City administrators are suggesting that how Medicine Hat's cash holdings are broken down so as to remove any confusion that exists. City hall is shown in this file photo.--NEWS FILE PHOTO
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The city’s bank statements should be broken down to better show money held to tackle long-term liabilities and modernize the city’s power production business, administrators told a council committee Thursday.
They also recommend changing the name of the city’s tax-abating “Heritage Savings Reserve” to avoid confusion with the Provincial “Heritage Savings Fund,” and change how that fund is filled.
It would be renamed the “Medicine Hat Endowment Fund” and kept at its current $200 million level, rather than continuing to grow with large portions of power profits each year.
Two others would be seeded with $75 million each from what the city accountants now call “unrestricted cash,” the corporate services committee was told.
It will be presented to council Sept. 16 for approval along with related dividend policy changes.
“I think it’s a prudent and targeted plan, and as a resident that puts me at more ease,” said committee member Coun. Allison Knodel, citing public uncertainty after abandonment costs. “I’m glad we’re elevating it as a priority.”
Finance officials told council’s audit committee last spring that a review could see new reserves broken out.
Finance director Lola Barta said energy profits from the last two years have put the city in a net financial position, but cash extinguishing liabilities and potential costs of the energy transition to net zero emissions will be needed.
“These are items that will need to be paid for over time and we’re predicting and significant expenses, that will have a significant impact on our financial position over time,” said Barta. “It’s important that we restrict this refunds – set them aside – to pay for our obligations over time.”
“It will be important to allocate free cash flow each year,” though lower power profits and even negative cash flow is predicted in coming years.
The city’s total cash and investment holdings totalled almost $800 million, according to recent financial statements, but its net financial position is only $27 million when liabilities and debt factored in.
That includes $255 million in long-term abandonment liabilities at the end of 2023.
Currently, the city only has three formal reserve funds: capital (for infrastructure spending), operating (for emerging projects and cash on hand), as well as the Heritage Savings Reserve.
Finance officials currently denote $227 million in “unrestricted funds,” describing money earmarked but not yet formally dedicated to a purpose by council.
Another reserve category, “restricted funds,” refers to grants the city has received for specific projects and which can’t be transferred for other purposes.
Officials suggest creating an “Abandonment Obligations Reserve” and a “Energy Transition Reserve” be created and detailed on future financial statements, each with an initial balance of $75 million, though “significantly more will be required over time.”
“If the city is to stay in the energy business over the long term it will need to transition to renewable power generation and/or carbon capture at scale,” the note reads.
Abandonment Reserve would operate like a traditional sinking fund in which annual contributions would be made to accommodate the cost of long-term closure of not only gas wells, but the city landfill, ground pollution at snow dumps, demolition of facilities containing asbestos and decommissioning the city’s river valley power plant.
