Councillors Cassi Hider and Darren Hirsch question finance officials about a proposal to access the city's Hertiage Savings Fund into an income fund to tackle and existing budget gap in the 2023 city budget. -- News Photo Collin Gallant, July 4, 2022
cgallant@medicinehatnews.com@CollinGallant
The city will likely transform the Heritage Savings Fund to provide annual investment income to help fill an operational budget gap that’s been wrestled with for the last six years.
Council also approved on Monday the potential for four per cent tax increases in 2023 and 2024, while suggesting they may prefer program cuts to blanket fee increases.
The package is all to account for inflation, rising costs and less money from the province that will see the city fall further back in its goal of addressing a structural budget gap at city hall, administrators told council members in a presentation.
It was meant to get direction from councillors as staff prepare the next two-year city budget next fall.
The current gap is $9 million on a $130-million annual budget. To this point the difference has come from the six-year-old “tax stabilization fund” that currently has a balance of $16.5 million.
That’s on top of failing to make ground over the last two years while administrators cut costs and laid off staff, but also dealt with a tax freeze.
“(Tax Stabilization Fund) will be depleted in two years without action,” said finance director Lola Barta. “We’re in a healthy financial position right now and we want that to continue.”
That’s on top of failing to make ground over the last two years during a tax rate freeze while staffers sought to cut costs.
That “put the city behind” in terms of inflation since 2020, and could be facing four or more per cent next year as well.
Councillors supported the idea of linking taxes to inflation, as well as changes to the fund, but generally said they wanted more information about spending and potential cuts.
“It’s certainly a challenge that we’re going to have to address,” said Mayor Linnsie Clark. “Tonight we saw some creative solutions, and council wants make sure we’re exploring all the potential financing and cost-savings measures that are available.”
“COVID impacted everybody and council made the decision to not raise taxes. That had the effect of putting us behind.”
Budgeters suggest general tax increases of 4 per cent next year and in 2024, and a similar increase to fees like bus fare as soon as this fall, while changing the investment income could bring in $5 million per year in 2024.
Even so, the budget gap would be $14.7 million and $15.6 million in the next two years respectively.
The Heritage Savings Fund was created in 2017 after a push by then mayor Ted Clugston to capture a large portion of profits at the city’s power and gas production companies, and hiving it away with interest earmarked for capital spending.
It grew much faster than expected, however. It could total $71 million by the end of the year, and now an additional $50 million will be deposited immediately, then another $25 million at year end.
That, plus two years of earnings, could create a large enough balance to allow $5-million yearly withdrawals to begin in 2024.
Such a plan was discussed at length last term by councilllor Phil Turnbull and returning councillor Darren Hirsch.
“I think it makes sense right now,” said Hirsch on Monday. “It’s a nod to existing residents.
“We all collectively own the business units and it’s natural to ask how do we derive a dividend from that.”
Coun. Ramona Robins said the fund is a nod to the legacy of gas and power profits, and inflation must be tackled, but she is against a blanket fee increase.
“Inflation is hurting everyone, and if that needs to be balanced out, my preference is to reduce service levels,” she said. “I don’t want to leave any options off the table.”
The city’s 2023-24 budget will be developed this summer and fall, then presented to council for approval in December.
