Budget Deliberations: Day 1
Today Council had a day of budget deliberations.
I was excited to see management propose a budget that would come with a 3% tax decrease. We learned about and voted on portions of it. We’ll resume deliberations tomorrow. Following is what has happened so far. As always, any mistakes or opinions belong to me, not to staff or Council.
One decision Council postponed has to do with debt re-financing. I hope you will read that section and let me know what you think: it is a very significant decision which I am currently undecided on.
Worth noting: in 2018, $1,170,000 in spending was equivalent to a 1% property tax increase or decrease.
Also worth noting: no decisions are final yet. The budget created for this process will need to be ratified at a normal Council meeting. Additionally, we do not pass a tax bylaw until the spring- the target tax change is subject to change until then.
Presentations
We began the day with a national economic update from the City’s investment managers and a local economic update from the Deputy Director of Economic Development. Highlights of these:
The economy is still in an upswing but growth is cooling
Housing sales are slow across the province but GP is leading the pack
Inflation is expected to be in the 2-2.4% range, wage growth over 3%
The Interim City Manager gave an overview of the budget process and a few pieces of information worth keeping in mind. Two significant things from this:
Grande Prairie’s spending per capita in 2017 was $2483. This was contrasted to four other municipalities: The County of Grande Prairie’s was $3931, Red Deer’s was $2607, Lethbridge’s was $2549, Medicine Hat’s was $2516, and St. Albert’s was $2,251. All of these numbers had the costs for airports and water/solid waste services removed from them.
The Provincial Municipal Sustainability Initiative expires in 2022. This gives significant funding to Alberta municipalities for infrastructure improvements- we received $26,200,000 in 2017 and $9,610,000 in 2018. If this program is not extended or replaced, the City will be forced to either spend significantly less on infrastructure or to dramatically increase property taxes
Financial Strategies
After these presentations, Council was presented and voted on some financial strategies. They were:
Managed Man Power (Passed)
In 2019, management will delay filling vacant positions for about 2 months. Since many positions already take weeks to fill, this is partly a recognition of what is already happening in the organisation. During this vacancy time, managers will need to present a business case to the Corporate Leadership Team (CLT) about why the position is important. Vacant positions will only be re-filled if they are approved by CLT. This will deliver and estimated savings of ~$2.9 million.
I supported this. Management assured us it will have a very minimal effect on both service results and overtime costs. And by giving time to make sure positions are actually necessary, it can help realize significant longterm savings if some positions go unfilled.
Electric Franchise Fees (Passed)
Grande Prairie currently charges a 7.75% franchise fee on electricity. This is a consumption based fee given to the City for use of City lands to run utility lines. This fee has not been revisited since 2005.
Under provincial law, the City can charge up to 20%. Of the non-GP Alberta municipalities I surveyed which charge an electric franchise fee, the average rate is 12.9%.
Management recommended increasing our rate to 10%. This would cost the average residential building consuming 625 kwh an extra $2.53/month. It has an estimated budget impact of $1.5 million, which is equivalent to ~1.3% in taxes ($44/year for the average residential household).
I supported this. There are a number of properties which do not pay taxes. This is the one direct mandatory cost they pay to the City. Since the franchise fee has not been increasing while property taxes have been, these tax free properties are receiving larger year-over-year subsidies from property tax payers. I think it is equitable to give a boost to franchise fees in order to decrease property taxes. Another benefit of franchise fees: rate payers have some degree of control over this since it is consumption based. They have a lot less control over property taxes.
Debt Re-Financing (Postponed Until Tomorrow)
There are two schools of thought when it comes to municipal debt.
Some say “future tax payers should pay for the facilities they use.” This means that debt is paid back over the entire lifetime of the facility it financed. If you pay debt off before the facility comes to end-of-life, then today’s taxpayers are paying more and future taxpayers are paying nothing: some see this as unfair.
Others say “we should pay as little as possible in interest.” This means that debt gets paid off quicker. Today’s taxpayers pay more, but the City itself pays less over the life of a facility.
The City has often taken out shorter term debt than it needs to. Management presented an option to refinance a bunch of loans into a single loan with a 30 year term (the facilities they are attached to all have usable life for at least that long). This loan would have a lower interest rate than most of the loans consolidated. And because it would be over a longer term, its annual cost would be significantly less.
The impact of this strategy varies based on how many loans are consolidated. But the most aggressive implementation would have a $3.6 million buyout penalty and would cost ~$30 million more over the term of the loan. However, it would give the City $4.8 million of extra cash flow for 5 years then $4.1 million of extra cash flow for another 6 years.
