November 17th, 2018

Short of policy changes, profits headed for Heritage Fund

By Collin Gallant on June 14, 2018.


cgallant@medicinehatnews.com
@CollinGallant

City councillors are now debating the best use for substantial new power profits, but to do anything other than stick with a plan to cut such revenue out of the operating budget, major policy changes would be needed.

Councillors could slow scheduled tax increases that will make up the difference when they approve the next city budget, but as it is, half an expected $33-million profit is bound for a new savings account.

“I think the public will call for a balanced approach,” said Coun. Darren Hirsch, chair of the audit committee that heard this week of a $33-million dividend to be paid from city electrical generation this year.

That is after a net loss in 2016 and meagre profit last year, which council members at the time said accentuated the need to cut a reliance on utility as well as petroleum revenue out of the city’s municipal budget.

A 10-year program of tax hikes and spending cuts aims to make up for the loss of the traditional $23-million payment from the gas division.

The gap is $16 million this year, bringing the total reserve cash spent since 2014 to augment tax revenue to $70 million.

And more will be needed to bridge payments — $16 million in 2017 alone — until the difference is erased over the next eight years. But there is consideration for easing tax increases.

Coun. Kris Samraj told the News Wednesday that council now has options to consider.

“The question has always been, ‘How much can the community absorb in terms of how fast (we go)?” in weaning the city off the dividend,” said Samraj. “For years there was no choice, but new revenue raises that question.

“Regardless (of the profits) we have to keep slowly weaning ourselves off, and not get distracted.”

“We emptied the cupboard on the municipal side,” said Coun. Phil Turnbull at a Wednesday audit meeting. “We need to look at replenishing that or using (cash) to get off our debt cycle.”

Turnbull has said taxpayers are stressed facing a string of four per cent tax increases as city hall moves to balance the budget. Debt “rebalancing” to lower utility rates or adding more generations were options, he said. The current policy is to debt-finance major capital purchases, then pay off debt via fees charged on utility bills, rather than spend reserve money upfront and forego investment returns that are typically higher than interest rates on the debt.

Hirsch says the windfall provides some wiggle room in the city budget after “a number of tumultuous years,” and that saving cash and debt considerations were his first options.

Unless major policy changes are made however, half of the money will be untouchable in a relatively new savings account.

Under a new dividend policy created last year, half of any new dividends go to the “Heritage Savings Fund” and half to a tax stabilization fund used to stagger in tax increases until revenue and expenses are balanced.

Created just two years ago with a $1-million deposit from the Community Capital Reserve, the fund stands to receive $16.6 million in new profits this year, bringing the balance to $19.65 million by year end.

That would make it the second largest reserve fund the city holds.

Share this story:

Leave a Reply

You must be logged in to post a comment.