The mayor is showing support for proposed changes to how profits are paid to the city from its own business units, despite putting Heritage Reserve on back burner.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Mayor Ted Clugston is supporting proposed changes to city hall accounting that would see cash earned by municipal business units used more freely across the organization, but also puts his idea of building a Heritage Savings Reserve near the back of the line for new deposits.
“It’s an important change,” he told the News after council’s corporate services committee recommended changes that would see dividends from business units pooled, then prioritized into spending areas.
“The idea is to get a better handle on all the money across the organization for capital (projects) … and it’s probably the fifth change to dividend policy in my years here.”
When Clugston was first elected mayor in 2013, the city’s Natural Gas Petroleum Resource unit paid a static $24-million dividend to municipal coffers, and other business units had their own formulas. After the gas dividend was halted, two separate energy unit reserve funds were liquidated to cover a budget shortfall at the city caused by the gas collapse.
Three years ago council also approved the creation of the Heritage Savings Reserve, an endowment fund set up to capture half the power profits each year and invest them.
That, however, grew much faster than expected and today is the largest municipal fund, totalling $44 million. Meanwhile the utility reserves dwindled and utility debt grew under a new policy to leverage debt business unit projects.
Now, city administrators proposed calculating a single dividend from the power plant and gas operations, pooling it with payouts from land office and other utilities, then allocating funds for projects across all divisions.
Any cash left over would be split up into the Heritage Reserve and a direct dividend to the municipal operating budget.
Councillors sitting on the committee backed the changes, with Coun. Darren Hirsch, who had pushed along with Coun. Phil Turnbull for the reconfiguration, saying it would also help more prudently plan larger projects and other capital spending requests from departments,
Turnbull said this week the system was “out of whack” and needed to be addressed.
“When you’re making $30 million to $40 million in power and putting that into (Heritage) reserves, you’re robbing money out of the (other) reserves to pay for losses at NPGR,” he said.
“You can’t subsidize unsuccessful business units … but losses at NPGR are coming down.”
A broad projection of short term allocations shows that a new “Comco” unit (comprising commodity units, like gas and power) would be hampered for at least the next year.
Figures suggest a projected $25-million loss in the NGPR, while the power plant expects another profit above $30 million.
That would improve in 2022 as operational expense falls as wells are closed, but ongoing payments to landowners and local taxes are paid during the reclamation period could total more than $10 million per year.
That expense is not covered by the city’s sinking fund plan to borrow $80 million against a delineated $130-million well abandonment fund held in longer-term investments with AIMCo.
In the overall picture, over five years, the capital reserve would nearly double in value to $49 million as money flows in and out.
The operational reserve would decrease as the tax stabilization fund is paid out, but potentially come to rest at about $10.8 million, equal to about one month’s worth of city spending.
Administrators said target balances are still to be determined, and debt to equity calculations would be factored in before dividends are determined, thereby leaving more cash to pay for projects and potentially reduce borrowing.
The Heritage Reserve would still grow, according to projections and could reach $71.7 million in 2025, depending on actual deposits and investment return.
