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Town council embarking on new path in making budgets

Posted on August 17, 2016 by Taber Times

By Nikki Jamieson
Taber Times
njamieson@tabertimes.com

The Town of Taber will be doing its budget a little differently from now on.

During their regular July 18 meeting, the Town of Taber council discussed the development of a three-year budget plan for the town.

In a meeting on March 16, council made a motion to direct administration to start implementing unproclaimed portions of Bill 20 — related to the Municipal Government Act — that dealt with day-to-day municipal governance on the premise that those portions will be proclaimed, and that the implementation effort begins with sections pertaining to operating and capital budgeting.

Administration had since come back to council with a 2017-2019 budget framework document, detailing some administration responsibilities and timelines for the budget presentations.

With the bill expected to come into effect this fall, administration wanted either approval from council on the document, so they can continue the process to final approval of the budget or direction to amend the plan with changes.

Using the City of Lethbridge — who have been doing three-year budgets since 2003 with resounding success — as an example, the plan would reportably allow for better long-term management of finances. With these budgets straddling election years, as one is coming up, the plan notes that while new councils are not immediately thrown into crafting one and have time to set direction, it could also be hard for that council to implement changes to the budget immediately.

The plan goes on to recommend that council adopts a 10-year capital budget with a rolling plan for 2017-18, adopting the four years of the next 10-year plan in 2018; developing a three-year operating plan as a rolling plan for 2018-19, developing a four-year operating budgeting 2019; using the Municipal Price Index to create the operating budget; and that the town develops a plan this year to ensure that Taber is not only sustainable for the next three years, but as well as indefinitely into the future.

Counc. Randy Sparks wanted to know why they were basing the rolling budget on a MPI instead of a CPIX, or Consumer Price Index minus mortgage.

“All the other communities are using the CPIX,” said Sparks. “Calgary and Edmonton are using the CPIX, Lethbridge as well. There are other communities that are using CPI, because it softens up the rate of inflation.”

“In the end, it’s the residents of the town, the taxpayers, who have to pick up the tab, and anyway that we can proceed ahead to soften that price tag will be in everybody’s best interest.”

The different price indexes measure what a different basket of goods will cost. MPI measures what a municipality would spend on a basket of goods — such as asphalt, cement and gravel — which a typical household will not purchase in bulk while a CPI measures what a typical household would spend on a different basket of goods — typically clothing, shelter, food — and the CPIX takes that previous basket and removes mortgage from the equation. While a typical CPI may have a lower rate of inflation compared to the MPI, administration cautions against using it to create a budget because it does not represent items that the municipality spends money on.

“I can understand that CPIX is a little bit softer then an MPI,” said Devon Wannop, chief financial officer for the town. “It’s just that MPI is the index that shows what a municipality — which is the organization that we are currently involved in — purchases on a fairly regular basis.”

“My philosophy is a little bit different,” said Henk DeVlieger, mayor of Taber, disagreeing with Wannop’s position on the MPI. “We live in a global economy, and we have to compete in a global economy. And if we want to keep competing, we have to start thinking different, because it is real easy to just keep adding, adding, adding, because that’s just the way it is. I think we have to start going, thinking how can we do things different? And by that, I mean how can we do things differently in a more economical thing.”

By going with the MPI, chances are they will be going above the rate of inflation, and that would mean that the town’s residents would have to shoulder a larger tax bill. That would create, according to DeVlieger, a higher cost of living, leading to the resident wanting to be paid more, leading to an increase in product costs so they could be paid more, creating a vicious circle where costs spiral out of control.

However,Coun. Rick Popadynetz disagreed with DeVlieger’s assessment, pointing out that the Town of Taber population couldn’t compare with the size of the bigger cities.

“What these indexes don’t show is the growth rate of the communities,” said Popadynetz, referring to a chart that showed increase in MPI and CPI for Edmonton. “The city of Edmonton, city of Calgary, they had large growth rates, so it doesn’t reflect that. That’s new taxes coming in. We have a slow growth rate, compared to Edmonton and Calgary, and I can see once we have a lot of infrastructure that we need repaired… I was definitely in favour of nothing but a Consumer Price Inflation when I came to this meeting, but after a good discussion with Devon (Wannop), I would have to say, that Municipal Price Inflation, we have to do this sooner than later. The more we put in the bank now, the better we’re going to have for our children’s children and all the infrastructure that we have to repair on our street. If we have some money in the bank, we’re going to end better off in 10 years from now.”

