To bank or to build?

Last fall, the Fraser Valley’s three largest municipalities’ politicians and financial planners sat down and hammered out their budgets—and what they would build over the coming years.

Langley Township would build a huge new soccer campus, a new concert hall, and an array of bigger, better roads. Chilliwack would build a big new racquet sports facility, potentially a large new south side park, and an array of bigger and better roads. Abbotsford, meanwhile, would repave roads and upgrade water and sewer infrastructure.

If it seemed like Abbotsford’s plans were dwarfed by those of its neighbours, there was nothing particularly surprising in that.

Abbotsford’s bank accounts were once a financial mess. But in recent years, no other large Fraser Valley municipality has socked so much money away in the bank, awaiting the day when the city will stop saving and start finally spending.

Yesterday, we wrote about how BC’s municipalities spent five years bolstering their bank accounts more than building infrastructure for their growing communities. Find that story here. Today, we look at how the Fraser Valley’s municipalities, both large and small, have taken different approaches when it comes to spending and saving.

Unlike senior levels of governments (or many people), BC’s municipalities generally operate with substantial money either in the bank or tucked away in investments that can rapidly be turned into cash when the need arises.

That money, as The Current explained in the first piece in this series, is often slotted into a variety of reserves. The source of a municipality’s revenue—be it developers, taxes, or water or sewer fees—often determines how it can be spent. Water fees, for instance, can’t usually be spent on roads or recreation facilities. Tax money can be spent however a city sees fit. And money from a developer usually has to go towards projects meant to address pressures caused by growth from the project being built.

But although municipalities generally deal with the same constraints, their approach to spending that money varies. Some municipalities maintain far larger reserves than others. That’s often a function of a desire to save for specific large long-term projects down the road. But the inclination to save or spend can also be reflective of the personal and political dispositions of a community’s leaders and money managers.

As we reported in this story, between 2017 and 2022, municipalities tucked away increasing amounts of cash. As a group, the financial assets of BC cities and towns grew by more than 50%, even accounting for inflation and population growth.

And that trend could largely be seen across the Fraser Valley—with a couple exceptions.

The spender

Only one Fraser Valley municipality actually saw its financial wealth dwindle.

In Chilliwack, the community’s financial assets declined by 16 per cent between 2017 and 2022, adjusting for inflation. When accounting for population growth, Chilliwack had about 25% less in the bank for every resident in 2022 than five years prior.

Every other Fraser Valley municipality saw its financial assets grow between 2017 and 2022.

Chilliwack wasn’t operating in a deficit state. It was still posting surpluses. And the money spent on capital projects wasn’t disappearing. Instead, as money left the financial side of the city’s asset ledger, it (mostly) returned on the non-financial side, with the city’s tangible assets increasing in value by seven per cent. (Though population growth outpaced that increase.)

The result was that Chilliwack was the only Fraser Valley municipality in which the share of assets parked in financial instruments decreased. In all other Fraser Valley municipalities—and, indeed, most cities and towns across the province, the share of assets in cash or investments increased.

Chilliwack’s drop in financial assets may have been partly a consequence of the city’s hesitancy to increase taxes. In 2022 and 2021, the city approved tax hikes of 2.99%—lower than most other Fraser Valley municipalities. That has left the city with one of the smallest surpluses, compared to its budget, in the region.

But Chilliwack’s policy of drawing down its reserves may be mostly over.

Asset figures for last year won’t be published until the summer. But the City of Chilliwack increased taxes significantly the last two years, with Coun. Jason Lum saying the last hike came with “sticker shock” but was necessary to maintain the city’s infrastructure.

It also may be necessary to keep the city functioning properly. When inflation and population is accounted for, the per-capita value of all Chilliwack’s assets actually declined by 7% between 2017 and 2022.

Although the city has planned to draw on its operating reserves again in 2024, its new financial plan envisions it parking increasing amounts of money in the bank over the coming years.

The save-to-spend-er

On the other side of the valley, Langley Township has, by far, the smallest rainy day fund, when the size of the municipality is taken into account.

Financial assets—particularly each city’s unrestricted reserve—operate as a sort of backstop to allow municipalities to continue to function, provide services, and maintain and improve infrastructure if and when development slows or other revenue sources take a dip. They also allow municipalities to maintain assets, most of which, aside from land, eventually deteriorate and must be replaced.

Langley Township, though, has—by far—less money on hand to deal with such events than other municipalities. But it also has more power to raise cash at a moment’s notice.

Of all the Township’s assets, just 5% are of the monetary sort, by far the lowest financial-to-non-financial asset ratio in the region. All other local municipalities, even Chilliwack, have at least double that share of assets in financial instruments.

The township’s financial assets are also notably low compared to its operating budget. Langley Township had just 42 cents in the bank for every dollar of operating expenses in 2022. Only one other municipality, Chilliwack, had fewer financial assets than annual expenses in 2022 (it had 61 cents of assets for every dollar of expenses).

The strategy predates Langley Township’s current council. But the reserves seem unlikely to grow to meet its neighbours. Council has continued to plan for building costly new projects, like a $154 million soccer campus, suggesting the Township’s rainy day fund isn’t likely to grow much in the years to come.

Although some councillors have concerns about the rate of spending, the financial documents also show the Township’s finances, while an outlier in the Fraser Valley, are not necessarily indicative of recklessness—or at least they weren’t up to the end of 2022.

Between 2017 and 2022, Township spent its money at about the same rate as it has been saving it. Over those five years, the Township’s per capita financial assets increased by 33%. Its tangible assets increased by 23%, when population growth is taken into account. That’s by far the largest increase anywhere in the valley.

