The Municipal Government Act RSA 2000 c M-26 (Financial Administration Part 8) requires a Council to adopt an operating budget and a capital budget for each calendar year. The Act also requires that the budget must include estimated amounts needed to provide for Council’s policies, programs and financial obligations. It must also include estimated amounts for sources of revenues and transfers to reserves. Furthermore, a municipality must prepare a written plan respecting its anticipated financial operations for the next three financial years and a written plan for anticipated capital property additions over a period of at least the next five financial years.
The City of Spruce Grove’s Corporate Plan provides Council with a comprehensive operational and capital plan with operating and capital budgets for municipal, utility and developer entities. The Corporate Plan is the principal guiding document for governance, community development and service delivery. Operational requirements are identified over a three-year horizon while capital planning initiatives are anticipated over the next 10 years. Council only approves the first year of the budget (i.e. 2021); the remaining years are provided for planning and contextual purposes.
Due to the impacts of COVID-19, decreasing oil prices and many other factors, Alberta is experiencing an economic downturn. The City is currently shifting away from a time of rapid growth and focus on new infrastructure to maintaining our existing resources and investments to ensure they continue to serve the community well over the coming years.
Reframe 2020, COVID-19, the City’s current financial position and the desire for more efficient and strategic processes has led to the development of a more holistic and corporate approach to planning in conjunction with the development and implementation of a fiscal sustainability framework.
The corporate plan for 2021-23 focuses on the “triple bottom line” of economic, social and environmental sustainability and includes financial approaches to inform how we are telling the story of what the City of Spruce Grove wants to achieve.
Key changes in this plan include:
- Introduction of three Strategic Portfolios and supporting business case model to inform integrated decision making.
- New budget format that separates capital and operating costs to more clearly demonstrate the impact of decisions, particularly those related to capital (i.e. reveal the cost of debt decisions and the magnitude of capital spending).
- Creation of municipal reserves to fund lifecycle and rehabilitation costs that will be supported by long-term capital plans in future years when asset management is enabled.
- Articulation of a performance measurement approach that will be built over the next few years. As the data matures, the information will support cost analysis of service level changes and inform investment decisions and trade-off discussions.
Assessing the City’s Financial Health
In 2020 the City commenced the build of a fiscal sustainability framework with the principles of transparency, sustainability, equity and competitiveness. This framework combined with the revised budget format (splitting out of operational and capital budget) and the proposed development of municipal reserves for the purposes of maintaining the City’s assets will allow Council and citizens to have a clearer picture of the City’s financial health.
While the 2021 proposed operating budgets and staffing have been maintained at the same level for the past few years, the continued strain on maintaining an appropriate level of $14.8 to $22.2 million in the Unrestricted Municipal Reserve ($19.6 million) is challenging with the competing capital demands. The maintenance of an Unrestricted Municipal Reserve with a balance equal to two to three months of budgeted operating expenses is important for managing cash flow and emergency preparedness.
The City will approach its self-imposed debt limit (50% of the provincial limit) in 2026 based on current projections in the Corporate Plan. At the close of 2021, the City is projected to reach a debt level of $41 million, which represents 31% of the provincial limit and 62% of the municipal policy limit. Long term debt contributes to the increase of the City’s net debt position and the service of that debt reduces available operating budget dollars.
The net debt position at the close of 2021 is projected to be $33.7 million. Net debt becomes problematic when it exceeds the amount of long-term debt the municipality holds. The City is forecasting to reach this magnitude of net debt position by 2025 based on current projections.
Reviewing the 2020 Budget Forecast and 2021 Operational Budgets
Administration implemented several processes to address the operational impacts of COVID-19 in 2020. To move from a 3.9% tax increase to zero in 2020, Administration permanently reduced operating budgets ($1.6 million). Other one-time program adjustments ($2.8 million) were made to forecasts to enable the City to navigate any further changes that came about through the pandemic.
Additionally, only those positions that were deemed essential in the business continuity model were filled if vacancies in the City came about. Throughout 2020, the City has continued to be mindful of operational costs, and as a result will see a one-time addition to the Municipal Reserve of approximately $5,865,000, but this is an estimate only at this time and does not include the Operational funding noted below as it is not clear if that will come before the end of 2020. This amount of surplus is still $13 million lower than we originally budgeted due to the slowdown in capital and the lack of grants taken into income.
Additional one-time funding in the form of stimulus funds (capital and operational) are forthcoming from the Federal and Provincial Governments. These one-time funds will address the lost revenue from the removal of the 3.9% tax rate, other lost revenues such as transit, and mitigate the costs incurred by programming due to COVID-19 (i.e. personal protective equipment, etc.)
Reviewing Business Cases
As part of the new Corporate Planning process this year, departments were asked to review their existing, multi-year and new initiatives to determine which ones strongly aligned with the three Strategic Portfolios: Investing in Our Service Supports, Investing in Our Interconnectivity and Investing in Our Growth and Prosperity.
Business cases were then developed to provide detailed information on the work required to achieve the outcomes identified within a Strategic Portfolio. Business cases move us away from the review of separate initiatives that occurred in the past to a holistic approach that considers interdependencies, risks, outcomes and multi-year costs to support more effective long-term planning.
Administration evaluated the business cases to assess which ones were priority and in alignment with Council’s direction to date. Administration made recommendations - either to revisit in the future, amend to address with existing resources, fund through one-time external stimulus funding, fund through developer and utility reserves or to move forward for Council’s deliberations.
The business cases were reviewed with the Committee during the November 2-4 meetings. Revenue options/levers and scenarios were presented to illustrate the financial impacts of the business case decisions, particularly the larger capital projects and lifecycling needs. Input was provided from the Committee on the revenue levers to be used to support funding of the budget needs.