City council has decided to give the general public a little time to get used to planned changes to how the city's bank accounts are broken down and accessed before a final decision is made.--NEWS FILE PHOTO
@@CollinGallant
Council members on Monday generally backed a plan to rework city reserve funds, but delayed a final decision to give time for the public to digest the changes.
Finance officials say Medicine Hat’s large bank balance should be better broken down, with funds for upcoming major expenses better detailed and a better definition of how a large legacy fund could be accessed.
Changes described to committee this month arrived at council for approval this week, but were held after second reading and a presentation on the changes.
“I’ve read the bylaw and rationale, but I want more time to process the information,” said Coun. Ramona Robins, also suggesting the public would benefit from more time as well.
Councillors and city staff say they are constantly explaining to residents the need to hold so much cash – almost $800 million – during times when property taxes are rising, service levels are reducing or funding requests are being turned down.
Among suggested changes, $150 million in currently “unrestricted funds” would be delineated for tackling long-term liabilities, like gas well and facility closures, and projects related to the power utility’s move to reduce carbon emissions.
Those new accounts, initially worth $75 million each, would also move ahead of the Heritage Savings Reserve as the destination for future power dividends. It would be capped at its current balance of $200 million.
The renamed “Medicine Hat Endowment Fund” would provide investment income above inflation to fill a structural budget gap without raising taxes.
That, say finance officials, creates a clearer picture of why the city holds such large reserves, and outlines the benefit of investment funds to taxpayers.
Council approved two readings of the bylaw change Monday, but fourmembers voted to hold off a final vote until early October, at which time a related investment policy change will be decided as well.
“It’s an important signal that we have an eye on our abandonment obligations,” said Coun. Andy McGrogan. “I think it gets lost, and we lose sight that we use the (endowment fund) to offset taxes.”
Finance director Lola Barta told council that investments currently total nearly $733 million, including $274 million considered “unrestricted,” but also $390 million in long-term debt and $255 million in abandonment liabilities.
“We have cash that has not been specifically earmarked for anything,” she said. “These are items that will be needed to be paid for over time … we are projecting lower income over the next few years and … significant expenses that are not reflected in our (current) assumptions.”
Those include rec facilities, power plant upgrades, growing costs for decommissioning not only oil and gas wells, but also the city landfill and other city buildings.
“When we have free cash flow, it needs to be allocated correctly to ensure the money is there when we need it,” she said.
Huge power profits in 2023 put Medicine Hat back in a net positive financial position for the first time since 2014.
It also led to a huge deposit in the Heritage Savings Reserve, which began in 2017 with a $1-million transfer.
A 2021 dividend policy change directed half of new distributable cash (dividends) to the fund.
Under the changes, profits would be allocated to the new funds to build up their balances.
City treasury officials believe the endowment could earn 2.5 to 3.5 per cent return above Alberta CPI, leading to an annual payout of between $5 million to $7.5 million over time.
That will “help bridge the budget gap,” said Barta, but could also be used to fund projects depending on council’s approval.
Since 2015, the city has withdrawn general reserve cash to cover the gap created when gas production dividends collapsed and were removed from the operation budget.
Coun. Darren Hirsch said the change creates “structure” to show how the money will be used.
“It’s not a shell game; it will clarify our intentions for the reserves,” he said.
Coun. Robert Dumanowski said the creation of the Heritage Reserve was seen as a very long-term proposal, but now needs updating.
“This creates a much more clear purpose, ultimately clearer for the public,” he said.
