Why property taxes are going way, way up

From the Star Phoenix " Build city with long term view"

The city's infrastructure deficit a couple of years ago was at approximately $930 million, which is deferred maintenance, upgrades and replacements that we as a city know are needed but hadn't done, hoping that all will be OK.
Add in the fact that we have a condemned bridge to replace, and we are looking at a billion-dollar tab that's starting to come due. It's the municipal equivalent of ignoring that grinding noise from the brakes on your car, hoping that it's really nothing. (If that strategy actually worked, my wife would be running for city council).

It is estimated that Saskatoon would need a property tax increase of 33 per cent to close the infrastructure gap

So the city has a billion-dollar infrastructure deficit and on the other hand is piling into debt to "grow" the city in the short term, hoping the city has endless growth in the long term and we never have to worry about debt. This is not sustainable as former mayor Henry Dayday says in an article in the Star Phoenix a few months ago

The purpose of this letter is to answer the concerns that the taxpayers have raised. How do we pay for this spending and how will it impact on future tax increases?

To date, we have a borrowing limit of $400M with $175M already borrowed. We have a projected unfunded liability to the end of 2015 for reserves of$144M. We the have a number of expensive projects that are already started with funds committed such as the $131M police station, the $67M Art Gallery, the $26M traffic bridge and a $200M approved financing plan for a new transit headquarters and the relocation of the city yards without knowing the funding sources. These commitments already appear to exceed the borrowing limit.

A few stats:

• Capital spending in 2011 was projected to be $352 million
• Capital spending in 2005 was $165 million
• City debt in 2003 was $23 million
• City debt by the end of 2011 is near $175 million
• For every $1 of taxes brought in, 5 cents is paid to debt servicing. 

It should be noted that while the debt limit for Saskatoon is $414 million, it was $298 million just 2 years ago.

City expenditures are through the roof and it is of no secret that new lot prices are through the roof, having doubled in about 5 years. Part of the reason lot prices have doubled is that the city can offset a potential increase of taxes because of the increase in spending from current homeowners onto buyers of new homes. This is a big "hidden tax" that the city can use to generate revenue without raise property taxes.  This is one of the reasons why house prices are totally out of whack from incomes.  But the consequences are that because incomes have not increased as so, more private debt is needed to fill in that gap. 

One has to wonder what happens if the "boom" ends and lot sales do not bring in as much revenue.

One of the reasons why all booms end in bust is that if a big part of the economy is growing because of debt financing and at some point it hits the ceiling, it will bust.  If the city of Saskatoon hits the debt ceiling of $400 million in a few years, do they continue to raise the ceiling so that the "momentum" can continue?   Does the city wait until the infrastructure deficit hits $1.2 or $1.3 billion to fix the problem, most likely at a time when the Federal government is firmly entrenched with austerity measures? And if lot sales fall, what does the city do to generate that revenue they have grown accustomed to?  My answer is that property taxes are going to have increase and not just in low single digits in the not too distant future.  I also expect some services to be cut or scaled back.  Closing our eyes and crossing our fingers hoping for endless growth to keep the momentum going while things like infrastructure deficits are put off and private and public debt are piling up is not sustainable.  And because it is not sustainable, the tax situation could be interesting in this city in the next decade.