Voting on this was postponed until tomorrow. I made the motion to postpone because how we shape the rest of the budget and whether or not we borrow for the next phase of Downtown Rehabilitation will likely have a significant impact on my vote.
Fees and Charges Review (Passed)
Management proposed to bring forward bylaw amendments to update various fees and charges the City has. These could impact everything from the cost to rent an ice sheet to the cost to have a new house inspected. There has not been a comprehensive review (or significant hikes) in over a decade.
If adopted, management anticipates their proposals realizing an additional $250,000 of revenue in 2019.
I supported this. We’ll need to have a fulsome public debate before any increases are approved. But in theory, fees should go up overtime as the cost to deliver services increase due to inflation. If they don’t, then taxpayers are giving bigger and bigger subsidies to service users. This is appropriate in some cases, but should not be a general practice. The fact that fees have not been reviewed in over 10 years means many should likely see an increase.
Service Model Delivery Review (Passed)
Management is undertaking a review of how many of the City’s 267 separate services are delivered. By finding efficiency and different delivery models, they believe that $750,000 can be saved in 2019.
Council endorsed management undertaking this work. I supported it- it is a no brainer to me that we need to work hard at making sure we are delivering services as efficiently and effectively as possible.
Additional Decreases
Management’s 3% decrease budget assumed that Council would pass all of the financial strategies proposed and add no new operational spending above what management proposed. In other words: it gets at -3% with refinancing. It would be a +1% budget if the refinancing is rejected by Council.
Council talked about additional budget decreases.
Council directed management to cut $250,000 from the proposed overtime budgets and $250,000 from the proposed staff training and development budgets.
It then directed management to identify another $4.18 million in potential budget cuts. These cuts would be equivalent to an additional 4% tax decrease.
We broke early and management will be working into the evening to create proposals about how to achieve these additional cuts.
I supported this. I think a tax decrease is attainable without debt re-financing and without significant service impacts. This is significant cut being proposed, but I think it is worth Council considering what it would look like.
Be Safe & Feel Safe Package
After the above discussion, Council was presented with a series of proposed service enhancement oriented towards community safety. The cost for these is built into the budget presented (ie: they don’t entail an additional tax increase). They includee:
2 new RCMP officers in 2019 ($284,000 cost) and 5 more over the following 3 years
New Peace Officer to serve the Collision Reporting Centre and the Community Knowledge Campus ($111,257 cost)
A Public Information Officer for Protective Services ($90,518)
A third party Fire Department Service Review ($125,000)
Funding prison guards positions. These will generate net revenue for the City as the province will pay it to house provincial prisoners.
I’m supportive of these enhancements. That being said, some may be impacted by the potential cuts Council has directed.
Big Decisions Remaining
That is what Council discussed today. We have some significant decisions yet to come. They include:
Potential service enhancements from the Infrastructure & Sustainability, Organizational Efficiency, Community Enhancement, and Council Strategic Initiatives packages. I won’t form opinions on these until I see the presentations.
Downtown Rehabilitation Phase 4. While I need to learn more about the cost and the Aquatera commitment, I currently oppose this. My understanding is that there is no urgency to replace the current pipe. Most arguments I hear to go ahead in 2019 in favour revolve around aesthetics. While I agree it would be great to give 100 Ave a uniform look, I don’t think this is worth tens of millions of dollars of debt. I’ve also had a number of businesses tell me they have a very good chance of going under if construction continues in 2019- they need more time to recover. Click here for more information on my view of downtown.
Debt Refinancing. I’m completely torn on this. On one hand, I agree with the idea that future taxpayers should pay for their own services and I’d love to see today’s taxpayers get a break. On the other hand, when I compare Grande Prairie to other municipalities we have high debt and low reserves. This strategy deplete our reserves by millions of dollars, and it will mean we take way longer to get our debt down. This concerns me. I welcome any thoughts or wisdom you might have.
Additional Cuts. I’d love to see Council attain a tax cut before franchise fees and refinancing are added in. At the very least, I think we need to go for a 0% without them. At the same time, cutting over $4,000,000 this quickly may come with too big of a cost in terms of services. I won’t know how deep of a budget cut I support until I see the sources identified by management.
It was a long day and I want to be fresh for tomorrow. So I apologize for the quickly written post. I’ll also be having limited online interaction with people tonight. That being said, I will read every single comment made prior to debate tomorrow.
Thanks for reading!
-Dylan