Denis Egert, the city's managing director of corporate services, presents initial assumptions for the 2025-26 city budget at a council committee of the whole meeting Tuesday.--News photo Collin Gallant
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Council will need to determine what level of revenue from business units – and investment funds built up by those like the power plant – is sustainable in Medicine Hat’s next budget, finance officials said during opening session of talks Tuesday.
It was the first of six committee of the whole discussion sessions scheduled before the 2025-26 budget plan is presented for approval at year end.
In it, budget authors told council members that initial goals are to eliminate an operating gap by 2026, money currently filled by reserve withdrawals.
At that point, dedicated investment income of $4 million and a recurring $3-million dividend from regulated utility sales could be provided, while more volatile power profits are likely to recede.
“We’re in a good financial position,” said budget official Aaron Hoimyr, noting the city is now in a net positive situation with reserves, worth $750 million, now larger than debts and other liabilities.
But, that doesn’t include capital needs, and could change in high a inflation era, with decreased funding from other governments and increased demand for city services.
“It’s an achievement, especially when other municipalities are struggling, but there’s a changing landscape when it comes to our energy transition for a whole side of our business, and that will change things substantially.”
Back to back 4.9 per cent tax increases, plus $2 million in program cuts, would balance the budget, while keeping reserve funds available to erase liabilities, like gas well abandonment, pay for a move to net-zero power production as well as fund a recreation facilities plan that will be determined late this year for the next budget cycle.
In a straw poll, all councillors said they were likely to or strongly support lessening “reliance” on commodity income, but engaged in a long discussion about the definition.
Mayor Linnsie Clark said the original purpose of the Heritage Reserve is to eventually replace profits in non-renewable resources, and that will be accomplished in 2025.
Coun. Ramona Robins also questioned assumptions about the future profitability of the power production unit.
“It seems that a 100-year-old business is sustainable, the question is how do we sustain it,” she said.
Dennis Egert said the question is meant to note that commodity prices are volatile and to avoid budgeting to peak expectations for power revenue.
“What’s the level of income that we can rely on year over year without putting our municipality or operating at risk,” he asked.
Figures show local property tax increases since a pause in 2020 related to pandemic relief have totalled 13 per cent through 2024 – less than Edmonton (15.5 per cent), Calgary (16.4), St. Albert (16.4) and Airdrie (23), but more than Lethbridge (10.5) and Red Deer (12.5).
That’s fuelled by high inflation, especially in construction, and high borrowing costs, said Egert.
Administrators also noted that the power market is rapidly evolving, and a third-party review is examining the power profit model and it could lead to changes to rates.
“That would definitely reduce the revenue from the business unit and there is also a (Alberta) market review underway,” said Travis Tuchscherer, head of utility business and market analysis.
Coun. Robert Dumanowski said he feels it is important to budget conservatively.
“It’s a reduction rather than retirement of the reliance (on utility profits subsidizing municipal operations),” he said. “We’ve seen valleys that are frightening at times. What we’ve seen in that last few years are peaks that we’ve never seen before. It portrays an unrealistic expectation.”
The power plant recorded a net loss in 2019 but this past year provided a record dividend of $134 million, most going to the Heritage Reserve, now worth $200 million, and to repay money spent from another reserve that provided $33 million in utility relief payments to customers last fall.
After 2024 however, the forecast is that power sales will fall back to much lower historic levels at the same time that hundreds of millions is needed to complete low-carbon upgrades and potentially abandon the river valley steam-turbine plant.
The general budget outline also calls for $178 million in general infrastructure rehabilitation work across the city, and $37 million in new capital projects.
City manager Ann Mitchell introduced the two-hour discussion Tuesday asking, “How do we meet today’s needs with future priorities and have that balance?”
Council will meet twice more in the spring to discuss capital spending priorities and up to four operational budget sessions in the fall before a final document is debated next December.
