'Difficult decisions': Edmonton finances strained as city mulls further tax increases or service cuts

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With the pandemic on one side and inflation on the other, the growing City of Edmonton is between a rock and a hard place, council’s executive committee heard Wednesday.

Cities across the country face the same tough choice: hike taxes over the already-steep almost nine per cent budgeted, and raise fees and fines — or see cuts to services, said Stacey Padbury, the chief financial officer and deputy city manager.

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Padbury told the committee on Wednesday that a planned 2025 tax levy increase of seven per cent plus 1.8 per cent (for three years) for repayment to the city’s financial stabilization reserve (FSR), as approved by council in the spring, is just a starting point.

“This amount could continue to increase if the structural budget variances are not addressed, and again, difficult decisions will need to be made,” Padbury said.

“If we funded everything on the structural budget variance list with tax levy, this would add another 4.1 per cent, bringing the total tax levy increase to 13 per cent, which we know is too high,” she told the committee.

COVID-19 pandemic impacts

The problem is rooted in part in the COVID-19 pandemic, when the city limited tax increases to provide relief.

The 2019 to 2022 original tax increases had been approved at 2.6 per cent each year, but adjusted downward to 1.3 per cent for 2020, a decrease of .3 per cent for 2021 and an increase of just 1.9 per cent for 2022.

That reduced annual tax revenues by $97 million over four years.

“The adjustments were necessary to address the uncertainty faced by many Edmontonians, but have contributed to the ongoing financial pressures that we’re experiencing today, as we have less revenue from property taxes to cover the increasing expenses,” said Jodie Graham, director of budget planning and development.

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The city can either determine what service levels it needs and hike the tax levy, or decide to live within the existing tax levy and adjust service levels to do so.

“Based on these resources, we figure out the service levels that we can realistically achieve. This approach ensures that we operate within our means while still striving to provide the best possible service. This may involve having varying levels of service throughout the city and being creative in finding solutions, but will result in some tough decisions, because we can’t afford to do it all in the current economic environment.

“By starting with our budget, we ensure that we make the most efficient use of the available funds, avoid overspending and adjust our service levels based on realistic finance capabilities,” Graham said.

Squeeze is on

These days, it costs more to keep service levels the same.

The squeeze is on, from the top down. Provincial funding for Municipal Sustainability Initiative infrastructure is down from $424 per person at its peak in 2011 to $154 today provincewide, while provincial mandates become unfunded local responsibilities — like $2.2 million for a shigella outbreak in 2023.

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Graham said that of some $88 million in ongoing structural budget variances, just $650,000 was identified as surplus.

Inflation on fuel and parts accounted for $24 million.

Revenue shortfalls claimed $19 million, particularly in transit fares.

External factors for matters out of the city’s control, such as vandalism or extreme weather, rang up $21.4 million.

Administration- or council-directed initiatives accounted for $23. 6 million, which includes things like a directive to dispose of properties to rightsize the real estate portfolio and address significant long-term capital renewal liabilities, which would in the short term reduce lease revenues.

Edmonton Fire & Rescue is spending millions a year to respond to overdose calls, because their response time shaves a potentially lifesaving four minutes off the EMS response time, the committee heard.

There’s changing transit ridership and revenues, and emerging needs to respond to encampments in extreme weather.

In July, the council required procurement for contracted services to continue to include a requirement of paying a living wage to all employees performing work in city facilities.

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Inflation hitting fuel, parts, tires and facility maintenance further impacted emergency services, transit, snow and ice removal, and the spring streets sweep.

Without adequate funding, legislated and scheduled preventive maintenance levels cannot be made, leading to significant and imminent service disruptions, the committee was told.

In turn, regulatory standards wouldn’t be met, compromising the safety and operation integrity of facilities and infrastructure.

The challenge is to identify where reductions could or should be made.

In previous years, flexibility allowed the city budget to offset “unfavourable” budget variances in other growth areas.

No longer.

“Addressing ongoing structural issues in the budget is crucial as we’re now experiencing the accumulation of unresolved issues becomes problematic over time, which is why we need to focus on resolving these issues as soon as possible,” Graham said.

“We’re starting to observe impacts within the operating budget due to insufficient renewal funding in the capital budget. This results in higher maintenance costs, a trend that will likely continue as renewal remains underfunded.”

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Coun. Aaron Paquette said Edmontonians need to know about the relentless rise in inflation.

“These factors are straining our budget and leaving little room to absorb added pressures to manoeuvre around mounting costs,” he said.

“I think we all agree that we need to continue the work to focus on our core municipal responsibilities, rather than stretching our resources thin, trying to fill gaps left by provincial cuts, absences or inaction,” he said.

“If we can focus on these things, we will be able to deliver a better city with better services where they matter most to residents.”

Much to be done

Padbury said the meeting was productive.

“The financial challenges we face are complex and will take several years to address. This will require us to make tough choices between funding these ongoing budget challenges through increased property taxes and user fees, or by reducing service levels, and it will likely take both strategies to ensure our continued financial stability,” she said.

Conversations will continue in preparation for the city’s regular budget adjustment in the fall.

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Adjustments to the 2023-2026 budget could include what’s spent on programming and services, how much the city collects in property taxes, plans for building or maintaining infrastructure, or how it responds to inflation, population growth and other challenges.

Administration will present fall budget adjustment recommendations in November and council will deliberate adjustments in December.

jcarmichael@postmedia.com

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