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Jun 2020 | May-June Issue

Financial Impacts of COVID-19 on Local Governments featuring Huu-ay-aht First Nations
Lynda Nguyen, PSD
Canada’s municipal composition consists of urban, rural, northern, and remote communities that deliver a wide spectrum of services. Like individuals, no two communities are experiencing the current pandemic in the same way; but one thing is certain, there are major disruptions for local governments and some emerging themes have become clear.

I. revenue

 
One of the largest concerns brought forward by Ontario municipalities in the recent MFOA (Municipal Finance Officers Association) webinar series “Property Tax and COVID-19: Informing the Decision Making Process,” was the impact to government cash flow.
 
The pandemic is compounding the financial pressures cities have been feeling for years. By law, and as already referenced in Dunn and Sorbinski’s article on municipal insolvency, municipalities are not allowed to have budget deficits. Yet at the same time, municipalities must continue to provide essential services and balance the budget alongside mitigating the impacts of COVID-19 and the resulting economic consequences. Some municipalities are faced with high debt repayments but with reduced revenue from transit, user fees, and deferred property taxes, and many cities will carry a financial burden that will impair service levels for years to come unless federal or provincial government relief becomes available.  
 
The City of Sarnia, Ontario waived transit fees, which represents the most significant impact on revenue. In the city, transit ridership has decreased by 80 percent on a reduced Sunday service schedule which has resulted in a $500,000 reduction in transit revenue per month. In other lower-tier municipalities, such as the Town of Essex, Ontario, projected revenue losses are minimal due to a narrower scope of services provided. However, this does not to suggest the pandemic is not affecting that region, but instead are experiencing financial impact on reduced shared services such as waste water, solid waste, social services, social housing, and transit with the nearby City of Windsor.
 
The Federation of Canadian Municipalities called for immediate action from the Federal government for an amount of $10B in targeted emergency operating funds: 
 
  • $7.6B based on federal gas tax funding allocation and administration 
  • $2.4B based on transit ridership 
 
Not all communities have deep reserve balances to draw from. Unless emergency relief funds become available, Municipal Acts stipulate that Canadian municipalities shall provide for any deficit of any previous year in preparing the annual budget. Any deficit not funded from other levels of government (e.g. grants) will need to be reflected in the 2021 operating budget unless other measures are adopted by elected officials.

II. staffing

 
With physical distancing orders in place, senior management have been encouraged to think creatively about how to support staff’s health and safety. Municipalities have been working with union groups to rewrite standard operating procedures for outside workers to implement physical distancing measures such as staggered start times, adding an additional shift without shift premiums and assigning one truck per staff member, to name a few. In Grey County, Ontario some staff have been trained and redeployed to long term care facilities, providing assistance with services such as tray delivery, laundry, or to help residents connect with family over virtual mediums.
 
While many government offices switched to remote operations after provinces declared a state of emergency, it became evident that many municipalities have no formal policy related to working from home or use of devices in place. This may present an organizational risk. With the lack of laptops available, IT departments were sending desktop computers home, raising the issue of needing to track hardware within the organization and cyber security. 
 
Moreover, finance departments are struggling with their capacity to keep up with internal and external reporting, especially with key positions remaining vacant. There is significant concern among municipalities who are at various stages of closing the 2019 year-end. Even more, many audits are experiencing delays in field work due to reduced access to financial information. With 2019 financial statements still outstanding, and the 2021 draft budget cycle that would normally begin in late spring looming, there are concerns of overlapping pressures on staff.

III. COST SAVINGS

 
Should the current crisis continue into the mid-term, projected deficits are unavoidable. Some examples of proposed cost saving measures could include extensive use of stability reserves, delay of hiring of non-essential personnel to create vacancy savings, layoffs, reduction in discretionary spending, and imposing a one-time service level adjustment in 2020. None of these options are sustainable or palatable.
 
Meanwhile, taxpayers are also in need of relief. For example, under section 106 (1) Assistance Prohibited of the Ontario Municipal Act and section 225 (2) (c) Prohibition against aid to a Business of British Columbia’s Municipal Act, direct/indirect assistance to commercial or industrial taxpayers is prohibited. In other words, property tax deferrals are eligible to residential taxpayers only. In light of this, the Township of Strong, Ontario is charging commercial ratepayers the lowest consumption rate for wastewater and sewage in an attempt to provide some tax relief. Members of the MFOA want to lobby the Ontario government to amend regulation s.106(1). Additionally, there may be some flexibility in the language under s.365(1) Cancellation, Reduction or Refund of Taxes to include commercial and industrial rate payers in the spirit of fair and equitable tax treatment. However, lawmakers should use caution as sweeping amendments could have the unintended consequence of shifting a disproportionate tax burden onto residential tax payers.

