Why a few years of high taxes are good for us

2

by Mayor Shaun McLaughlinShaun

The most frequent complaint I hear is, “why do property taxes in Mississippi Mills keep rising so much?” Yes, taxes have risen about twice the inflation rate for four years. That was necessary to get the town on solid financial footing. It is short-term pain for long-term comfort. Starting in 2019, tax increases will be at the inflation rate or less. Also, 2019 will be the year we stop borrowing from banks for most capital purchases.

In 2013, Mississippi Mills began implementing its long-range financial plan (LRFP). It called for six years of a 7% increase in revenue. With growth factored in, the actual town tax increase has stayed around 5%. (When blended with County and school board levies, the real increase has been about 3.5%) After those six years, which end in 2018, the need for new revenue drops to 2.5% annually. When we factor in growth, tax increases will likely be 1% annually, maybe less. That is what you can expect on your 2019 tax bill.

The LRFP Financial Trinity

The LRFP has three major components: capital spending, debt management and reserve accumulation.

Capital is money invested to close the infrastructure gap. Previously, our town did not spend enough on buildings, roads and bridges to keep them in good shape. For example, six years ago, Public Works said we had fifteen bridges that needed replacement or major overhauls in about 15 years. We’ve fixed about one per year at a cost of between $400,000 and $1.3 million each. We have ten more to do. The funds come from taxes, some grants and borrowing.

Debt is what the town must borrow to help fund infrastructure improvements. As of 2016, our total debt to lenders sits at $16.4 million. It will grow to $18 million by the end of 2018. (Half of that relates to the wastewater treatment plant.) Don’t worry, it is very manageable and mostly low-interest. Under the LRFP, our total debt peaks in 2018 and declines steadily. Each year, our interest and principle payments decline, and thus the burden on taxpayers.

Reserves are funds accumulated to use as an in-house bank. When a municipality has healthy reserves (money in savings), the town can borrow from itself for most capital purchases and avoid bank interest. For example, if Public Works needs $300,000 for a new piece of heavy equipment, the money comes from reserves. The department repays that loan through its budget over 10 to 20 years. Under the LRFP, we will have enough in reserves by 2019 to borrow from ourselves for almost any need.

Lanark County Shows the Way

Lanark County, where over one-third of your property taxes go, already benefits from a similar financial plan. Between 2006 and 2012, the county imposed high annual tax increases to catch up. Since 2013, tax increases have been under 3%–just 2% in 2016 and 2017. The county’s debt, at $18 million in 2009, has declined to under $6 million and is headed for $2 million by 2020. County reserves have held steady as total debt fell and are now twice the value of the County’s debt. This is an enviable financial position. This is where Mississippi Mills will be if we stick to the plan.

Staying the Course

Strong reserves, low debt and modest tax increases are where Mississippi Mills is heading—and it is only a few years away. The only threat to our future fiscal health and stability is politics. Some politicians, especially rookies, like to campaign on a promise to cut taxes. (Remember former Ottawa mayor Larry O’Brien?)

The LRFP balances capital investment, healthy reserves and declining debt. The only way a Council can actually lower taxes—other than cutting services—is to take on more debt, or to spend less on capital (and thus widen the infrastructure gap), or to drain reserves to fund operations, or a combination of the three. That is shortsighted because, eventually, debts need repaying and bridges need repair. That means sudden, large tax hikes later. If we stick with the LRFP, we’ll not be surprised like that in the future.

The town is a corporation. Imagine if a private corporation borrowed money to fund operations and charged customers less than the actual cost of the goods and services provided. It would not stay solvent for long. Smart people pay their way.

Let’s stick with the LRFP. Any significant deviation from it will wreck the plan and will make the six years of high taxes a waste of effort.