and negotiate collective agreements that are both fair and reasonable for all of our workforce groups. We value the work of our police officers and firefighters, but need to find a path forward that more effectively balances rapidly escalating protective services wages with other employee groups, while reflecting the City s challenging financial reality. Police and Fire wages have been accelerating at a rate well in excess of inflation and approximately double that of other City employee groups. The City can no longer afford to continue to pay these increases without increasing taxes (already the highest in New Brunswick) or dramatically reducing the delivery of citizen services. Previously, both the Saint John Police Force and Saint John Fire Department have been forced to permanently reduce the number of police officers and firefighters to balance their respective operating budgets. Further reductions are inevitable should the status quo carry forward in perpetuity. As a result of provincially mandated interest arbitration for locally-funded police and fire employees, we are experiencing the following issues: Slow, expensive and at times unrealistic arbitration processes. A lack of incentive to openly and effectively bargain the threat of arbitration also directly influences non arbitrated settlements. A lack of incentive to openly and effective bargain. Strained day-to-day labour and working relationship with our protective service unions. Isolation of the process from free market forces for too long, invalidating the replication principle (a foundation for arbitration decisions here in New Brunswick and across Canada). Creep of arbitrator jurisdiction into fundamental operational matters, including the requirement to introduce the 24 hour shift. Automatic replication of protective service wage increases with other municipalities and between police and fire employees, with no regard for the unique circumstances differentiating each. Persistent failure to acknowledge our ability to pay as a constraint in awarding arbitrated wage increases. Awarding year-over-year salary increases that greatly exceed the increases negotiated with any other component of our municipal workforce, resulting in an erosion of internal equity. Salary compression with our Management Professional (non-union) pay scale, which is reaching untenable levels, including Fire Management Staff with comparable or even lower overall compensation than their direct reports. Cumulative Municipal Workforce Wage Increases 5 A 2018 PROVINCIAL ELECTION WHITE PAPER

Saint John is not alone in facing the challenges associated with provincially-mandated interest arbitration. Based on the work of the Cities of New Brunswick Association s Municipal Sector Human Resources Committee, for the period 1994 to 2019 New Brunswick municipalities will pay an estimated $133 million dollars for wage increases to Police and Fire that are higher than wage increases negotiated with groups not eligible for binding arbitration. If nothing changes and current trends continue, by 2030 New Brunswick municipalities will be paying $31.6 million dollars annually in excess Police/Fire wages and will have paid over $390 million dollars in excess wage increases since 1994. This is a staggering financial impact for New Brunswick municipalities and their taxpayers on a goforward basis. We encourage the Province of New Brunswick to re-engage the Cities of New Brunswick Association in exploring mechanisms to address the current financial sustainability challenges associated with legislated interest arbitration, including: Final Offer Selection Government Employed Arbitrators Right to Strike with Essential Worker Designation Legislated Criteria Numeric Criteria Legislative changes to curtail uncontrollable public sector wage escalation and related financial impacts have been introduced in other jurisdictions, particularly in the event of serious financial distress. 3.3 SUPPORTING REGIONALIZATION Over the next five to ten year time horizon, the City believes that regionalization of municipal services must be a priority. This could evolve over time and begin with appropriate shared service models, but should involve a full and complete review of the municipal structures and funding mechanisms to ensure fair distribution of the cost burden on the beneficiaries of available public services. The City of Saint John requests that the Province of New Brunswick establish a task force to begin investigating regional best practises and lessons learned from other communities across Canada, while initiating and facilitating an exploratory regionalization dialogue involving the greater Saint John municipalities. Population Decline (City vs Saint John CMA) Source: Statistics Canada A 2018 PROVINCIAL ELECTION WHITE PAPER 6

IMMEDIATE OPPORTUNITIES 3.4 SUPPORTING THE IMPLEMENTATION OF THE CITY S ROADMAP FOR SMART GROWTH AND POPULATION GROWTH FRAMEWORK Saint John must grow. In order to be effective at population growth, we need every level of government, local businesses, stakeholders, and our whole community working together to achieve growth. Our economic development initiatives must be purposeful, appropriate, and reflect our unique city. The City also released its Population Growth Framework in 2018, with the ambitious goal to position Saint John as one of Eastern Canada s most welcoming communities. The Framework provides a focused and coordinated approach to growing our population. More people. More jobs. More tax base. We need the Province to be an active growth enabler and partner. The Roadmap for Smart Growth provides a clear sense of what we need to achieve and our initial direction to move forward on a new road of economic development and growth. It provides immediate actions that will be implemented and measured. And it places greater ownership and accountability with the City to provide the vision of what Saint John will be in the future (in alignment with PlanSJ and Council Priorities 2016-2020) and the initial steps necessary to take in order to get us on the road to success. 3.5 ENABLING NEW REVENUE STREAMS FROM SAINT JOHN ENERGY The City of Saint John is actively exploring opportunities to develop new revenue streams with Saint John Energy, including co-investing in new renewable energy generation opportunities and related utility services growth opportunities. The Province can support efforts by removing the "for profit" restrictions within the new Local Governance Act and enabling the City to move forward with a new governance and operating structure for Saint John Energy, allowing for the formalized flow of dividends from the utility to the City. 7 A 2018 PROVINCIAL ELECTION WHITE PAPER

