Infrastructure, like roads, sewers and recreation facilities, are major drivers behind big tax increases coming in 2024.

(JENNIFER STAHN / iNFOnews.ca)

Osoyoos is facing the worst-case scenario of any Thompson-Okanagan community in terms of tax and fee increases heading into 2024 with a hit on property tax bills in the 40% range.

Kamloops residents may have to absorb an 11% increase and West Kelowna council backed off on a proposed hike in that same range.

Yet Kelowna is the only larger city in the Thompson-Okanagan with a tax increase of less than 5%.

Why the sudden hikes and the big differences?

While inflation has been high a major factor, it really comes down to asset management, or the need to maintain, upgrade or replace major infrastructure like water, sewer, roads and recreation facilities.

“I work all over the province and the reality is many, many communities have major infrastructure that’s nearing their end of its life and they haven’t really been putting aside money for that day when they have to replace it,” retired Kelowna city manager Ron Mattiussi told iNFOnews.ca.

Since retiring from the city in 2018 he has taken on a number of temporary CAO positions and council orientations.

“I’ve done orientations after the last election all over the province and I had CAOs say to me: ‘Can you really emphasize asset management?’” Mattiussi said. “We really have to deal with that and a lot of councils are saying: ‘Oh no, I think we’re fine. I’m not prepared to increase taxes in my term to replace something we won’t need to replace for 10 years.’ But you’re talking about millions of dollars. It’s not like, in 10 years, they’re just going to magically have the $60 million or whatever to replace a wastewater treatment plant.”

Of course, that’s not how municipal officials explain their big increases heading into the new year.

“There are lingering effects from the COVID-19 pandemic,” a report to Kamloops city council from Corporate Services Director David Hallinan said. “Increased competition for skilled employees, continued supply chain issues and the high level of inflation in the market all continue to be unpredictable and impact many of the City provided operations and services.”

He's proposing a 10.8% increase that will be discussed in more detail in January.

This follows on a 6.8% hike in 2023 and 4.9% in 2022, so big increases are not new to Kamloops residents. But those hikes came after an increase of only 0.9% in 2021 and 2.3% to 3.4% increases in the three years prior.

While much of Hallinan’s presentation is about expected increases to union contracts and the legitimate impact of high inflation, there are also infrastructure costs that contribute. He lists things like “system maintenance,” the city’s fleet of vehicles, boosting the city’s infrastructure reserves and putting money aside for the city’s recreation master plan.

READ MORE: Kamloops homeowners are looking at a nearly 11% tax hike

Kelowna, by comparison, gave its unionized workers a 4% salary boost in October with another 4% coming in January. It is adding 16 RCMP officers and six firefighters in 2024, taking over the Journey Home Society’s task of tackling homelessness and adding a levy to pay a $242 million loan to rebuild Parkinson Recreation Centre.

Yet its tax increase is 4.75% with staff committing to keeping tax increases below 5% for the next five years.

Despite his 11 years as Kelowna’s city manager, Mattiussi doesn’t take credit for the city’s fiscal management that has kept annual tax increases at 4% or many years.

“I inherited a great legacy of putting money aside,” he said. “Long before asset management was something that was popular, people like (city manager) Ron Born and Cliff Kraft in finance, complemented by mayors like Jim Stuart and Walter Gray and Sharon Shephard – they all understood the need to create reserves.”

That’s something Osoyoos did not do and is now paying the price.

Asset management plans have been done for its water and sewer utilities that revealed an urgent need for upgrades and replacement.

Those are separate utilities so the costs are not technically a property tax increase but since those fees are paid annually along with taxes, they make up about 25% of the 39.3% impact on tax bills that are due July 4.

Osoyoos property taxes are actually set to increase by 13.6% and will be reviewed in January. Much of that increase is for things like putting stable funding in place for its vehicle fleet and building reserve funds for infrastructure repairs and upgrades.

“So now they’re playing dramatic catch up,” Mattiussi said. “They’ve just not put the money back in the maintenance over time – and this is over time, not to blame this particular council. These councils are now paying the price.”

READ MORE: Partial grassroots victory may not keep Osoyoos tax and fee hike much below 40%

Back in the late 1980s or early 1990s – it was before his time so Mattiussi can’t recall the exact dates – the City of Vernon depleted its reserves.

“They kept taxes to near zero, very, very, very low taxes,” Mattiussi said. “They put very little money back into infrastructure and then, a number of years later, their tax rates were up around 25%, which are just ridiculous numbers, because now they had to fix the roads.”

Vernon council has approved a 5.5% tax increase in 2024.

Some of that will go to two more RCMP officers, four firefighters and a full-time FireSmart coordinator, but a chunk is also going to roads, utilities and parks.

The cost of the new Active Living Centre will start showing up on tax bills in 2025.

West Kelowna cut its proposed 11.4% tax increase to 6.9% by, among other things, not putting money into infrastructure and capital reserves.

In the past, the city put $700,000 a year aside for a new city hall and $520,000 a year for a new fire hall so it can now boast no new taxes for those big projects.

Those contributions are the result of past tax increases that built reserve funds, which was a good thing.

But now the city is digging into existing reserves to pay for cost overruns on the yet-to-open city hall and to offset the cost of the loan needed to build the new firehall.

READ MORE: West Kelowna wants to continue building despite legacy cost overruns

“West Kelowna is still considered a new municipality since they’re only 16 years old,” Mattiussi said. “As a new municipality, they are really behind the eight-ball. I’m not sure, in those first few years, if they really did embrace the need to do that (build reserves) but I think as subsequent councils came on board, that became more important.”

That realization, however, seems to be fading in order to avoid a double-digit tax increase.

Penticton is coming off a 9.3% tax increase in 2023 with a 5.3% hike in the works for 2024.

The 2023 budget included a sizeable amount for infrastructure and the 2024 version includes things like energy efficiency upgrades, expansion and upgrades to the sewage treatment plant and city works yards upgrades.

Since 2018 – well before COVID – tax rates in the region’s five largest cities have ranged from less than 1% to more than 9%. In most cases, 2024 will be the biggest hit on taxpayers.

“The real trick of municipal financing, I think, is to have that nice balance that puts money aside and prepares for those assets that are going to need replacing,” Mattiussi said. “What you want is stable taxes. They may not necessarily be high or low. You want stability. If your taxes are around 3% to 4%, I think that is always better than 12% and 15% and zero.”

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