In recent weeks, city council has taken steps to establish an arms-length Municipal Utility Corporation (MUC) to operate City utilities. The justification for this move has been that the corporation could offer additional new services to the non-residential sector, providing an additional source of income for the City. The City retained Grant Thornton LLP to develop the business plan and examine the benefits, opportunities and risks associated with the creation of a MUC.
Referring to the consultant’s business plan, the financial analysis has serious weaknesses. Examination of the impact of new services on the fiscal performance of the MUC over the 10-year period from 2021 to 2030 shows the corporation’s total annual net income declining. Analysis at a more detailed level reveals that the annual operating income from new services is below the level needed to cover the expected annual dividend paid to the City. Since the City must contribute cash to the MUC to provide the corporation with the necessary growth capital, one can assume that the dividend would be paid from the City’s cash injections to the corporation.
Administration acknowledged that there is nothing preventing the City’s utilities department from pursuing attractive new business opportunities within the existing utilities framework. So why create a Municipal Corporation?
According to administration, the MUC would allow the utilities department to be more “agile” when responding to new opportunities. In other words, Administration wants the MUC to be free from council oversight and free from scrutiny by St. Albert residents and stakeholders. Allowing the MUC to operate with no Council oversight would undermine residents’ trust that their interests are being protected. Furthermore, agility would come with higher operating costs and greater risks to the City and its residents. The consultant has broadly identified areas of risk, most of which fall into the categories of strategic and operations, regulatory and financial.
Speaking of risk, in August of this year the City of Chestermere east of Calgary officially took back control of its utilities from a municipal corporation established in 2012. The legacy of that failed experiment is a $35-million debt which will take many years to repay.
The plan to create the MUC will be one of the most significant decisions made by council in St. Albert’s recent history, and would affect all St. Albert residents. In his report, the consultant states “... As residents are one of the most significant stakeholders of any City, it would be critical to take into consideration the perception of the residents before incorporating an MUC.” That recommendation seems to have been lost on city council. While the recent Dec. 2 public hearing on the matter complied with Municipal Government Act requirements, the hearing, attended by a crowd of concerned citizens, should have been preceded by a comprehensive public information campaign to inform residents of the plan and allow stakeholders to ask questions. Perhaps that’s a lesson for another day.
Today, I believe that creating the corporation will provide no benefits to St. Albert residents, and could seriously undermine the City’s financial position. During the upcoming Dec. 16 council meeting, councillors should vote “No” on the third reading of the motion to create a St. Albert MUC.
A. Keller, St. Albert