City's bottom line hanging in during tumultuous time but issues with lower return on investment and lower power prices are still causing damage.--NEWS FILE PHOTO
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City reserve funds largely survived market turmoil at the beginning of the year, but lowered expectations for investment returns and worsening power prices could cause a budget deficit to grow, council’s audit committee heard Tuesday.
The new city budget plans for $11.1 million in direct subsidy from reserve funds to balance the 2025 business plan, but that could grow by $3.3 million at Dec. 31, financial administrators stated.
That’s for the operating budget, but the overall financial picture could benefit from a slightly larger than planned dividend from utility operations, and financial markets are recovered, council members heard.
“There’s been so much noise … but getting on with business will shine through,” said Coun. Darren Hirsch, the audit committee chair, who reiterated his support for new money management policies that broaden the portfolio.
The total reserve balances sat at about $765 million at April 30 – about $2 million less than on Jan. 1 – and the year-to-date return rate moved into just negative territory, but still above a benchmark of comparable funds, Hirsch said.
That’s palatable, he says, considering turmoil on equities and bonds trading, as well as the general investing climate so far in 2025.
Markets fell sharply after threats of a North American trade war between Canada and the new U.S. administration. The results presented Tuesday were current at April 30.
“A month later (in early June) many have returned to where they were,” said treasury official Vandy Bishop. “(Our rate of return) is not exciting, hovering around zero, but there was a lot of volatility in the markets at the beginning of 2025. We’re happy with 24 basis points (0.24 per cent) above the benchmark considering all that took place.”
“It’s a well diversified portfolio and we expect to meet our long-term goal,” of 5.5 per cent average annual return over five years, she said.
The current operating deficit was $28 million due largely to timing of spending, but will improve to $14 million by year end.
The difference to the budget of $3.3 million is due to lower investment income and court fines, said officials, a higher than expected wage settlement in the new firefighter contract and unbudgeted expenses, such as encampment cleanup, park and rec costs and legal fees related to freedom of information requests, which have grown in recent years.
“Inflation is always a big factor” and is now in 1.5 per cent in Alberta, down from 2.8 per cent in March, said finance director Lola Barta.
“We’re tracking this but they tend to fluctuate. We’re in a changing environment.”
The price the city fetches for power sales continues to fall steadily.
They were $133 per megawatt hour in 2023, and $63 in 2024. They budgeted for $53 for 2025, but now an updated forecast predicts $45. Typically, a drop in price also translates to a drop in volumes sold. Partly offsetting this is a $1.3-million gain due to a lower than forecasted price of gas to feed the power plant.
“We will be seeing lower profits for 2025 and probably moving forward,” said Barta. “There’s obviously a lot of commodity viability in Alberta right now.”
Power income is $5.9 million lower than budgeted one third of the way through the year, but could rise higher by year end depending on the more lucrative summer season.
The combined energy production utility is expected to post a full-year net surplus of $2.2 million, or $1.3 million above budget.
That’s slightly less than the combined water, sewer, solid waste and gas/power distribution companies, which were typically dwarfed by the power plant and gas production units.
Overall, the utilities are predicted to produce a combined free cash dividend of $19.4 million, or $4.8 million higher than expected.
The figure was $12 million in 2024.
City debt at April 30 was $412 million, or $49 million higher due to a debenture tranche at April 30. That comprises borrowing that was paused in late 2023 as the city awaited lower bowering rates, which arrived this year. The city’s average borrowing rate is 3.46 per cent for fixed terms.
