Approved 2016-18 Supplemental Budget Adjustment

On Tuesday December 13th City Council unanimously approved our 2016-18 Supplemental Budget Adjustment. For more information about how we got to the vote on Tuesday you can read this post from a few weeks ago. While the tax increase of 2.85% is the lowest increase in the last 10 years, I want to share my thoughts on why I supported it and where I see us improving in the future. I think it is easy to be excited about the lowest increase in 10 years but every percent increase still has a huge impact on people.

For a more detailed breakdown of how our tax dollars are used, please visit the YEG City Budget website as it is an easy to read and thorough resource. Also, since the starting point for this budget is based off the work we did last year, I want to link you to my budget post from last year. In interest of not repeating what I wrote last year, I would encourage you to read through that post to learn about some of the specific items we debated that have a multi-year impact.

First I want to breakdown the 2.85% increase and as a point of reference, $14.7 million would be the equivalent of a 1% increase:

  • 1.5% goes to Neighbourhood Renewal. This program has been in place since 2009 and the dedicated increases are scheduled to end next year.
  • 0.6% goes to our debt repayment for the Valley Line LRT.
  • 0.75% goes to continued operations, our operating impacts due to capital expenditures and new service packages.

The focus of this post will be on the 0.75% as the Neighbourhood Renewal program has been around since 2009 and the Valley Line LRT payment is fairly straightforward. Operating impacts of capital would include the new firefighters and support staff that are required for three new fire stations that are serving new areas that require proper fire protection. The operating costs, including staff, of those three stations is approximately $1.5 million.

Each year the city receives new inventory of roads, parks, etc. as new communities develop. The developers of these new areas pay for the construction of some of the infrastructure required for new communities but after a warranty period, the city takes over the responsibility and needs to complete all the necessary maintenance. The cost of maintaining the new roads and parks that will come into City inventory in 2017 will be approximately $1.35 million. There are other items included in the operating impacts of capital but I wanted to provide a few quick examples of what makes up the approximately $11.3 million.

There are issues that arise throughout the year and Council can fund these emerging priorities if they choose. This year there was over $9 million in emerging priorities and Council chose to fund a few of those priorities which would be included in the 0.75%. The largest portion of the $2.5 million was for the EndPovertyEdmonton Initiative. This particular service package was for $1.265 million and passed unanimously. I have spoken to some who have asked, “ending poverty is a Provincial and Federal issue so why should we spend property tax dollars on this?” Ending poverty affects all orders of government and although there are numerous social benefits people may want to work towards ending poverty in a generation, I want to focus on the financial aspect of this.

People in poverty can range from the single parent struggling to make enough money each month to pay the bills to people who are homeless and need mental health support. As a large city, we typically have a greater share of people who need social supports but because we do not have enough supportive housing, some people may regularly interact with our police service. Every time our officers are called to respond to a social disorder call, that is time that they are not able to spend on patrolling our communities. The cost of poverty to our police service is large as they spend over 25% of their time responding to social disorder calls so by working to end poverty in a generation, we will actually save our city money in the long-term through reduced calls.

Unfortunately we won’t see the financial return on that $1.265 million in the next few years but the more we can reduce poverty through ensuring people have proper housing and social supports the better value we will received for our tax dollars. I know focusing on the financial cost of ending poverty can seem heartless but it is important to highlight that there are strong financial benefits to this work. The benefits go far beyond financial but in interest of keeping this post focused on our budget, I wanted to highlight how the city must play a role in the conversation and why I felt I could justify the $1.265 million ask.

If you have been adding up some of the totals provided you may realize that 0.75% is less than the $11.3 million and $2.5 million referenced in the two previous paragraphs. The reason for this is because along with new costs, the Administration and Council looked for savings to help drive down the total ask. I provided many examples of those savings in the first post I linked to in the first paragraph and would encourage you to review that information. The City Administration did excellent work this year renegotiating contracts, reducing fuel and utility costs and taking many other actions to help reduce the budget.

Although I discussed it in the previous post, I did want to highlight a motion as people have asked what I have specifically done to help try and find cost savings. In September of this year, I made the following motion to help find savings that can be applied to this year’s budget deliberations:

That Administration provide a report to Council as part of the 2017 Supplementary Operating Budget Process on the following:

  1. A breakdown of the 2015, March 2016 and June 2016 permanent position vacancy rate for the following areas:
    1. Utilities
    2. Development Services (formerly Current Planning)
    3. Civic Tax Levy operation
  2. An analysis of current vacancies including their status.
  3. A review of the feasibility of deleting some of the vacancies and/or increasing the personal discount rate in order to identify cost savings.

From this report, we learned that there are numerous staff vacancies that we could eliminate altogether which would provide us with a considerable amount of savings.  You can read my thoughts and motion here but I am happy to report that we have eliminated 46.0 vacant full time equivalent positions with a savings of $5.2 million dollars.

