Budget Process | City of Medicine Hat

Every two years, the City brings forward a budget that defines the funds required to run City programs and services, maintain and upgrade existing infrastructure, and invest in new opportunities.

Our budget is designed to meet the needs of the community while ensuring our finances stay strong over the long term.

Creating the budget

Planning

Administration uses Council’s strategic plan and input from Hatters to guide our planning.

Development

We create the budgets needed to deliver services.

Debate & approvals

These plans are brought to Council for deliberation and approval. Council considers public feedback in their decision.

Budget update

Each year, we update the budget to account for unforeseen changes through the budget cycle.

Council is required under the Municipal Government Act to approve the City’s operating and capital budget before December 31.

How is our budget built?

The City of Medicine Hat's budget is divided into four distinct areas.

Municipal*

This segment uses property tax revenue to provide traditional municipal services (parks, transit, protective services, recreation, roads, airport, planning, customer service, community supports, economic development, and more).

Land Development & Real Estate

This segment includes the City’s land inventory, the costs associated with holding land and property, and the revenues from leasing and selling land and property.

Rate-based Utilities

This segment of the budget includes water, sewer, solid waste, electric distribution and gas distribution and is funded through the utility rates and fees that are charged to customers that use these services.

Energy Production

This segment covers the City of Medicine Hat’s commodity-based energy production business including electric generation and gas production. It is funded through commodity charges to utility ratepayers, as well as revenue from selling excess electricity to the provincial grid.

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*The Municipal budget is the only segment that requires a portion of funding to come from property taxes.

Land Development and Real Estate, Rate-Based Utilities, and Energy Production are considered to be three self-sustaining business units, meaning they recover the costs required to operate, and are reported as individual entities in our financial ‘books.’

Within each segment, funds are separated into an operating budget and a capital budget. Here’s how they differ:

Operating Budget

Funds daily operations
Short-term focus
Salaries, utilities, fuel, supplies, software
Expensed immediately
Recurs annually
Examples:
- Employee salaries and benefits
- Utilities for municipal buildings
- Snow clearing and road maintenance
- Parks maintenance and mowing
- Transit operations
- Fire and emergency services
- Fuel and vehicle maintenance
- Insurance and software subscriptions
- Contracted services

Capital Budget

Funds long-term assets
Long-term focus
Buildings, equipment, infrastructure
Capitalized and depreciated
Project-specific or multi-year
Examples:
- Building a new fire hall
- Reconstructing a road
- Replacing a water treatment plant
- Purchasing a new transit bus
- Constructing a new recreation centre
- Upgrading a stormwater system

Think of it this way:

Operating Budget = Keeping the lights on
Capital Budget = Buying or building the lights

The Capital budget is diced even further to account for sustaining capital (maintaining, upgrading or replacing what we already have) and strategic capital which is investment that expands capacity, service levels, or revenue potential.

Sustaining Capital

Maintains existing assets
Preserves current service levels
Replaces worn-out infrastructure
Often unavoidable
Focused on reliability and risk
Examples:
- Repaving an existing road
- Replacing aging water mains
- Replacing an end-of-life fire engine
- Replacing the roof on City Hall
- Upgrading an aging lift station
- Replacing HVAC systems in municipal facilities

Strategic Capital

Expands assets or capacity
Creates new service levels
Adds new infrastructure
Often strategic and discretionary
Focused on growth and opportunity
Examples:
- Building roads for a new subdivision
- Expanding a recreation centre
- Installing new water and wastewater infrastructure to support development
- Building a new park

Within the capital budget:

Sustaining Capital = Replacing old lights when they wear out
Strategic Capital = Adding lights to a new area

Each financial segment is funded differently

Municipal

Municipal revenue comes from:

Property taxes
Facility admissions and user fees
Business licenses
Building permits
Grants
Dividends from Business Units
Endowment (Reserves) Dividend ($5M per year)
Investment Income

We collect no more or less than what has been budgeted and approved by Council, reporting deficits or surpluses in the tri-annual report.

Land Development & Real Estate

The City sells surplus land.

Rate-based Utilities

Utility rates and fees cover the cost of providing the service plus a rate of return for maintaining, upgrading, or replacing infrastructure.

Energy Production

Energy Production is funded through electricity and natural gas commodity charges to utility ratepayers, as well as revenue from selling excess electricity to the provincial grid.

How money flows

The Distributable Funds/Dividend Policy #0169 establishes the relationship between the City and its for-profit business units.

Our earning areas - utilities, land, and energy - generate funds that flow into reserves, which sit at the center of the City’s financial model. Free cash flow is the name we use for the funds flowing into the reserve from business units.