June 23rd, 2024

How we got here: Circumstances that led city to Financially Fit plan

By Collin Gallant on June 20, 2018.

Medicine Hat News

For a century, Medicine Hat sold itself as the home of low utility prices and low taxes, thanks to city-owned utilities and a natural gas production business that raked in cash.

In 2014 however, administrators told council that a dividend system that transferred $24 million from the energy division to support the municipal budget was not sustainable in an era of low natural gas prices.

Council approved transferring $49 million (equal to two annual payments) from the gas depletion fund to a tax stabilization fund. That tax fund would also hold future dividends calculated via a new formula that better captured operating costs.

By 2016 however, with no new deposits, the fund was empty, and another $48 million was transferred from the electric equipment and facility fund, built up over the years with a portion of power plant profits.

At the same time the city began work to develop a long-term strategy to cut costs and raise new revenue, mostly through tax increases, to remove a reliance on energy profits from the municipal operating budget.

The plan, known as “Financially Fit for the Future,” was the basis of the 2017-2018 budget. It raised taxes by 4.5 per cent each year, raised city fees, closed the Medicine Hat Arena to eliminate $700,000 in operating costs, and sought a one-year wage freeze from all city employees.

Finance officials peg the current gap at $16 million annually, which is still covered by reserve funds.

The goal for the 2019-2022 budget is to reduce the gap to $3 million by year four, but half that amount was slated to come from a new utility charge that was defeated by council on Monday night.

The balance at the end of this year is forecast to be $19.5 million, after a $16=million dividend.

Planners say at least $30 million is required as bridge payments to balance the yearly budget between now and when the gap is expected closed in 2026.

The Electric Facility Fund’s balance will be $29.2 million and Gas Depletion will be just $15.5 million after $44 million is taken this year to fund the petroleum division’s growth and exploration programs.

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