2021 Budget Update Aims to Address $23M Gap
Medicine Hat – On Monday, December 7, City officials will present the 2021 Budget Update to City Council for approval. The 2021 Budget Update reflects the City’s enhanced Accelerated Financially Fit Initiative, which aims to address a $23M gap created by the loss of oil and gas dividend revenues from City-owned assets.
“The City’s municipal budget has historically been supported by our commodity-based net revenue and funded from financial reserves,” says Dennis Egert, Commissioner of Corporate Services. “The Accelerated Financially Fit Initiative represents a financial recalibration that will redefine the cost structure of the organization to significantly reduce and ultimately eliminate that reliance. The objective is to create a stable and predictable financial balance and tax environment.”
Unlike other levels of government, municipalities are unable to plan deficit budgets. To achieve a balanced budget, the City must ensure expenses do not exceed funding.
The need to accelerate the Financially Fit Initiative (launched in 2016) became clear in 2020 due to new financial challenges brought on by COVID-19, continued low oil and gas prices, decreasing government funding from the Province of Alberta, and a limited ability to absorb cash losses through financial reserves.
“Our municipality, like many others, is facing significant financial headwinds,” says Egert. “We’ve been an extremely fortunate community, over many years, thanks to our oil and gas assets. However, times have changed. We are now faced with the challenge of rightsizing our operations so that our expenses are in line with our revenues.”
The original 2019-2022 Budget approved in December 2018 was based on the assumption of an annual property tax increase of 4%. The 2021 Budget Update was adjusted to include a 0% property tax increase for both 2020 and 2021 to support the community through financial hardships created by COVID-19 and other recessionary factors. This decision and the related reduction of $7.3M in tax revenues added further pressure to the City’s operating budget.
Despite this challenge, the amended 2021 Budget Update continues to preserve the Medicine Hat Advantage. The City of Calgary’s 2019 Residential Property and Utility Charges Survey shows that amongst comparator cities in Alberta (offering similar amenities and services), Medicine Hat still has the lowest combined average for property taxes and utilities.
“City Council has been clear that we need to find solutions beyond just tax increases, which means we have to reduce costs,” says Egert. “Addressing our $23 million revenue shortfall through property tax increases would require a 28% increase. I think most residents would rather see prudent adjustments to services, cost reduction and the addition of new sources of non-tax rate revenues than a tax increase of this magnitude.”
Summary of 2021 Budget Update
0% property tax increase in 2020 and 2021.
Significant net cost reduction of $14.8M (11%) with a thoughtful, measured approach.
Reduced reliance on financial reserve of $1.2M from the initial 2019-2022 budget. The City will need to find further solutions to eliminate continued reliance on financial reserves in the future.
Service enhancements in some areas, with minimal adverse adjustments to service in some others.
Staffing Impacts
As two-thirds of the City’s budget is related to staffing, cost reductions are needed in this area to achieve budget targets and much of this will be reached through voluntary reduction or attrition. Additional analysis is underway to find further efficiencies across the organization.
Bargaining units and all non-union staff are budgeted to receive a 0% increase for 2020 and 2021
Included in the 2021 Budget Update is a divisional realignment, which will result in excess of $250,000 in direct cost savings. The realignment also consolidates like functions to reduce overlap, and offers improved business case planning and analysis to ensure more efficient planning and execution of projects.
Potential Service Level Adjustments and Facility Closures
COVID closures and required capital investments have forced careful consideration of the future of some aging recreational facilities, including Crestwood Rec Centre, Moose Rec Centre and Heights Pool. Future investment in community amenities will be based on community needs and operatingefficiencies through such solutions as consolidated, multi-purpose facilities.
The City continues to pursue cost reduction strategies that minimize adverse impacts on services and subsequently residents. An initiative like MHTnow – transit on demand, actually reduced costs while enhancing service to many users. Leveraging technology and digital innovation in order to serve and connect with residents will continue.
While the 2021 Budget Update signals significant progress toward financial sustainability, City officials are quick to point out that more work needs to be done.
“Medicine Hat residents enjoy a very high quality of life, and the City is committed to preserving this value wherever possible,” adds Egert. “The Accelerated Financially Fit Initiative is pushing us to examine our costs and prioritize solutions that don’t add to the burden on taxpayers. We still have work to do in 2021 and beyond to ensure financial sustainability for the future generations of our community.”