IV. Huu-ay-aht First Nations - A Beacon of Strength & Resilience

 
While Indigenous communities are in a uniquely vulnerable position when it comes to COVID-19, First Nations are resilient in their response to facing this crisis. 
 
Huu-ay-aht First Nations (HFN) is a self-governing, modern treaty Nation whose lands are located in the Barkley Sound region on the west coast of Vancouver Island. Not only does HFN have jurisdiction over more than 8,200 hectares of the land and waters within its traditional territories, they also care for the wellbeing of their 750 citizens who primarily reside around the remote village of Anacla and throughout British Columbia.
 
Anacla is an isolated community and its needs are unique. While isolation helps to slow community transmission of COVID-19, it also presents other challenges such as food shortages and loss of wages. With uncertainty about how long the pandemic will last, HFN determined a variety of actionable items to respond to the crisis by  implementing emergency funding measures for its citizens including assistance with: 
 
  • General financial aid 
  • Food support and food delivery to Elders
  • Limited road access to Anacla
  • Medical and personal protective gear
  • Continued Living Allowance to students
  • Communications Outreach to citizens
 
Under the Food Support program, HFN partnered with Telus to deliver canned salmon to Huu-ay-aht households in Anacla, Vancouver Island and on the Mainland. They even take special care of Elders in the community by offering the choice of fresh or frozen fish. A community outreach team makes weekly calls to check in with its citizens and connect them with any resources needed. These are challenging times and HFN is in a fortunate position to provide a one-time, $500 general financial aid payment to each citizen to help offset the hardships.
 
On May 21, 2020 HFN learned that they are now eligible for the Canadian Emergency Wage Subsidy Program through the federal government. The program offers employers who qualify a subsidy that covers up to 75 percent of their employees’ wages for 24 weeks, retroactive from March 15 to Aug 29, 2020. To be eligible, businesses must demonstrate a decline in revenue of 30 percent or more as a result of COVID-19. 
 
Initially, the Huu-ay-aht Group of Businesses did not meet the eligibility criteria because the limited partnership structure is not considered an “eligible employer.” Huu-ay-aht immediately took steps to reverse the decision, including working with the area MP Gord Johns in Ottawa and an aggressive media campaign. The Nations’ efforts paid off, as the Assistant Deputy  Minister of Lands and Economic Development Kelley Blanchette notified Chiefs across Canada that the Nation now qualified.
 
It’s clear that a “one-size” fits all solution will not be an equitable approach to mitigating the impact of the pandemic on municipal finances. Elected officials should be provided flexible policies to allow them to use funds and resources where they are needed most in their communities. Councillor John Jack is a three-term member of Council for HFN and Director and Chair of the Alberni-Clayoquot Regional District. He attributes the Nations’ successes to forming a COVID-19 task force early on.
 
“Acting quickly and ensuring clear communication have been key in what has been an effective response to the current situation. Our efforts haven’t been perfect, but decisive action has been better than a more ponderous approach. Ensuring our entire organization and all of our citizens are informed has been just as important since folks have to know what to do to protect themselves, protect others, and mitigate risks.”
 
As of the end of May, we have not yet reached the end of this public health emergency. The duration of the current crisis and the length of the shutdown is still unknown. Nor do we know whether additional financial support will be available to municipalities. Given the degree of uncertainty, local governments can focus on immediate actions to mitigate the impact arising from the closure of businesses, the loss of employment and the temporary loss of several important municipal services. Huu-ay-aht First Nations is an example of a resourceful and adaptable government that is addressing the immediate needs of its people. 
 
 
Lynda Nguyen CPA, CMA is a Financial Consultant with PSD with over 15 years experience in corporate accounting, budgeting, forecasting, and financial analysis. Her vibrancy and knowledge have fueled success in the public and private sectors. She enjoys working with senior leaders to support the strategic and operational decision-making process by providing analysis, advice and recommendations. She is seasoned in the development, compilation and review of annual and multi-year budgets as well as period end reporting. Career highlights include contributions to the financial planning and analysis of the North Island Hospital campuses in 2017 and The Summit at Quadra Village, a new 320 bed long-term care facility scheduled to open in 2020.