Local government finances

This chapter provides an overview of local government finances in New Brunswick. As with many jurisdictions, local governments must meet financial and service delivery obligations by leveraging revenues from property taxes, levies, grants, and user-pay fees to cover expenditures. 

There is an obligation to be sustainable, as deficits cannot be accumulated; local governments must achieve structurally balanced budgets. If expenditures exceed revenues on a given year, the local government must carry forward that amount to a future budget year and eventually increase its revenues to cover the shortfall. Projecting revenues and expenditures is not a science, and local governments must face increases in cost of living and other external factors when developing their annual budgets.

Financial support from provincial and federal governments must be factored into the annual budget cycle. Certain revenues are known during the budget preparation cycle and other revenues, in the form of grants and non-repayable contributions, are triggered after the budget has been adopted.  Local governments must be agile and able to adjust their financial plans during the year to meet their financial obligations and to live within their means. 

Local governments generally have two operating funds, the General Operating Fund and the Utility Operating Fund (also known as Water & Sewer Utility Fund or the Electricity Fund).  

The General Operating Fund is the main fund responsible for the delivery of services to the community. Its expenditures are funded primarily through property taxes. Tax rates are determined by council during the budget process based on the services that are prioritized by and for their residents. Several services are delivered in local governments in the main categories below:  

• General government services — Town hall, administration, mayor and council, legislative, finance, human resources, etc. 
• Public protective services — Police, Fire, Emergency measures, etc. 
• Transportation services — Summer and winter street maintenance, curb & gutters, asphalting, street lighting, etc. 
• Environmental health services — Solid waste management, etc. 
• Recreation and cultural services — Arenas, pools, cultural & community halls, parks, playgrounds, sports facilities, etc. 
• Environmental development services — Urban planning, Economic development, etc.  
• Fiscal services — Principal and interest on short and long-term debt, reserve fund transfers, deficit from previous year, etc. 

Note: Policing services are required and must be part of every local government budget in New Brunswick.   

The utility fund is a user-pay utility responsible to deliver potable water and/or to treat wastewater or electricity generation and/or distribution on behalf of the residents. It is not a taxing authority and needs to be structurally balanced, meaning that user charges cannot be higher than the cost of services, with a long-term view of setting up long-term reserve funds in place to maintain and replace assets used to deliver the services. The cost of water and sewerage utility services are recovered through separate user charges. Utility charges vary among local governments and are based on the cost, type of service, and the method of cost recovery. Council is responsible to set user fees annually and to ensure the quality of services on behalf of its users.

Legislation requires that a local government prepare annual operating budgets that are required to be submitted for approval by the Minister of Local Government. (Section 99.2 Local Governance Act; Local Governance Budgets Regulation — Local Governance Act.) 

The review and approval process includes verification of compliance with legislative requirements, as well as correctness of certain amounts and calculations. The final budget numbers as well as other statistics are published annually and are found at: Local Government and Rural Districts Statistics (PDF 3.6 MB).  

The Department of Finance and Treasury Board (FTB) administers the billing and collection of provincial and local property taxes, and the Department of Environment and Local Government (ELG) must submit tax rates to FTB by early January.  

As outlined in the Local Government Budgets Regulation, budgets must be submitted for approval to ELG on or before the later of November 15th, or 30 days after the local government receives the tax base and equalization grant information under the Community Funding Act. November is a critical deadline, as all budgets must be reviewed by ELG and any necessary amendments must be filed before mid-December. Local governments receive their property tax revenues (warrants) and fiscal capacity (equalization) grants in 12 monthly installments.  

More information on the local government budget process can be found in section 9.8 of this chapter.

The tax base consists of the total residential assessment base plus no less than one point four (1.4) times and not more than one point seven (1.7) times the assessed value of non-residential property (including heavy industrial) as defined in the Assessment Act.

The tax base for rate provides the local governments and rural districts with the base on which they calculate their residential tax rate.

In New Brunswick, both the Province and local governments generate revenue from property taxes. Local governments and rural districts charge their own property tax to cover budget needs not funded by equalization grants. The equalization (community funding) grant is addressed later in this chapter.

Local governments may make a by-law establishing user charges for services such as recreation. User changes may also be established in a separate by-law for water and wastewater disposal services. Water and wastewater disposal services are address starting in Section 117 of the Local Governance Act.

The levy for a Business Improvement Area (BIA) is a levy that is not part of regular local services. Under the Business Improvement Areas Act, a local government may, by by-law, designate a zone within its boundaries, upon presentation of a petition from non-residential property users, as a business improvement area. A BIA is formed to promote, improve, and enhance the business and shopping areas. The budget of the corporation is developed and adopted by the BIA and is then approved by the local government council which, in turn, will determine a rate that shall not exceed $0.20 for each $100 of assessed value.

