Should municipalities be in the business of being in business?
Across Canada, it’s become something of a trend. Here in Alberta, Edmonton has Epcor; Calgary has Enmax; and Grande Prairie has Aquatera. These utility corporations are for-profit businesses that, if they’re successful, pay dividends back to the city to offset property taxes and provide a new stream of revenue.
For the last year and a half, St. Albert has been exploring the idea of starting up a utility corporation of its own. The idea morphed recently into a proposal that would include consulting services, inspection and maintenance services, waste-to-energy and solid waste management.
Now, with a business case before it and a public hearing coming down the wire, St. Albert city council is faced with the question of whether to accept the risks – and possible rewards – involved in such a business venture.
In the context of the city’s current financial position, councillors know the city wouldn’t be able to pay its maintenance and repair bills on city assets if it wasn’t for provincial grants, as unreliable as they are; it has nowhere near enough funding to cover all the capital projects on its 10-year wishlist; and residents are sick to death of tax increases.
With that in mind, the prospect of making millions off a public corporation is no doubt enticing. Still, councillors must ask themselves what the primary function of government is. Is it to provide services to residents? To make money? To compete with private enterprise in order to keep tax increases down?
Other municipalities in Alberta have decided their functions include business ventures. This has not always gone well for them, as evidenced by the collapse of Chestermere’s municipal utility corporation, which initially hiked utility bills and ultimately left residents on the hook for millions of dollars. Interestingly, Chestermere is one of two examples that can compare to St. Albert’s proposal; the other is Aquatera in Grande Prairie, a regional partnership between four municipalities.
If council members accept the premise that municipalities should be in business, they will need to convince residents of that as well. Should ratepayers blindly accept that the municipality knows what it’s doing and trust we’re going to profit as shareholders in the corporation? That didn’t go so well for Chestermere residents, and the argument can easily be made that Grande Prairie’s utility corporation hasn’t had an overwhelming impact on taxes for its partner municipalities, though it has returned sizable profits to those municipalities. Should ratepayers be led down this road without fully understanding what it is they’re investing in, all because the city claims it needs to protect its competitive advantage?
The questions don’t end there. Councillors will also need to decide how long they are willing to test their hubris. How much money are they willing to invest to prove themselves right? If the corporation fails to make money, at what point would council decide the losses are great enough to dissolve the corporation? It would be pure folly if council didn’t consider this. After all, every business person must analyze potential outcomes and return on investment.
With every business venture comes inherent risk. In this venture, the risk will be born by St. Albert taxpayers.