3.6 WAIVING THE ANNUAL PROVINCE OF NEW BRUNSWICK ASSESSMENT CHARGE The provincial assessment fee charged to the City represents approximately 2 cents on the tax rate. The annual charge for assessment services is approximately $1.3 million per year. The Province can support the City by waiving this charge until such time the City's experiences an improvement in its financial health and successfully addresses its long-term sustainability challenges. New assessment service delivery models should also be explored. 3.7 FUNDING REGIONAL FACILITIES CAPITAL ASSETS The Province enacted Bill 62 in the 1990's to legislate the participation of Rothesay, Quispamsis, Grand Bay-Westfield in the operating deficits of Harbour Station, Imperial Theatre, Trade & Convention Centre, the Saint John Arts Centre and the Aquatic Centre. Excluded from this legislation was any requirement for the participants to fund lifecycle replacement capital asset costs. For example, the planned forthcoming roof replacement for Harbour Station currently needs to be 100% funded by the City. The Province can support the City by amending legislation to require participating communities to share in the cost of major capital expenditures and asset refurbishment / replacement investments. 3.8 REPEALING SPECIAL ASSESSMENT PRACTICES FOR CANAPORT LNG The Province, through the Department of Environment and Local Government (ELG), repealed the Act to Comply with the Request of the City of Saint John on Taxation of the LNG Terminal that capped the property tax bill at $500,000 per year. The legislation was prepared by ELG staff with supporting transitional provisions. At the time, the Province indicated that as a result of repealing the Act, was a very high probability that Irving Oil will appeal the current assessed value of the Canaport LNG property (approximately $300 million). The Province indicated that if it repeals the Act, it would not bear any financial risk associated with a future repayment of the municipal property tax levy resulting from a potential successful appeal of the Canaport LNG property's assessed value. The intent was to transfer all financial risks associated with a potential appeal from the Province to the City of Saint John. This is contrary to the normal property tax appeal process and policy of the Province. Canaport LNG has until April 1st each year to appeal the previous year assessment, which means the City cannot budget for this revenue without creating a risk of shortfall in the following year. The LNG property has since been assessed and reduced to $98 million. The Province can support the City by repealing legislation that set forth special assessment practices for Canaport LNG so that the property is treated like all other City properties. This would eliminate the uncertainty associated with budgeting for this revenue on an annual basis. A 2018 PROVINCIAL ELECTION WHITE PAPER 8

3.9 SUBSIDIZING SAINT JOHN TRANSIT The annual Saint John Transit Commission subsidy represents approximately 11 cents on the tax rate. The Commission relies on a grant from the City of Saint John to operate and maintain its building and fleet of approximately $7.4 million per year. The Province can support the City by working with the Federal Government to provide financial support to assist with the cost of providing a transit system to Saint John residents, with a particular focus on at-risk City neighbourhoods and low income residents. We also need to work with the Province and the regional municipalities to explore new and sustainable regional transit service delivery best practises and models. In addition, New Brunswick remains one of the few provinces that taxes municipal transit facilities. 3.10 INTEGRATING SAINT JOHN TRANSIT AND PARKING COMMISSIONS The City is streamlining the governance of its Agencies, Boards and Commissions, including the governance and operation of the Saint John Transit and Parking Commissions. Both Corporations exist through Provincial legislation. The City requires support from the Province in completing the operational and governance streamlining process through appropriate and timely legislative reforms, including the potential repeal of both the Transit and Parking Acts. 9 A 2018 PROVINCIAL ELECTION WHITE PAPER

4.0 OUR CALL TO ACTION Making Our Vision a Reality - Together, we can shape a brighter future for our City and region. We have a window of opportunity to implement transformational change. The City must finalize its plan to respond to a projected $15 million annual operating budget shortfall by 2021. This can be accomplished through a long-term financial plan that includes a combination of continuous improvement initiatives, operating cost reductions, service reductions, shared service efficiencies within the City s agencies, boards and commissions, and new or alternative revenue streams. The City will work diligently with the Province through the recently established Municipal Sustainability Working Group to identify new sustainable funding sources to reduce the tax rate by up to 22 cents (worth approximately $15 million/year) by 2021. The City asks provincial political parties to include in their platforms the recommended property tax and municipal reform policy elements and commit to addressing the unsustainable cost of Provincially arbitrated wage settlements within municipal protective services. The City asks the Province and all political parties to urgently support local and regional efforts to grow our population, jobs and tax base. We require both Federal and Provincial support to execute our Roadmap for Smart Growth and Population Growth Framework. The City asks the Province to identify new areas and opportunities for regional cooperation. The regionalization discussion is essential to our region s long-term sustainability and viability and cannot be accomplished without direct leadership from the Government of New Brunswick. A 2018 PROVINCIAL ELECTION WHITE PAPER 10

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