The saver

On the other side of the coin—and most representative of trends across BC—is the City of Abbotsford.

In Abbotsford, the question is not “Is there enough money in the bank?” but “How much is too much?”

Between 2017 and 2022, its net financial assets grew by 66%, identical to the provincial average. But the value of its physical assets declined by 2%. Factor in population growth, and the per-person value of the city’s tangible assets dropped by about 10%.

By 2022, one-fifth of all the municipality’s assets was sitting in a bank (or investment account).

Abbotsford’s books may be partly a function of its history and memories of a time a dozen years ago when the city’s net financial assets were in the red.

That grim financial era was partly the legacy of debt taken on to finance Abbotsford Centre coupled with lingering expenses linked to that facility. Under Mayor Henry Braun, who retired in 2022, the city focused on creating long-term infrastructure plans while running healthy surpluses and augmenting its reserves for the moment when it would actually start acting upon its infrastructure ambitions.

The question is: When will the building actually start? The city is theoretically facing huge bills to improve dikes and flood protections on Matsqui and Sumas Prairies. But it has said it doesn’t have the money to do so and will rely on funding from the provincial and federal governments. (The city is correct that, despite its financial clout, it doesn’t have the money: the dike projects run into the billions of dollars and Abbotsford’s reserves were under $400 million in 2022.)

Abbotsford had also been planning to upgrade its water supply and was facing a substantial bill to do so. The province, though, has said it will pick up three-quarters of that cost.

Abbotsford has notably lagged behind its large neighbours when it comes to creating new parks and recreation facilities and bolstering its transportation system.

Whereas both Langley and Chilliwack have spent millions widening roads, Abbotsford’s road network looks mostly the same as it did a decade ago. Langley and Chilliwack have also spent more freely on new recreation facilities than Abbotsford, which has undertaken a range of planning exercises, but done little actual building over the past decade.

The mid-sized communities

In recent years, Mission has taken a middle road between the approaches outlined by Abbotsford and Township.

Other than the Township, it’s the only community with physical assets that have outpaced inflation and population growth. At the same time, the city’s financial assets have grown even faster, leaving Mission with nearly as much money in the bank, per person, as Abbotsford. Mission has also run large surpluses, especially for a community its size, leaving itself plenty of flexibility.

It will need all those assets, though. Mission was the region’s slowest-growing community between 2017 and 2022, but has become a building hub since the start of 2023. With significant growth expected and already affecting local facilities, the city looks to be focusing much of its spending plans on new recreation amenities and parks.

Langley City is in a similar situation. The city’s bank account swelled faster than Mission, and it has built and bought less with that money. But the arrival of SkyTrain and, like Mission, the delayed arrival of significant growth, is likely to require increased capital spending in the years to come.

Langley City also recorded the only inflation adjusted decline in the value of its physical assets between 2017 and 2022. Factor in population growth, the value of its per capita assets shrunk by 12%. That decline wasn’t completely offset by the growth of its bank account, as the per capita, inflation adjusted value of all city’s assets dropped by seven per cent, the largest decrease in the region.

It will need to reverse that trend just to maintain services.

Rich little towns

Nobody has as much money in the bank as the Fraser Valley’s smallest municipalities.

Hope, Harrison Hot Springs, and Kent all have more than 20% of their assets parked in the bank. That share has increased dramatically in all three municipalities between 2017 and 2022. By 2022, each municipality had more than $1.60 in the bank for every dollar of expenses on its books.

Combined, the three municipalities have about 15,000 people and $59 million in financial assets. (By comparison Langley City has about twice as many people, and fewer financial assets.)

The three municipalities, however, aren’t all pursuing the same financial course.

Take Hope. Between 2017 and 2022, the district’s financial assets nearly doubled (albeit before being adjusted for inflation), while its physical assets edged up by just $800,000, or barely 2%. It’s been even more of a saver than penny-pinching Abbotsford, leaving its bank accounts looking good but its physical assets in decline even before population growth is taken into account.

Meanwhile, Harrison Hot Springs’ bank account stands out even from the other (relatively) rich communities.

With financial assets of more than $11 million in 2022, the village of just 1,700 people had about $6,700 in the bank for every resident. By comparison, Hope had $3,870, and Kent had $3,042. None of the valley’s large municipalities topped $2,400 per person.

Harrison also has, by far, the most physical assets, given its population. The village had, as of 2022, nearly $30,000 of physical assets for every person. That’s triple the physical assets of Hope, Kent, and Chilliwack. No other municipality has more than $18,000 worth of assets per person. But even given that, its bank account is still flush with cash, with 23% of all the village’s assets in financial instruments. That ratio has risen faster than anywhere else in the valley.

(The high level of assets, on a per-person basis, is partly a function of Harrison’s low population—smaller communities tend to get proportionally more help from senior levels of government—coupled with its advanced commercial and tourism sectors.)

Kent, meanwhile, has bolstered its very healthy financial reserves while its physical assets almost kept up with inflation and a quickly growing population. The figures also explain why and how the district is planning to build a $21 million aquatic facility.

The district is only contributing about $6.4 million towards that figure, but even that is still a huge cost for a town of just 7,000 people. But with $21 million of financial reserves, as of 2022, Kent has the balance sheet to manage the cost. Although not all its reserves can be used to directly pay for a pool, the money gives the district enough of a cushion to allow it to promise to keep tax rate increases in line with, or below, other municipalities in the region.