Council likely to be urged to extend plan to curb reserve spending, the city's audit committee has heard.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
City councillors could be asked to re-examine, and potentially extend, a plan to cut reserve spending out of the municipal budget in 2025, finance officials told Wednesday’s meeting of the audit committee.
That would be 10 years after an initial plan was developed to balance operation revenue and expenses without relying on a $23-million direct dividend from, at first, the natural gas division and more recently from the electric power plant.
The current year’s budget plans are to use $7 million in savings and $85 million in property tax revenue to balance expenses as part of a long-standing, phased-in program to shrink and eliminate the gap.
But a planned gap of $12 million in 2023 was actually $15 million as high inflation and wage settlements affected city spending and required a larger withdraw, said corporate services managing director Dennis Egert,
That will carry through to the 2025-26 budget, he said, which will be discussed at initial planning meetings later this month.
“We see the effects of carry-forward inflation and those pressures and some of the programs that have been approved,” said Egert on Wednesday. “One of the discussion points will be what is council’s expectation for extinguishing that gap, and in what time period should that be done.
“We still have work to do in terms of it but we will certainly be presenting some options and some perspectives to council.”
Last year, finance officials said the gap could be eliminated in 2025 when they expected the Heritage Savings Reserve would be large enough to create a “sustainable” yearly dividend from investment earnings rather than withdrawing principal amounts.
It was estimated that a dividend above inflation rate from the $193-million fund could average $4 million in recurring, non-tax revenue annually.
Coun. Darren Hirsch pushed for the investment dividend during the 2017-21 council term to create a more immediate benefit to taxpayers from the long-term savings fund.
“It’s long-standing discussion about what’s a sustainable number … but look at the world we live in,” said Hirsch, chair of the audit committee, citing budget cuts from other levels of governments, inflation and capital requirements that also require reserve funds.
“There’s massive headwinds. To try and land on a number that we can say is reliable into the future is almost impossible. I’d love to say it’s simple and easy, but its incredibly challenging.”
“Financially Fit for the Future” grappled with how to make up a set $23-million annual payment from the gas division that could no longer afford the required dividend.
Eventually, council of the day approved administration plans to stagger tax increases to cut into the difference while also containing costs and seeking out new revenue.
Some estimates state that more than $200 million in reserve funds have been used to balance budgets since 2013 when low natural gas prices made annual gas production payment unsustainable.
Since then, the process emptied the gas depletion fund, the electric equipment reserve and a tax-rate stability fund created to pay for the transition.
Meanwhile, critics have said that a set program of tax increases, ranging near four per cent for 10 years, has put too much pressure on taxpayers.
The increases were halted in 2020 and 2021, when council enacted steeper program cuts and allocated more reserve cash to meet targets and advertised the tax freeze as a pandemic relief measure.
More recently, groups that protested high utility prices last summer are now calling for an end to some fees that make up a portion of the shortfall and also reverse a planned 4 per cent tax increase this year by redirecting a portion of large power profits last year into the municipal operating budget.
The Medicine Hat Utility Ratepayers Association has lobbied to end the “Municipal Consent and Access Fee” on utility, which provides $5 million per year to the municipal budget, and says a $3.7-million tax increase in 2024 could be covered by the city’s $133=million power profits in 2023.
“Why hasn’t the city used these profits to offset our budget shortfall this year, thereby reducing the tax burden … the community is still facing an affordability crisis,” reads a public statement from the group on March 27.
The Heritage Savings Fund was created as a rainy-day fund with interest above inflation earmarked for capital construction. Under a 2021 dividend and reserve policy change it captures portions of revenue not earmarked for other uses, but has grown during three years of record or near record power profits.
The fund has grown from $44 million in 2019 to $193 million today thanks to large power division profits.