The special provincial levy is a levy charged to all residential owner-occupied properties in former local service districts that are now part of a new local government or in rural district, for the administration of road related services provided directly by the Department of Transportation and Infrastructure (DTI). Revenue for the provision of this service is made by way of a levy of $0.4115 per $100 of assessment. This rate is in addition to the local tax rate. Non-owner-occupied properties and non-residential properties do not pay for this special levy. This levy is a continuation of the levy that has been applied to former local service districts prior to local governance reform.

Note: due to local governance reform and the merging of several entities into new local governments, there may be different tax rates to reflect the services received, past financial commitments, and savings in each area of the new local government.  

There are three general sources of revenue to finance the operating budgets of local governments: 12% is derived from non-tax revenue, 3.9% from the unconditional grant, and 84.1% from the local warrant. Non-tax revenue is derived from revenue earning activities such as fees for licences or permits, fine revenues and the sale of services. (Rates are based on the 2025 Local Government and Rural District Statistics Report (PDF 3.6 MB))

The net budget is financed through the fiscal capacity (equalization) grant and local property taxation (warrant). The warrant is the portion of the budget that is raised through property taxes.

The warrant is the amount required to be raised through property taxes and is calculated as follows:  

• Warrant = Total expenditures less non-tax revenue less fiscal capacity (equalization) grant  

The tax rate is the rate per $100 applied to property assessments and is calculated as follows:  

• Tax rate = (warrant / tax base x 100)  

Once the residential tax rate is determined, local governments will need to apply the ratios to determine the non-residential rate (ratio of 1.4 to 1.7 times). 

Revenue sources in the General Operating Budget include property taxes (warrant), the fiscal capacity (equalization) grant and other non-tax revenue, such as the sale of fire protection to rural districts, building permits, rent, fines, grants, transfers from reserves, and surplus from the second previous year.  

The assessment base is the total value of all real property liable to taxation under the Assessment Act. Real property includes residential and non-residential property.  

The fiscal capacity (equalization) grant is funding provided under the Community Funding Act by the Province of New Brunswick to assist communities in the provision of local services to recognize that the ability to raise revenues is greater in some local governments than in others (equalization).

The Utility Fund is an independent fund supported by user charges. Legislation requires Utility Funds to be funded through user charges. A local government may establish one or more classes of users, including residential, commercial, and institutional users. Terms and conditions of user-charges are determined by a by-law of the local government. (Local Governance Act, section 117)  

A local government is authorized to charge annually in its General Revenue Fund Budget a portion of its water costs against fire protection service, such portion to be determined in accordance with the Water Costs for Fire Protection Regulation under the Local Governance Act.  

These charges could include a portion of the water costs as it relates to the purchase of water, including source of supply, power and pumping, transmission, and distribution, and includes any operation and maintenance related to the water service that the community provides.  

The Local Governance Act (enacted January 1, 2018) provides that the purpose of a local government is to provide good government, provide services, facilities, or things it considers necessary or desirable for its community, develop and maintain safe and viable communities, and to foster the economic, social, and environmental well-being of its communities. In addition, local governments may provide water, wastewater, generation of electricity and distribution of electricity services. These are accounted for in separate funds. 

A capital budget is a financial plan for enhancement, acquisition, or replacement of existing capital assets. Capital fund budgets should be established annually, ideally in conjunction with operating budgets and are ideally part of a longer-term planning process, usually a five-year plan.

An important part of the planning for capital expenditures is the financing, generally through long term debt, or with monies provided from the operating reserve funds or through grants. The capital planning process affects the operating budget. Debt charges (interest and principal repayment) on funds borrowed for capital expenditures or direct payment of expenditures become expense items in the annual operating fund budgets.

A local government may establish Reserve Funds, per the Reserve Fund Regulation under the former Municipalities Act. These funds are established to manage unforeseen one-time operating expenditures (general operating reserve) or to set-aside capital funds to acquire or replace assets identified in the Asset Management Plan (general capital reserve).  A local government could decide to set aside funds to manage potential hikes in its user charges relating to unplanned expenditures (water & sewer operating reserve).  Additionally, the local government may want to set aside funds to acquire and replace capital assets as per its Asset Management Plan (water and sewer capital reserve). 

Reserve fund restrictions include but not limited to the following:  

• The establishment and subsequent deposits or withdrawals from reserve funds require Council resolutions, which must be passed before December 31st of the year the transaction is to take place and must indicate the amount transferred. 
• Money withdrawn from a Capital Reserve fund is required to be spent only on capital expenditures, and Operating Reserve amounts must be spent only on operating expenditures.  

• Local government staff — CAO, department heads, supervisors  
• Treasurer, accounting staff  
• Management Team  
• Finance Committee  
• Council  
• The Department of Environment and Local Government  
• General public as part of a consultation process (if applicable) 

The Treasurer is generally responsible for collecting the budget documentation and making the required calculations for council’s review. The local government staff, consisting of the Chief Administrative Officer, department heads and supervisors, should be involved in preparation of proposed budgets for their respective departments which are submitted to the Treasurer for consideration by council in the local government budget process.

