Recap: Budget 2020 Deliberations, Day 1
Council Committee of the Whole met today for its first day deliberating Budget 2020. We still have a day or two to go.
If you haven’t seen them already, you may be interested in the blog posts I wrote leading up to budget deliberations. The are about:
How provincial and federal decisions will cost the City millions in 2020
Where tax rates have gone this term and my priorities for 2020
How the City is working to be more efficient and target money better
Following is what happened at today’s budget deliberations. As always, any mistakes or opinions belong to me and me only, not to Council or City staff.
Going into 2020, there are a few challenges facing the City budget. These include:
Provincial and federal governments have made decisions that are costing the City millions of dollars- they are equivalent to a tax increase of 3.5% or more (more info here)
We don’t dedicate a high enough proportion of tax revenue to basic infrastructure maintenance to keep up with long term needs
Compared to most municipalities and what is considered best practice, our Financial Stabilization Reserve is low
As always, inflation is increasing costs
On top of these challenges, Council and management have made it a high priority to spend money more efficiently and better target spending towards community priorities (info about how we are doing that can be found here). This is leading to a lot of hard thought and conversation going into the budget. We’re putting a lot of energy into determining what core activities the City should deliver, and what levels of service are sustainable in the long-term.
Today, management provided a proposed budget for Council to debate. Highlights of this budget include:
Absorbing the millions of dollars in impacts created by senior levels of government
Increasing the tax funding for infrastructure maintenance by $2.7 million
Hiring 2 additional RCMP members
Transferring an additional $2.3 million dollars to reserves (more on this below)
Maintaining an inflationary-only tax increase of 1.5%
Delivering on all of these goals isn’t possible without making spending reductions in some areas of the budget. To achieve those outcomes, management proposed $6 million in spending reductions. Many of these reductions involved streamlining processes, re-organizing staff, or aligning the budget with what is happening anyways: they will have no impact on the services residents receive. However, some of these reductions will have service impact. But administration’s judgement was that these impacts wouldn’t significantly hurt the community and that they would be worth the savings.
The bulk of Council’s day was dedicated to debating and voting on these adjustment recommendations. Today, Council approved $5.2 million worth of reductions.
I had very strong objections to one reduction Council approved: a reduction of service hours on some transit routes. However, I’m very comfortable with the other reductions Council made. I don’t think that quality of life in our City will be significantly impacted by any of them. I’ll list full details next week.
If Council leaves the rest of the budget as-is, this won’t allow Council to both maintain a 1.5% only tax increase and put $2.3 million into reserves. However, two possible actions it could take without changing anything else in the budget:
Set a tax increase of 1.5% and only put $1.56 million into reserves
Set a tax increase of 2.13% and put the recommended $2.3 million into reserves
The rest of budget deliberations will be interesting. Some of the key decisions Council still has to make:
Whether or not to approve additional spending adjustments
What to approve in the 2020 capital budget
Whether or not to go ahead with the next phase of Downtown Rehabilitation next year
How much money to dedicate to reserves in 2020
The target tax rate for 2020
Those are the highlights of today’s conversation. But if your interested, below I’ve got a bonus section that discusses reserves.
Later next week, I’ll be posting details about what spending adjustments got made.
Thanks for reading!
-Dylan
THE FINANCIAL STABILIZATION RESERVE
The City has a number of different reserves. You can read about the purposes and general rules behind them all here. You can see how much money was in each reserve at the end of September here.
The reserve receiving significant attention this week is the Financial Stabilization Reserve. It exists for two big reasons:
To pay for significant, unexpected, one-time events. Because of the rules established by the provincial Municipal Government Act, the City has very limited tools to respond to events like this. It can’t finish a year in deficit and make up for that in the next year. The City can’t quickly liquidate assets: trade agreements the City is obligated to follow mean that selling anything takes many weeks. And it can’t quickly take out debt: provincially legislated processes take weeks to navigate. Reserves are the only tool the City has to absorb significant and emergent costs.
To stabilize unexpected tax changes. There is always a risk of the City facing unexpected but significant changes to its revenues. This could include provincial or federal changes (like the ones that are costing millions of dollars in 2020), the loss of a significant portion of the tax base due to disaster, or challenging economic times. When this happens, it may need to increase taxes or reduce services. But doing so all at once could create big hardships for individuals, families and businesses. Accessing reserves can give the City more time to adjust to sudden changes.
I’m still deciding what I think we should contribute to reserves next year. I won’t have a firm position until I see how the rest of the budget shakes out. That being said, I do agree with management that increased reserves should be a priority for Council.
Some reasons why Council should be increasing the Financial Stabilization Reserve:
Compared to other Alberta municipalities, the City of Grande Prairie’s reserve levels are low.
In the municipal world, it is considered best practice to have 2 months worth of operating needs in reserve. For the City, that equates to ~$28,000,000. Currently, we only have ~$8.7 million in the Financial Stabilization Reserve.
The RCMP recently won a legal battle to unionize: members are heading towards collective bargaining with the federal government. When that happens, our RCMP costs are likely to raise very significantly in one year: Council may wish to access reserves to smooth the impact of that out for tax payers. Additionally, RCMP members are likely to win the right to back pay, which would almost certainly mean the City will be handed a one time bill worth millions. Reserves are a likely source to pay for that payment. With this huge approaching expense to the City, our low reserve levels are especially troubling.
Worth noting: reserves do earn interest. They generate ~$2.8 million of income every year, and that is used to decrease the tax rate.