The City of St. Albert may be turning to additional one-offs to avoid a substantial tax increase for 2023, despite voicing the need in May to find long-term solutions to ongoing financial issues.
Council heard during a committee of the whole meeting Tuesday afternoon that service reductions — the initial strategy administration proposed to avoid substantial tax increases predicted for 2023, 2024, and 2025 — are out of the scope of administration's capability for the 2023 budget season.
Bill Fletcher, the city’s chief administrative officer, told council the ability to make “significant structural decisions” to service delivery for the 2023 budget is “fairly limited.”
“We’re buying space in 2023 in order to make very heavy decisions in 2024 and 2025,” Fletcher said.
Instead, for 2023, council is eyeing one-time measures such as a reduction in 2023 grants and transfers, as well as ongoing measures such as an increase to the city's electric franchise fee. Though administration had prepared motions for directions council might take, ultimately, council did not vote to give direction on options but instead left potential solutions at the discussion level.
While administration previously predicted a 7.2-per-cent increase to maintain service levels in May, more current projections place that increase at 8.2 per cent, Fletcher told council in the meeting.
This means the city will have to find $6.3 million in savings to bring down the 2023 tax increase to three per cent, or on the higher end, $4 million for a tax increase of five per cent (three to five is the range council directed administration to come forward with in the spring).
The potential scale of adjustments needed to find a $6.3-million reduction is the equivalent of 48 per cent of the city’s RCMP budget, or eliminating the city’s entire information technology department, an administrative backgrounder included in the meeting agenda said.
“It is not being implied that any of the above is desirable or even possible, but is being presented to illustrate the potential scale of adjustments that would be required,” the backgrounder said.
Diane McMordie, the city’s director of financial services and information technology, told council the city has three options for the 2023 budget.
These options are: endorse the proposed tax increase and maintain service levels; use the short-term options alongside limited service level reductions to mitigate the increase; or pursue the second option with an additional commitment to identify and analyze service reductions for coming years.
Not exploring service level reductions for coming years could exacerbate the city’s financial situation in coming years, McMordie said.
Over the past decade, tax increases in St. Albert have been below the level of inflation to maintain the same service level, McMordie told council.
On top of these historically low past tax increases, several other issues are contributing to the city’s financial situation, McMordie said.
These include the increasing cost of borrowing and additional borrowing the city has taken on in recent years, impact on city revenue streams due to COVID, costs previously shouldered by the provincial government that have been downloaded on to municipalities, and increased price of commodities such as gas and electricity.
McMordie said the city has invested “significant time and effort” in the past five to seven years reducing waste and excess in its operations.
“We continue to ask our staff to take on more and more, which is putting pressure on our workforce,” she said.
“As we've been predicting and communicating with council over the past several years, we've kicked the can down the road about as far as we can, and now we're facing the reality of those decisions.”
During Tuesday’s council committee of the whole meeting, council discussed using the following solutions to offset the 2023 tax increase, and used an interactive tool to conceptualize the impact they would have on resulting tax increases.
“I would not consider any of these recommendations from administration,” McMordie said of the options council was presented for review during the meeting, noting administration instead looked to see what was possible to implement for the 2023 budget.
Increase to electric franchise fee
McMordie said in council’s last meeting discussing tax increases, administration was told to put on the table an increase to the electrical franchise fee.
The city first introduced the fee in 2019 in an effort to bring in revenue of $1.43 million in its first year. Initially introduced at five per cent, the fee climbed to 10 per cent in 2021. The fee has been used to offset property taxes.
Unlike one-off solutions such as withholding transfers from reserves, McMordie said increasing the franchise fee would be a sustainable, ongoing revenue source.
McMordie told council a two-per-cent increase to the franchise fee would result in $672,000 for the city, decreasing the tax levy by 0.57 per cent. On the higher end, a five-per-cent increase would bring the city $1.68 million in funding, resulting in a 1.43-per-cent tax levy decrease.