Some local governments establish a Finance Committee which could be the whole of council or the mayor and several councilors and the CAO, clerk and treasurer. If applicable, this committee reviews the draft budget before forwarding it for council review and approval.

The budget process in an ongoing planning exercise that provides a roadmap to have the budget adopted within a set timeline. It is intended to provide an opportunity to review revenue and expenditure trends, investigate revenue generation ideas and cost saving measures, along with a structured approach to integrate strategic priorities. During the process, as information becomes available, a local government may have to modify their projected revenues and expenditures to manage tax rates and user charges. Although some information is required from external sources to complete the overall process (RSC contributions, police costs, tax base, equalization grant info), it is prudent to begin analyzing other budgetary items to be able to adjust the preliminary projections for a final budget.   

The following timeline is presented for illustration purposes. Each local government is responsible to develop their own sequence of events, with a budget submission deadline of the latest date between November 15th or 30 days from receipt of the tax base and equalization grant information under the Community Funding Act.   

• Review and ensure all expenditures for upcoming year are included.  
• If specific details are not known at beginning of process, it is acceptable to use projections and estimates and adjust to more accurate information at a later date. 
• Ensure calculations for salaries and wages are aligned with union contracts and other agreements.  
• Include principal and interest amounts for Long Term Debt Repayment Schedules.  
• Ensure input from all other sources is reasonable and accurate.  

It is suggested that required expenditures be considered first. When budget information is received from other departments and sources, it must be reviewed for reasonableness, accuracy, and completeness. (If a particular budgeted line item does not appear reasonable, sufficient explanation must be provided to justify the amount to council.)  

• Estimate and record expected revenues by examination of historical reports, program statistics, internal and external information, and records.  
• Include sources of revenues from local, provincial, and federal sources (could include sale of fire protection services, rental fees, investment income and recreational facility user charges.  
• Include revenues from private and public sources.  
• Include fiscal capacity (equalization) grant amount.  
• Consider year to date financial information.  

One of the most important documents a local government will prepare is its Five-Year Capital Plan. It will include information and calculations required to calculate the local government’s debt cost ratio and tax rates over a five-year period.  Some local governments plan on a longer horizon, up to 10 years into the future.  

A simple Excel tool can be used to project a local government’s five-year debt service costs, capital spending, and tax rates from the General Operating fund, and for Water and Sewer Rates Projection, as well as information on 5 Year Capital Plans, including short- and long-term borrowing authorizations by the Municipal Capital Borrowing Board. More information can be found in the Guide to Municipal Capital Borrowing (PDF 732 KB).

With respect to local governments, the Minister of Local Government may exercise powers and establish standards and requirements for accounts and audits of local governments. Further information can be found in section 99.1(1) of the Local Governance Act.

The New Brunswick Municipal Financial Reporting Manual (PDF 627 KB) is issued under this authority and is provided to each local government and municipal auditor by the Department of Environment and Local Government. (Note: this manual is currently being updated in consultation with local governments.)

Asset management is an important component of local government budgeting as it provides a long-term non-biased perspective of capital investments required to maintain and renew existing municipal assets. Developing a formal process for planning and funding capital investment should form part of a regular activity integrated with the operating budget process to provide good financial governance. Local governments must ensure that a capital asset management plan is in place to prioritize investments, prior to undertaking new projects that may impact the financial sustainability of existing assets to prevent having to make emergency investments in the future.

The Municipal Capital Borrowing Board (the Board) was established by the Municipal Capital Borrowing Act. The Board has a mandate to monitor and authorize long-term capital borrowing of local governments and local government agencies such as policing authorities or boards.

As required by legislation, the Board holds 10 public hearings each year to review applications for borrowing. This is to ensure that local governments, as well as local government agencies, are financially able to undertake capital borrowing aligned with the legislation. The Guide to Municipal Capital Borrowing (PDF 732 KB) provides a very detailed overview of how to manage capital projects.

The following capital transactions require an application to the MCBB: 

Interim financing, (including borrowing which will be reimbursed by grant funding).  

Borrowing from:

• Federal Government.
• Provincial Government.
• New Brunswick Municipal Finance Corporation.
• Municipal Reserve Funds established pursuant to Subsections 90 & 189 (7) and according to Reserve Municipal Sinking Funds established under Section 7 of the Municipal Debentures Act.
• Trust funds for which the local government is the trustee.  

Leasing

Capital leases as defined in Regulation 84-21 of the Municipal Capital Borrowing Act.  

Purchase arrangements

Purchase agreements as defined under Regulation 84-21 of the Municipal Capital Borrowing Act.  

Guarantees

Local governments guaranteeing loans of local government enterprises per Subsection 6 (1) of the Municipal Capital Borrowing Act.