Report on Council Remuneration – July 2018

REPORT ON COUNCIL REMUNERATION

JULY 2018

Dugal Smith & Associates (604) 299-7977

CONTEXT

This report examines View Royal’s Council remuneration from two perspectives. First, how Council remuneration compares to that of other similar communities. Second, what the impact is on View Royal Council members when there is no longer a tax free portion of remuneration on January 1, 2019.

At present, one third of Mayor and Councillor remuneration is tax free. As of January 1, 2019, the CRA has withdrawn this arrangement. Thus, the after-tax remuneration of essentially all Council members across BC will decline. As a result of this change, Councils are examining their remuneration to decide what to do after the Fall election and in 2019.

This report provides background information and recommendations on the competitiveness of View Royal’s Council remuneration and options to address the new tax structure in 2019.

MARKET FINDINGS

We have surveyed 20 communities for View Royal and are reporting on Council remuneration and plans for changes for 2019. The detailed survey results are presented in Exhibit 1.

The key remuneration findings from the survey are as follows.

Remuneration Survey Findings

Remuneration survey findings are as follows:

As noted above, View Royal’s remuneration is 8.8% below the survey average.

Ratio of Councillor to Mayor’s Remuneration

• Based on the survey, Councillors are remunerated at 48% of the stipend for the Mayor.
• Councillors in View Royal are remunerated at 48% of the rate for the Mayor, which is the common practice.

Indexing

• Approximately one half of Councils surveyed index Mayor and Councillor remuneration to a consumer price index such as that for Victoria. This allows annual increases in remuneration without the need to pass new bylaws every year.
• In one case, a Council uses the annual CPI increase for Victoria to index its remuneration but has a 2% minimum increase if the annual Victoria CPI increase falls below 2%.
• View Royal indexes Council remuneration based on annual increases in the Victoria CPI, which appears to be the common market practice.

Acting Pay for Councillors

• Twenty-five percent of the surveyed communities provide an allowance for Councillors when they act for the Mayor for a prescribed time.
• Councillors are usually designated to act for the Mayor on a rotating basis (i.e. each Councillor takes a 1 to 6 month “acting” term).
• Acting pay for Councillors ranges from 2% to 10% above the Councillor’s regular remuneration for the term of the acting assignment.
• View Royal does not provide an acting allowance, and this appears to be the common market practice.

MARKET BASED RECOMMENDATIONS

To move to a market level, we recommend that View Royal increase Council remuneration by 8.8% effective with the appointment of the new council in late 2018 or commencing in the new year.

View Royal should continue to index Council remuneration using the annual change in the Victoria CPI.

IMPACTS OF THE 2019 TAX CHANGE

Tax Impacts

• Effective January 1, 2019, one-third of Council remuneration will be taxed at the marginal/ highest tax rate of each Councillor. This means that, depending on a Council member’s other taxable income, the marginal tax rate on the last one-third of income will be between 20% and 45%.
• If we use a conservative marginal tax rate of 30%, additional remuneration of 14% is needed to offset the impact of the new CRA regulations.
• Exhibit 2 shows the impacts of the tax change using 20% and 30% marginal tax rates.

Plans for 2019

• There is a wide range in communities’ response to the tax change in 2019 and half of the survey participants are as yet undecided as to how to respond to the new taxation.
• Based on the survey, there is no clear formula for increasing Council remuneration in 2019. The actual range of remuneration changes run from 0% (Victoria) to 25% (Highlands).
• We feel a 10% to 12% increase is close to the average response at this time.
• The different levels of response appear to be from a combination of factors including:
  • The possible reaction of voters to a significant increase in Council remuneration
  • The level of conservatism of Council and its desire to keep municipal costs and taxes low
  • How long it has been since the last remuneration review
  • How Council remuneration compares to market data
  • How busy Council is with critical matters
  • The “weight” of the Council schedule (e.g. frequency of meetings, use of committees, involvement of residents in Council deliberations)
• Of the communities who have decided what to do, the average response appears to be relatively modest. This means that Councils are increasing remuneration but at levels that do not provide for full recovery to Council members for the new taxes.

TAX IMPACT RECOMMENDATION

It is up to View Royal’s Council to assess the factors it should address in considering a remuneration increase. The following recommendation will hopefully help Council in their deliberations:

• Increase Council remuneration by 14% assuming members feel a full tax adjustment increase is warranted.

OPTION

A recommendation of 8.8% (to catch up to market) and, say, 14% (to moderate the cost impacts of the 2019 tax change) are significant (i.e. cumulative 24%). One option would be to approve, say, half the increase effective with the new Council and a further half in January 1, 2020.

COSTING

The cost of an 8.8% increase to move to a market level is:

The cost of a further increase of 14% for the added taxes is:

With both of these increases, the total cost is:

• Mayor - $6,434
• Councillors - $12,337
• Total - $18,771

CONCLUSION

We appreciate your use of our services and trust you will find this report and its findings helpful in Council remuneration decisions.

Dugal Smith & Associates Burnaby, BC July 2018

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EXHIBIT 1

COUNCIL REMUNERATION SURVEY REPORT

This report summarizes the results of a survey of Council remuneration carried out in June 2018.

(1) Annual increase in the Victoria CPI (2) Annual increase in the Victoria CPI with a minimum of 2% (3) 2017 data (4) Excludes Saanich and Victoria remuneration

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EXHIBIT 2

IMPACTS OF NEW TAX REGULATIONS ON COUNCIL REMUNERATION EFFECTIVE JANUARY 1, 2019

The analyses below show the impacts of the new tax on one-third of Council members’ remuneration (Mayor’s remuneration used as an example).

Income Tax Issue Assume 30% Tax Rate

Income Tax Issue Assume 20% Tax Rate

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EXHIBIT 3

COUNCIL REMUNERATION PARTICIPANTS

View Royal provided the following list of communities to participate in the Council remuneration survey.