There’s really two big blocks of the budget – operations and capital.
Operations is cash-flow oriented. Money in to pay for services out. At least that’s the simplest way to view it. Municipal operating costs are salaries for the people delivering municipal services plus the other direct input costs – utility bills, consumables, and managed contracts with third parties that provide services like road repair, building maintenance, mowing, snow removal, etc.
Capital is investment in infrastructure and equipment – the “stuff” that services flow through – recreations centres, buses and trucks. It’s important to note that pretty well everything that falls into this category is a depreciable asset. Let’s use your car as the example – once you drive it off the lot, it loses value and continues to lose value until you ultimately have little choice but to replace it. Repairs costs along the way to keep it in good repair enough to continue to use it come from operational cash flow. The purchase of the “thing” are a capital cost – normally in the form of debt that you pay off over time. Now imagine instead of a car, it’s a road, bridge or recreation centre – capital and operating costs each affect the tax bill you pay, but at different times and rates along the way. Capital items are paid for with debt – and interest payments are applied to that debt. The payments for capital items – principal plus its associated interest – then come out of your operating budget. So the capital budget is a planning document for how much you can afford to invest in these depreciable assets over time since the operating budget has to accommodate the principal, plus interest, plus the costs of repair and day-to-day operating whatever it is that you’re using to deliver service to residents.
The HRM operating budget is about $1.2B to deliver service to roughly 500,000 residents in approaching 200,000 occupied residential dwellings and to more than 4000 businesses spread across more than 5500 square kilometres. The HRM Charter, which the province used to create the Halifax Regional Municipality, provides an extensive list of rules and responsibilities for the municipality. The one that’s important for this discussion is that we are not allowed to operate at a deficit. Plain and simple, we cannot put day-to-day operating expenses on debt the way the provincial or federal governments can. That means the tax bills residents and businesses pay (currently a little more than 80% of the operating budget), coupled with any fees the municipality brings in (making up the rest), collectively has to cover all of the municipality’s expenses in the operating budget.
Not to throw a monkey wrench into the discussion, but if you watched any of the most recent budget discussions, you may have heard about a third related term, capital renewal – when you pay cash from the operating budget for what might otherwise have been a capital item (which remains a depreciable asset). It matters because when you do this you’re paying for something up front without having to put it on debt. It has a more immediate impact on the tax bill because when this is done for what might otherwise be a capital item, it tends to have a larger price tag. But it can also itself mean long-term savings because you eliminate the interest that would be applied if it was paid for with debt. It’s a method of payment that is often used for expensive things like the upkeep of our roads to keep them in a good state of repair – remember that a roadway too is a depreciable asset. In truth, it’s a liability. We have to keep it in good repair or it ceases to function safely for residents. We spend more than $60M per year in capital renewal road repair. It’s not a new road (which might be a capital expense), it’s an operating cost of an existing roadway. Some “assets” add a lot of our operating budget – roads being one of the biggest, and they keep growing.
The Debt Service Ratio
As a municipality, we’re aiming to keep the cost of debt service to less than 12% of total operations. Why? Well, the last thing you want to do for the health of your finances is continue to make the minimum payment on your credit card, right? Because then what you owe just keeps getting bigger. We want to make sure the payments made on principal and interest are productive, paying down past projects undertaken and making room for future projects that residents want. That 12% is a guardrail intended to keep municipal finances healthier than they would otherwise be if we took on too much at once. The trouble is, the municipality is already perilously close to that mark. Past councils kept the tax rate low, even when the economy was quite robust, by deferring maintenance on facilities, infrastructure and fleets, and by deferring major projects (like the Halifax Forum – more on that in a moment because it’s a decent example). That limits our choices for the future unless we want to go over the 12% mark. Since we don’t, we have to prioritize what big projects we can take on, and when. Another problem is that delaying a project almost invariably increases the costs associated with it.
The Forum project is an example of this. This significant municipal facility has been on the books for a replacement since 2014. At the time, the budget for the project was forecast at under $50 million. A lot of time has passed and much has happened since. Council and staff worked through many variations on what the project might look like through the years and the project was delayed again and again. Now in 2026, The Forum needs millions in repairs just to keep the doors open, and even then it’s on borrowed time. In about year and a half or less, it’s projected not to be safe to keep it open. The price tag to demolish and replace The Forum, even without the added complexity or a heritage build, is now estimated at $126 million. That’s an extreme example – most projects don’t sit on the shelf for 12+ years. But it gives you a glimpse into how challenging municipal budgeting can get.
With The Forum project on the books, among many others that are larger and larger in scope with each passing year, HRM doesn’t have room to give within this debt service ratio. So then staff and Council have to work together to decide – what projects also on the horizon can be taken on and when in order to remain within that debt service balance? And if something can’t fit within debt, are there projects we can acceptably handle in the pay-as-you-go model of capital renewal – in other words putting it straight on the tax bill? That is specifically what council voted to do with the purchase of 10 buses for Halifax Transit to supplement its fleet and start making some early changes to routing an enhancements to service proposed in the Halifax Transit Core Service Plan. We didn’t have room to put the buses on debt, but Council felt strongly that investing in transit will help move in a positive direction on congestion in the municipality and improve frequency, reliability of the transit service. Just 10 buses alone doesn’t “solve” the problem, but it’s a step I hope residents will support overall as we seek to improve life in HRM. Of course that kind of decision means we don’t defer the cost of the buses to a future tax bill in the form of debt – it arrives on the tax bill now. It’s a difficult choice, but one I supported because we’re certainly not making residents’ lives better by deferring improvements to transit any longer.
In the next part of my budget series, I’ll give you a rundown of reserves, the tax bill, and the Provincial tax cap.