Warning lights are starting to flash regarding Winnipeg’s finances. As with a warning light on the dash of a car, it’s not an emergency yet. But it’s time to take a close look and start working on some fixes.

This month the City of Winnipeg released its annual financial report for 2014. Winnipeg’s finances are strong, but they’re becoming increasingly strained. Spending is up. Taxes are up. Debt is up.

And the city’s back-up is in trouble too.

Manitoba’s provincial budget is in trouble and that’s trouble for the City of Winnipeg. Municipal financial arrangements are backed with the implicit understanding that the province will be there if the city struggles. The province is running a deficit of $422 million. The debt is more than $30 billion. This year’s interest payments will be $842 million. And there’s no realistic plan to balance the budget.

Moody’s, the international bond rating agency, made this point clear last summer when it said: “a downgrade of the Province of Manitoba’s Aa1 rating could lead to a downgrade of Winnipeg’s rating.”

That hypothetical is increasingly probable as Moody’s recently responded to the Manitoba budget by saying that Manitoba’s “inability to return to balance by the original budgeted date is credit negative.”

Opinions of bond rating agencies are important because a credit downgrade will make it more expensive to borrow money. It’s the same thing that happens to families who miss some credit card payments and get hit with a higher interest rate when they renew their mortgage. Last year the City of Winnipeg spent $53,715,000 to cover interest payments on its loans. Even a small increase is borrowing rates could increase that amount by millions.

Provincial problems aren’t Winnipeg’s only problems, however.

In 2014, Winnipeg’s long-term net debt soared to $943 million. In 2010, it was $496 million. That’s an increase in debt of 89.9 per cent.

It’s not that the city has been short on revenue.

Winnipeg’s tax take has been steadily climbing. In 2010, the city collected $551 million in taxes. In 2014, it was up to $641 million. Tax hikes outpaced inflation by 7.5 per cent over that span.

And those are just the taxes Winnipeggers have sent directly to city hall. Other levels of government have dramatically increased transfers to the city. In 2010, transfers totalled $252 million. By 2014, that had climbed to $379 million. After accounting for inflation, that’s an increase of 39 per cent.

The problem is that the money is going out just as fast as it’s coming in.

Even adjusted for inflation, Winnipeg spent almost $223 million more in 2014 than it spent in 2010. Nearly half of that increase went to the city’s biggest budget item: salaries and benefits. The money paid to city employees grew 9.2 per cent above the city’s growth rate and rate of inflation combined.

It’s always stressful to see a warning light flash on. But the important thing to remember about a warning light is that it provides the opportunity to fix a small problem before it becomes a big problem. If the city reduces spending by even one or two per cent it could start paying off debt rather than racking it up. Is it really so hard to imagine that there’s a few percentage points worth of efficiency to be found at city hall?

If we don’t find those small efficiencies now, we’re going to have to make some bigger cuts later when borrowing costs go up and loans come due.