April 16th, 2024

City’s finances in good shape, for now

By COLLIN GALLANT on April 4, 2024.

Couns. Darren Hirsch and Alison Van Dyke listen to a presentation on the city's 2023 financial performance during a meeting of council's audit committee on Wednesday at city hall.--News Photo Collin Gallant

cgallant@medicinehatnews.com@CollinGallant

The City of Medicine Hat is back in the black after a booming year in power sales added to the financial bottom line in 2023, but it could face expensive tabs for cleanup and meeting emissions standards in the years to come.

Both will figure prominently in preliminary 2025 budget discussions that begin later this month, said administrators and members of the council audit committee.

The 2023 city financial report, presented at Wednesday’s audit meeting, shows increased holdings and less debt moved the city into a net financial positive position.

Even when new accounting standards led to an increase in existing long-term retirement obligations, the city has $27 million more assets than liabilities.

That is compared to a near $200-million net financial debt on the balance sheet in 2020 thanks to new revenue and work done already to shut down gas fields.

“At a high level it (measures) do we have enough financial assets to satisfy our obligations,” said corporate services managing director Dennis Egert. “We’ve seen a sharp increase to the positive … It can change from year to year depending n things like the city’s abandonment obligations, but it’s an exciting trend.”

Not so exciting, said committee chair Coun. Darren Hirsch, who says the new liabilities calculation doesn’t yet include the potential of bringing the gas-fuelled power production division in line with net-zero requirements discussed at federal and provincial levels.

“It’s going to be a massive headwind,” said Hirsch. “We’ll see how it goes, but as it is, we’ll have to meet that by 2035, which is not that far off.”

The major driver in 2023 was a huge unexpected profit in electricity sales.

Record high prices on the Alberta market and lower gas expenses at the power plant allowed for most of a $144-million transfer from utility business units. That includes all utility units, such as water, sewer and gas distribution, with some cash going directly into the municipal budget, but most to reserve funds.

That, plus an 8.8 per cent return on investments, led to a $102-million increase in financial assets. They were worth a total of $733 million at Dec. 31, 2023, while debt fell by $27 million to $437 million.

“That’s down due to a pause of new borrowing in 2023 in consideration of the high interest rate we’re in,” said Egert.

Making up most of the difference between holdings and debt are “retirement obligations” for city gas fields and facility closures, which grew to $255 million.

That is $37 million higher this year as new accounting practice requires the city to update current pricing for oil and gas work ($238 million in total), eventually close the landfill (now $11 million) and to safely demolish city facilities that contain asbestos (now $5.3 million).

Funds earmarked for asset retirements are currently held in the city’s capital fund, worth $227 million, but that fund also pays for new facilities and could also be tapped to pay for energy transition work.

Egert said administrators could suggest creating a dedicated fund in preliminary budget talks later this month to give a clearer picture of financial obligations.

Committee member Coun. Shila Sharps said the costs of required work is a concern in the community, and committee colleague Coun. Allison Van Dyke said she would support the potential move.

People want to known the funds are working for the city, she said, adding “it’s not just cash that we’re sitting on that we can do with whatever we want.”

In municipal operating results, the 2023 budget called for $11.5 million in reserve spending, but that grew to $15.1 million.

The additional $3.6 million is needed due to high inflation on own-use energy and construction projects, higher water use in dry weather as well as lower traffic fine revenue. That was offset somewhat by leaving an unspecified number of staff positions vacant.

[Editor’s Note: This version corrects a date given for emission reduction targets to 2035, rather than incorrect timeframe of 2025.]

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