Coun. Mike Killick said he has always felt the franchise fee takes “money out of the left-hand pocket … but the pockets are still [from] the same resident.”
Mayor Cathy Heron noted while schools and hospitals don’t pay property taxes, they do pay franchise fees, meaning the increase becomes differently distributed than it would if council just increased property taxes.
The discussion on whether administration should bring back options for an electric franchise fee for council to consider this budget season will return to council in September, McMordie said.
St. Albert’s stabilization reserve — which is used for unanticipated, one-time events — reached formerly unseen low levels in 2021, but was later restored in February by an expected $3.9-million annual surplus.
Anne Victoor, the city's manager of financial services, said at that time council typically withdraws an average of around $1.8 million from the reserve each year, but withdrew around $3.8 million in 2021.
Now, the stabilization reserve has reached $8.3 million in uncommitted funding levels due to municipal operating support transfer (MOST) funding received from the province to help shoulder the cost of COVID impacts.
McMordie said administration recommends using this funding over the next two to three years to offset the tax rate, though noted as one-time money it “cannot be relied upon in the future.”
“You’re basically using your savings account to fund ongoing services and it has a future impact,” she said.
In May, Heron said the city will need to wean itself off pots of money, such as the city’s stabilization reserve.
McMordie said when it comes to next year’s budget, the reserve will need to be backfilled.
Repair, maintenance, and replacement (RMR) funding
In 2019, council approved a recurring 1.5-per-cent tax increase to help manage a shortfall in repair, maintenance, and replacement funding for repairs to infrastructure, such as roads.
To reduce the tax increase, council has directed administration to also bring forward a reduction to the levy for the 2023 tax year. The total collected levy amounts to around $1.5 million.
McMordie said missing one year of the recurring levy will have a cumulative effect of losing $35 million to $40 million, as well as put the city’s future assets at risk.
The city will also look to cancel or reduce grants to the community and outside agencies, such as Stop Abuse in Families (SAIF). These grants include the library grant, which the Ernst & Young operational and fiscal review recommended decreasing by $1.5 million. The grants also include the $77,000 community events grant.
McMordie noted the city would likely not consider completely reducing all grants for 2023, but would phase in a reduction in grants over a period of around three years.
When discussing potentially reducing the library grant, councillors said they had heard from some members of the public they would be supportive of reducing the grant.
Hughes noted she would like to wait for the library’s internal audit — which the city contributed $100,000 for last year — to make an ultimate decision about library grant funding, but McMordie noted the city might not be able to wait for the library’s report in their planning for the budget.
Coun. Ken MacKay said he thinks there is substantial discussion that would need to happen before the city looks at reducing outside agencies funding.
"I realize we've got to find the dollars, but do you find the dollars on the backs of our neediest residents?" MacKay asked.
Other measures the city will explore to reduce the tax increase for the 2023 budget include cancellation of the $220,000 public art transfer, which funds the purchase and maintenance of public art displays. The last time the city fully contributed to the public art reserve was in 2019.
The city will also look to reduce the growth component for one way it pays for capital projects (in addition to transfers to reserves and long-term debt servicing): pay-as-you-go funding.
McMordie said this cannot be done at the same time as reducing the $1.5-per-cent repair, maintenance, and replacement levy, is it would create a “very precarious situation for our capital assets.”
St. Albert will also look to apply more of its new assessment growth, additional taxes generated by new properties, to the tax base — typically, a council policy allocates 55 per cent of the estimated growth for new business cases, such as additional staff positions. McMordie said this would be around $1.1 million.
“While this is another lever for council to pull, it can't be considered a long-term solution and will continue to play significant stress on the corporation to be able to meet the service level expectations with a growing geographical population base,” McMordie said.
Ultimately, council did not give a direction for administration to pursue at the meeting's conclusion.
"We were highly confident that we would be making some decisions today," Heron said.
Measures council touched on in their discussion — such as whether to direct administration to pursue an electric franchise fee — will return to council later in the fall.