Some people raised concerns that this may impact service levels but the positions that were eliminated had been vacant for 6 months or longer and I felt comfortable that even in a growing city, we could still expect the same great service from the existing staff. One of my campaign commitments was to focus on fiscal responsibility which is something that is easy to say but harder to put into action. That is why I felt it was important to highlight one of the actions that I have taken to try and live up to that commitment.

The 2.85% increase factors in everything listed above but we also discussed some other items that did not impact the 2.85% but did impact our Financial Stabilization Reserve (FSR). The FSR is often referred to as our rainy (or snowy) day fund. For many years, Councils have either accessed or replenished the reserve depending on the year-end results. The state of the FSR is often dependent on the amount of snow we get in a year. Until recently, Council had budgeted for a slightly below average snowfall (90-95% of what we would expect). This meant that over the last 10 years there were times that the Council would need to access the FSR to help ensure proper snow clearing would take place.

Last year Council made the decision that our snow removal/maintenance budget should be funded for an average snowfall. As you all know, last winter and most of this winter has been particularly good with regards to the amount of snow so we are expecting a surplus this year. This expected surplus is what we would define as ‘one-time’ savings. What that means is that we should not change our budget based on the fact we did not have much snow last winter.

If we did change our budget to reflect the snowfall from last winter, we would likely deplete our entire FSR in just a few years. At the same time, the FSR should not be too large or it would suggest the city is taking more money than it needs every year. Council has adopted a policy around what the FSR should have which is approximately two months of operations across the entire organization. Occasionally there are opportunities that arise that do not require ongoing funding and Council has the option to fund some of these one-time items out of our FSR. Much of our budget debate was focused on these one-time items.

I said no to a lot of items that had merit. What I said during the debates is that I was not able to support the items at this time because we have not reached our year-end. While we are projecting a large surplus of $28.8 million, if we were to see a large amount of snow over the final two weeks of December, that number could shrink dramatically. While the weather forecast looks good, I cannot justify using much of that possible surplus until we have finalized our year-end number. This meant that I could not support requests from the Art Gallery of Alberta to move to a free admission model or the funding to run another Nuit Blanche.

The fact that I said no to a number of programs/services/events that only require one-time funding does not mean that we should not do them but rather that I believe we shouldn’t precommit much of our proposed surplus. Once our numbers have been finalized, I would be happy to have a conversation about some of these items that were not funded. The other concern is that our FSR has always been on the lower end of the spectrum and with a fairly large proposed surplus, we have an opportunity to fill a gap that has existed for a number of years which will ensure further Councils have more stability.

The final point I wanted to discuss is regarding Calgary’s 0% increase this year. People said, “if Calgary can do it, why can’t Edmonton?” In Calgary, they made the decision to use their version of our FSR to eliminate the increase in 2017. On paper that sounds wonderful. Who wouldn’t want a 0% increase?  As a taxpayer myself, I would love it. I’m sure a 0% increase also looks great going into an election year.

The concern I would have had with using our FSR to drop the increase to 0% is that it means we are using one-time dollars to deal with ongoing expenses. Why that is a problem in my opinion is that it would mean in order to compensate for using one-time dollars to reduce taxes, the next Council would have to add a 2.85% increase onto any other potential increase which already would include 1.5% for the last year of Neighbourhood Renewal along with the 0.6% for the Valley Line LRT. So if we took the same approach we could have a 0% increase this year but a significantly higher increase in 2018. I don’t believe that is fiscally prudent and it would put the next City Council in a far more challenging situation.

At the beginning of this post I said that while having the lowest increase in 10 years is certainly a positive, we have to strive to do even better. The good news is that there is light at the end of the tunnel. The Neighbourhood Renewal program will be fully funded after 2018 which means when then next Council works on the 2019-2022 Operating Budget, there will not be a required 1.5% increase each year to properly fund Neighbourhood Renewal. That alone will make a huge difference in being able to minimize the impact to Edmontonians.

Along with the end of the 1.5% Neighbourhood Renewal, the Program and Service Level Review will be nearing completion. This review is of all 18 programs and 80 services in the City of Edmonton to determine if we are getting good value for our money. This is not a short process because it involves external consultants as well as a challenge panel that has external representation to ask tough questions about whether or not we should be providing the various programs and services anymore and if so, to what level. 30 of these areas will be completed in 2017 and the next Council will be able to use the results of those reviews to make changes to the 2018 budget which could have a large impact.

Similar to last year, I could write far more about the budget. I hope this has provided you with the necessary information about what steps I have taken ensure we are getting value for our money as well as why I supported this budget adjustment. I am always interested in your thoughts on so please feel free to ask any questions or share any comments you may have. Thank you for taking the time to read through this post.

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