“It’ll be like comparing apples and oranges. They’re both fruit but they’re not the same,” said Laura Ross-Giroux, town councillor.

“You just mentioned Mr. Mayor, that you want to keep this place attractive. Well, in order to keep it attractive, we have to keep up with our infrastructure, and we had some issues with waste water, or stormwater, and everything else, and we know we got some big expenses coming up. And we need to be able to pay for those, and they’re not going to get cheaper over the long run, they’re going to get more expensive, and we need to have finances in place to meet those obligations, and we’re not going to have that unless get kind of, a kind of a tough love, you might say, with our taxes.”

“I live on a very limited budget, but to me, this make more sense. I would rather pay now, then rather down the road. We were all hit with that EPCOR, a 68 per cent increase. Well, whose to say something five years from now isn’t going to hit us in our infrastructure, that’s going to be that large of an amount? And we won’t have anything in our reserves to pay for it.”

Because the rates of inflation are different in the MPI and the CPI, the argument is that it would not be sustainable to operate under the CPI when the MPI is made for municipalities.

However, the MPI typically has a higher rate of inflation then CPI. Using Edmonton’s expected inflation rates as an example, over the next four years the CPI is supposed to rise between 2-2.5 per cent, while the MPI will rise from 2.5-3 per cent. While that may not seem too bad of a gap, back in 2010, the CPI was listed at one per cent while the MPI was just above 3.5 per cent, so there can be a significant gap between the indexes.

“We have to be conscious where our dollars are coming from, they’re coming from the tax payers,” said Joe Strojwas, town councillor, adding that it is hard to predict prices in the future. “We have to be prudent, in how we run this community, we have to be cost-effective, we have to be proactive when it comes to finding new, innovated ways to fund projects, and I cannot, and will not, support an increase above the Consumer Price Index.”

Strojwas also said, in his experience as a business owner who has catered government events in the past, was that if they were within budget, government does have a tendency to try to spend that remaining balance.

But with a rolling budget, Wannop hopes that they can avoid that pitfall.

“I think that’s what a rolling budget… would sort of eliminate. So, because you’re not only held accountable for your one-year budget, but the for two-year,” said Wannop. “If you’re spending money on things that you don’t need or didn’t use in that one year, then your held accountable to it. And say if you did things more efficiently, and you had money was able to carry forward, you were carry that forward and were awarded with that additional increase there, and that would be incorporated into the amount we would have to increase property taxes. So, if you don’t need as much the next year, you don’t have to raise property taxes as much the next year, because we were operating more efficiently.”

“To spend it while you have it, I want to get away from that.”

Wannop added that they don’t need to set their property taxes at the MPI exactly, it is more of a benchmark that shows what projected increases for that basket of goods will be.

Right now, the town is in a capital deficiency, basically they’re not bringing in enough revenue to cover what they spend in a year. With the multi-year plan and the rolling budgets, administration hopes to change this.

“Are municipalities the most efficient organizations in the word? Absolutely not,” said Wannop. “But, there are costs, and they’re driven by different factors, as you’re well aware of. And the different factors are different then in the Consumer Price Index, as I said in the past. And those factors, we can’t become more efficient, in the same respect, if these costs keep inflating we can only be as efficient, and eventually, we’re going to have to go towards the Municipal Price Index because of that’s what’s actually used for purchases in the municipality.”

To help ensure that the town stays sustainable, administration has listed as best practice to not rely on government grants to cover costs of maintaining the current level of service, using them instead for growth projects only.

“Realistically speaking, I think you can still count on some of (the government grants) down the road,” said DeVleiger, using the example of Municipal Sustainability Initiative funding. “If that would all of a sudden stop, I think the whole province would be in shambles.”

Wannop replied that it was included so they don’t reply on it to make ends meet. Eventually, the town needs to be at a place where grants are used solely for growth projects — that way if they don’t get them or receive less money, they can defer the project for another year or do things at a smaller scale.

“If I’m scaring you guys, that I want all of these things to happen right now, I want us to be sustainable right away, it’s going to be a process,” said Wannop. “It’s just a process, and it’s just getting to the determination of getting in your head that we need to eventually get to that path where government grants shouldn’t be relied on.”

Amending a recommendation from administration, council approved a motion to approve the plan that the Town of Taber will develop a plan to ensure that the town of Taber is sustainable into the future with the reliance of provincial and federal grants as needed.

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