It is sweaty-palm time for Budget Chiefs in municipalities across the country.

The 2023 budgets are going to be especially difficult for local governments. The global economic picture continues to have cloudy forecasts and gloomy projections that a recession is imminent. The depth and length of that recession is a matter of dispute.

Economic updates from various federal and provincial governments show some distinct differences in government philosophy and their views on the economy.

What is definite is that municipalities will be paying more to borrow. Interest rates for new borrowing, for instance for infrastructure investments and large capital projects, will be much higher than in recent years. Those costs will be a drag on the local budget for several years to come.

It seems likely that the world is in for another round or two of interest rate bumps as central banks continue to fight inflation. It will take considerable time for interest rates to go back down to the levels we have enjoyed in recent years. In the interim, home buyers are facing significantly higher costs for a mortgage. This makes it even more difficult, particularly for young families, to buy into the housing market.

There is a disconnect between several policies and practices of our governments to provide more housing. From local zoning regulations to provincial green-belt border changes, from a lack of federal government financing for social housing to the jumping costs of construction, the housing market across Canada is in flux. The housing industry is a very significant part of every local economy. If that sector is hit by a recession, then local employment and the economy are in jeopardy.

Local governments are unique in Canada because they are the one order of government that cannot run deficits. Municipal budgets must be balanced. That means the full operating costs go directly onto the property tax bill. Citizens of Canada have been facing much higher living costs in the past year: groceries, gas, travel and so many others have skyrocketed in price. Many families are struggling. There will be exceedingly limited enthusiasm for a substantial property tax hike.

This is what city treasurers and finance committee chairs are confronting right now. It is just another indication of how flawed the system of financing local government is in Canada. The handcuffs imposed by the federal charter, and by provincial governments who don't particularly care about their municipal 'partners', continue to hamper the financing and growth of our cities and towns.

All these economic uncertainties combine to produce a highly volatile economic outlook for the upcoming year. Developing local government budgets will be particularly difficult. Wise treasurers will be tucking away some contingency funding, and eyeing reserve funds.

Budget 2023 will be the first big decision of the new councils that are just being sworn in across nearly half the country. It will provide a stern test of nerves and courage.