The city is heading for heavy debt and its citizens are in line for higher taxes.

City councillor Doug Graham said in an interview Thursday he will raise the alarm on the city's financial plight as he foresees future debt levels becoming unsustainable.

'Over the past three years, we've diverted $1.2 million from capital reserves to operations and maintenance (O&M),' Graham said, explaining that he doesn't think the practice is sustainable.

'Three years ago, we took $250,000 from capital reserves; last year, we took $500,000 and this year we took $500,000.

'We can't keep taking money from our capital reserves; it isn't sustainable.'

Capital funding is used for the construction of city projects while O&M funding is used to operate the facility after it's built.

'We're also going to borrow $4 million for the new fire hall,' he said.

In December's budget speech, Mayor Bev Buckway said the city will double its current debtload of $4 million with the reconstruction of the Two Mile Hill/Takhini fire station but that city loans are still at a manageable level.

Graham said he feels the city will have to borrow another $3.5 million to pay for its portion of the Hamilton Boulevard extension to the Alaska Highway opposite the Robert Service Way intersection.

The mounting financial commitments being made by the city, Graham said, would mean the city will have to look at a tax increase next year of at least five per cent. (This year's budget levels a similar tax hike.)

'I don't see anyway around it,' Graham said.

Last week, Community Services Minister Glenn Hart announced the boulevard extension had received funding approval from the Yukon and federal governments. Crews will break ground this summer.

Graham said he has further concerns with money that may have to be borrowed to fund Takhini North reconstruction and to cover any budget shortfalls in the Canada Games Centre should they arise.

'I keep asking, Where is the money coming from?''

At their May 15 meeting last year, members of city council voted in favour of amending the budget in line with a change in revenue and expenditure projections at the Games centre.

According to documents from the city's finance office, council adjusted the budget using several measures, including:

reducing the portion of the comprehensive grant from the Yukon government to capital reserves by $520,000;

reducing the budget transfer to the contingency reserve by $11,000;

boosting lease revenue at the centre by $100,000;

adding $100,000 for leasehold improvements at the centre to the capital budget, funded by deleting several projects including the class Internet project, Games centre cold entry and the leisure services plan;

reducing the parks department office supply budget by $15,000;

raising budgeted property tax revenue by $127,000;

reducing various Games centre revenues by $549,000; and

raising various Games centre expenses by $224,000.

The city is also missing out on $2.5 million in revenue, Graham added, from giving the territorial government a 10-year tax break on the Games athletes' village at Yukon College.

According to section 2.1 of a joint memorandum of understanding (MOU) announced by the Yukon government and the city in February 2005, tax relief to the government on the village complex represents part of the city's contribution to the Games.

'The City of Whitehorse agrees to provide a grant equal to all municipal property taxes on the permanent structures developed for the athletes' village at or near the college for 10 years, but not to exceed a maximum of $2.5 million, beginning upon substantial completion of the facilities, as long as the facilities remain in the possession of Government of Yukon or entities of Government of Yukon,' the 2005 MOU states.

City manager Dennis Shewfelt said this morning the city has been moving funding from its capital reserves to operating budgets in line with rising costs being faced by the city.

Shewfelt said the city normally puts 60 per cent of its approximately $5-million comprehensive grant from the government to capital reserves while 40 per cent has been going to operations.

In the past several years, he said, the grant has been allocated on a 50/50 split.

Recommendations on the comprehensive grant's split from the government, Shewfelt added, have traditionally been 50/50.

'The decision to set aside 60 per cent for capital reserves was a decision of council. Any future decisions will also be a decision of council,' Shewfelt said.

There has been no additional money sought for Takhini North development other than the $2 million in 2008, $4.2 million in 2009 and $3.26 million in 2010 already projected in the budget, Shewfelt said.

Much of the Takhini North funding being used by the city, he added, will be coming from a federal government grant funding initiative, the Municipal Rural Infrastructure Fund, with the city able to pay for some of the planning work in cash up front and being reimbursed later.

The city is not proposing to take out a loan for its $3.5 million of the Hamilton Boulevard extension project, Shewfelt added.

The city's share of the project, he added, would likely be funded through an arrangement with the Yukon government but that discussions on the nature of that deal are ongoing.

'We're negotiating with the YTG, but we're not going to borrow that,' he said.

'We still have to pay the $3.5 million; the question is how we're going to pay it and timing.

'The how is up to us; it's the timing we're concerned with.'

Hart could not be reached for comment this morning.