By Collin Gallant on February 23, 2017.
Medicine Hat has a Heritage Savings Fund.
The long talked about reserve officially came into being on Tuesday night as city council approved a bylaw to create and govern the money.
It will be the destination for future energy division dividends, then a portion of interest earned will serve as a revenue source for capital building reserves.
“It’s important to take note,” Coun. Julie Friesen told council, saying the occasion shouldn’t be overlooked after years of discussion and 14 months of deliberate work to create the fund.
A separate item on Tuesday’s agenda approved the transfer of $1 million from the community capital reserve as seed money, that will be governed by provincial public fund manager, AIMCo.
“May it be the first installment of many,” said Friesen.
Council approve the fund bylaw, titled Heritage Savings Reserve, by a 8-0 count at Tuesday’s meeting.
It marked the third attempt at establishing such a fund. Two other attempts, in 2009 and 2012, worked through committee stages, but resulted in deadlocked council votes, meaning the motions fails.
Council members argued at the time that the money could be used as a slush fund, or leave the city lower on the list for outside grants.
Mayor Ted Clugston had pushed for a fund when he was first elected as an alderman 2007, arguing it could — over time — grow to replace the traditional dividend from oil and gas sales.
The new fund will only pay out a portion of interest for capital spending projects.
“It’s been nine and a half years for me, but I’m happy,” said Clugston on Tuesday’s meeting where he spoke neither in favour or against the fund.
“It’s been voted down two or three times in the past, but this council took it and ran with it without me. It obviously had a lot of buy-in from council.”
“It’s a unique thing that makes Hatters just different from everybody else.”
It’s also gained the city some publicity of late. The New York Times published a feature about the city last week and compared the fund to Norway’s sovereign wealth fund.
Friesen called the local reserve an endowment.
The local fund’s principal would not be touched, but allowed to grow at the rate of inflation, plus the value of new deposits from future energy dividends in future years.
Excess return would be available for the city to use for capital, not operating, purposes — essentially how a portion of energy profits was employed in the past, though.
During the first ten years of the fund’s existence, council could also direct up to half of investment returns as bridge funding as planners remove resource revenue from its operating budget.
Last year AIMCo returned above nine per cent across its extremely broad $80-billion portfolio that includes the province’s Heritage Trust Fund and public pensions.
Final provincial approval and a signed management agreement with AIMCo is required, but officials say those items are in final stages.
In 2009, a council vote wound up in a 4-4 deadlock, therefore failing, when it was proposed the fund that would capture 10 per cent of net gas production profits.
At the time, opponents argued the fund could be wielded for political gain, or that money would be better used to pay down debt.
In 2012, another proposal would see a fund capture portions of “excessive revenue” defined as half the remainder above the then-set $24-million dividend and $10 million variable dividend for capital.
Both previous attempts earmarked cash from the gas depletion reserve as initial seed money. Planners have since said that most of that cash will be needed to cover the annual city budget as tax increases replace the dividend.
In 2014, in lieu of the stagnating energy outlook, council amended the dividend policy to a distributable cash model to help retain equity in gas exploration and power generating businesses.