Media Inquiries
media@medicinehat.ca
“The City’s municipal budget has historically been supported by our commodity-based net revenue and funded from financial reserves,” says Dennis Egert, Commissioner of Corporate Services. “The Accelerated Financially Fit Initiative represents a financial recalibration that will redefine the cost structure of the organization to significantly reduce and ultimately eliminate that reliance. The objective is to create a stable and predictable financial balance and tax environment.”
Unlike other levels of government, municipalities are unable to plan deficit budgets. To achieve a balanced budget, the City must ensure expenses do not exceed funding.
The need to accelerate the Financially Fit Initiative (launched in 2016) became clear in 2020 due to new financial challenges brought on by COVID-19, continued low oil and gas prices, decreasing government funding from the Province of Alberta, and a limited ability to absorb cash losses through financial reserves.
“Our municipality, like many others, is facing significant financial headwinds,” says Egert. “We’ve been an extremely fortunate community, over many years, thanks to our oil and gas assets. However, times have changed. We are now faced with the challenge of rightsizing our operations so that our expenses are in line with our revenues.”
The original 2019-2022 Budget approved in December 2018 was based on the assumption of an annual property tax increase of 4%. The 2021 Budget Update was adjusted to include a 0% property tax increase for both 2020 and 2021 to support the community through financial hardships created by COVID-19 and other recessionary factors. This decision and the related reduction of $7.3M in tax revenues added further pressure to the City’s operating budget.
Despite this challenge, the amended 2021 Budget Update continues to preserve the Medicine Hat Advantage. The City of Calgary’s 2019 Residential Property and Utility Charges Survey shows that amongst comparator cities in Alberta (offering similar amenities and services), Medicine Hat still has the lowest combined average for property taxes and utilities.
“City Council has been clear that we need to find solutions beyond just tax increases, which means we have to reduce costs,” says Egert. “Addressing our $23 million revenue shortfall through property tax increases would require a 28% increase. I think most residents would rather see prudent adjustments to services, cost reduction and the addition of new sources of non-tax rate revenues than a tax increase of this magnitude.”
Summary of 2021 Budget Update
0% property tax increase in 2020 and 2021.
Significant net cost reduction of $14.8M (11%) with a thoughtful, measured approach.
Reduced reliance on financial reserve of $1.2M from the initial 2019-2022 budget. The City will need to find further solutions to eliminate continued reliance on financial reserves in the future.
Service enhancements in some areas, with minimal adverse adjustments to service in some others.
Staffing Impacts
As two-thirds of the City’s budget is related to staffing, cost reductions are needed in this area to achieve budget targets and much of this will be reached through voluntary reduction or attrition. Additional analysis is underway to find further efficiencies across the organization.
Bargaining units and all non-union staff are budgeted to receive a 0% increase for 2020 and 2021
Included in the 2021 Budget Update is a divisional realignment, which will result in excess of $250,000 in direct cost savings. The realignment also consolidates like functions to reduce overlap, and offers improved business case planning and analysis to ensure more efficient planning and execution of projects.
Potential Service Level Adjustments and Facility Closures
COVID closures and required capital investments have forced careful consideration of the future of some aging recreational facilities, including Crestwood Rec Centre, Moose Rec Centre and Heights Pool. Future investment in community amenities will be based on community needs and operatingefficiencies through such solutions as consolidated, multi-purpose facilities.
The City continues to pursue cost reduction strategies that minimize adverse impacts on services and subsequently residents. An initiative like MHTnow – transit on demand, actually reduced costs while enhancing service to many users. Leveraging technology and digital innovation in order to serve and connect with residents will continue.
While the 2021 Budget Update signals significant progress toward financial sustainability, City officials are quick to point out that more work needs to be done.
“Medicine Hat residents enjoy a very high quality of life, and the City is committed to preserving this value wherever possible,” adds Egert. “The Accelerated Financially Fit Initiative is pushing us to examine our costs and prioritize solutions that don’t add to the burden on taxpayers. We still have work to do in 2021 and beyond to ensure financial sustainability for the future generations of our community.”
Media Inquiries
media@medicinehat.ca
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