Medicine Hat City Council at their July 5 council meeting (Tiffany Goodwein/CHATNewsToday)

By Tiffany Goodwein

Inflation, funding cuts leave city with budget gap

Jul 5, 2022 | 12:57 AM

MEDICINE HAT, AB – Inflation and the current economic climate is not only affecting households, but municipalities. That became clear at Monday’s council meeting when city staff informed council of a budget gap that will only get worse if action isn’t taken.

Right now, the city has a $9 million budget gap that has not been solved, and within the next two years that budget gap is expected to grow to over $30 million. To top it off, the city said the tax stabilization reserve fund is also projected to deplete by the year 2024, if nothing is done.

“We need to ensure that we have sufficient funds for our operations, our capital and our long term obligations. As well we also need to plan for future unexpected events,” stated director of finance Lola Barta.

So what’s driving the growing budget gap?

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Aside from inflation, the city said cuts in provincial funding, interest rates, market volatility and the financial challenges of COVID-19 have all hit the city’s coffers hard. In response to COVID-19, property tax rates were kept at zero in 2020 and 2021, leaving a $7.5 million hole in revenue, for which the city is now paying the price.

“The reality is, it actually puts the City of Medicine Hat behind the eight ball even further. So if you understand the idea of cumulative effect, so if we didn’t even collect inflation during those years, we are actually deeper and deeper, ” said Coun. Darren Hirsch.

Council will consider a number of options to address the budget gap, before they pass the budget in December, including a four per cent property tax increase, along with a possible increase in user fees and charges for things like city facilities.

They will also explore more stable revenue streams that are less risky than the ups and downs of volatile commodities, as well as cuts to services. Council is also looking at transferring $75 million in reserves that could produce an additional $5 million to close the gap through an endowment starting in 2025. An endowment, according to the city, is a stable revenue stream that would eventually reduce reliance on the tax stabilization reserve fund.

Mayor Linnsie Clark said going forward no option is off the table and council will explore the issue in depth.

“It is certainly something that is a challenge that we are going to have to address, moving forward and tonight we saw some creative solutions and as you heard council wants to ensure we are exploring all those options, and potential financing, and cost-saving measures.”

Council will be challenged to close the financial gap while trying to navigate the economic forces at play.

“The reality is the machine called the City of Medicine Hat still has to operate services, everything that we want to expect in our city has to run. We are no different than any other agency, company that buys goods and services. We all know the cost of gas. But our city fleet runs on gas, so that’s a cost that we have taken on,” Hirsch said, noting every lever needs to be pulled in order to find a solution.