City of Medicine Hat revenue hits keep 5.6% tax hikes on table

By Collin Gallant on November 30, 2024.

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A final proposed city budget includes 5.6 per cent property tax increases in each of the next two years, as budget officials say extra revenue is needed and cuts to an original proposal only make up for a financial picture that has worsened since last winter.

That includes vastly reduced forecasts for power profits creating a needed to preserve capital reserves for future use and investment income, administrators have repeatedly said in final meetings this fall.

City councillors outlined in July that they wanted to see a proposed capital plan trimmed to bring down an early suggestion of a 5.6 per cent increase.

In late October, budget meetings heard that projects worth $15.6 million were made to a capital plan and one-time program spending that was already lower by one-third to the 2023-24 plan.

Non-payroll department budgets were kept flat despite high inflation, and 11 positions will be eliminated while only eight are added.

“We have identified a number of efficiencies to keep rates and taxes low as well as keep us open to (funding) new opportunities,” said Aaron Hoimyr, the city’s accounting supervisor who has led budget presentations.

Finance officials have stressed that the planned increase only partially plays catch-up on income after the city instituted a tax freeze in 2020 and 2021, then rose taxes by just 2.5 per cent in 2022.

“They were lower than most (increases) in comparable cities in Alberta and now, the (2025) proposal is in alignment with what those cities will be asking,” said Hoimyr.

City council will begin debating the plan Monday at its regular meeting and will propose amendments ahead of final debate on Dec. 16. At that meeting, final non-commodity utility rates will be finalized ahead of the new year.

Those utility rate increases would see residential bills raise by 1 per cent (about $3 per month) in 2025.

That is largely the result of the transfer of funding recycling cost from bills to the province’s extended producer liability program, thereby offsetting increases in other utility fees.

Commercial and industrial customers would see 5 and 4 per cent hikes, respectively, on average.

A 5.6 per cent tax increase would translate to about $130 per year to a typical residential tax bill.

From that, the city would collect an additional $5 million more in tax revenue next year, alongside $5 million in expected investment returns from the Medicine Hat Endowment Fund (formerly the Heritage Savings Reserve). City fees are budgeted to bring in $1.7 million more as rates are adjusted.

A further “workforce strategy” and adjustments in 2026 are budgeted to save $2 million per year going forward.

Council could also debate re-inserting a $500,000 annual grant to HALO air rescue society, which was added to the 2023-24 budget mid term but left out of the administration proposal.

Major single capital projects are an $11-million item to build a food-waste composting facility and twinning a major water line to the south end at a cost of $6.3 million. Both would affect utility rates, not tax rates.

A $221.8-million two-year capital plan would be paid for mostly through reserves ($66 million), followed by working capital ($64. million, mostly related to power-plant maintenance), debt ($56.8 million) and grants from other governments ($32.5 millIon).

A structural deficit currently being filled by straight withdrawals from reserves would be $11.8 million in 2025 (up from an expected $7.9 million in 2024), then $5.7 million in 2026. The 10-year plan estimates the gap would be erased in 2028, several years later than originally planned.

The long-term plan also sees debt rising to near a 70 per cent internal limit, which is affected by city revenue.

Revenue is expected to plunge by nearly one-fifth to $426 million next year as power prices are set to soften further, then rise slightly in 2026.

Meanwhile, expenses are expected to fall to $449 million next year, requiring cash to balance the budget.

Administrators say that although city reserve funds are set to return above 9 per cent this year, declining investment revenue is a factor in budgeting. Returns are expected to moderate to normal levels next year, said corporate services division head Dennis Egert, and lowering balances now, without expected new deposits to replace value, would erode principal and profits over time.

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