Hard decisions ahead as Edmonton's 2023-2026 budget process approaches

· The Pulse

City council is just six weeks from the start of the 2023-2026 budget process. Agreeing on the next four-year budgets could be quite a challenge, given rising costs, the need to incorporate a carbon budget and accounting framework, and this council's composition, with several new members, a wide range of priorities, and time-management difficulties.

The budget process will begin on Oct. 31 and could take until Dec. 16 if council uses all the time that has been set aside for deliberations. Most regular city council and committee meetings have been cancelled for November and December.

City council must balance the budget, as municipalities in Alberta cannot run a deficit or use debt to pay for operations. Edmonton's average annual tax increase over the past five years has been about 1.8%, which the city says is among the lowest in Canada.

Earlier this year, city council heard that maintaining existing services and paying for new projects already in motion could lead to an 8.5% tax increase in 2023. But in a preliminary discussion in early May, most councillors said they wanted to keep the increase between 1% and 5%.

Mayor Amarjeet Sohi said he doesn't expect council will approve a steep hike.

"But at the same time, we need to recognize that as the city grows, as our expectations from city government grow, we need to have additional resources to provide those services," he said. "Whether it's building more sustainable modes of transportation, all those things are what Edmontonians want us to take action on, but we will be very responsible."

According to the city, the average household in Edmonton pays about $7.61 per day in municipal property taxes. About $1.08 of that goes to police, $0.74 goes to neighbourhood renewal, $0.69 goes to public transit, $0.64 goes to fire rescue services, and $0.29 goes to road maintenance and traffic management.

Gantt chart for the 2023-2026 budget timeline

The process for the 2023-2026 budget will begin on Oct. 31 and could take until Dec. 16 if council uses all the time that has been set aside for deliberations.

Budget overview

The city organizes its budget into two main buckets. The capital budget is for the maintenance and construction of infrastructure, including LRT, roads, bridges, buildings, and other physical assets. The operating budget includes the programs and services the city provides, such as police, transit, libraries, snow clearing, and recreation centres. It also includes debt repayment. There are also separate budgets for waste services and the Blatchford Utility.

The capital budget was about $7.5 billion for the 2019-2022 budget, about 30.4% of which came from debt financing. Another 25.6% came from provincial grants, and 15.4% came from federal grants. On the spending side, 32.8% went to LRT expansion; 10.8% went to recreation centres, parks, and attractions; 10% went to roads; and 9.9% went to neighbourhood renewal. Another 9.3% went to other public transit projects, and 6% went to the Yellowhead Trail Freeway Conversion project.

More than $4 billion has already been approved for capital projects over the next four years.

The city's operating budget is about $3.1 billion per year, which works out to about $3,050 per resident. Most of the city's revenue — 57.3% in 2022 — comes from residential and commercial property taxes. Revenue from fees, fines, and permits makes up the second-largest chunk, 12.3% in 2022. Just 4.4% of the city's revenue comes from transit. On the expenses side, the city spends 15.6% of its budget on community services and attractions; 15.4% on police; 13.1% on public transit; and 10.1% on debt repayment.

Unless efficiencies can be found, tax increases are required to keep providing the same level of service to a growing population. Reducing service levels, cutting services, or increasing fees and fines are other options to keep tax increases low.

The budget process

Council will start with the capital budget, which will be presented on Oct. 31. Each councillor will have the opportunity to ask one round of questions at that meeting, and then will have until Nov. 7 to submit written questions. Answers will be made available to the public on Nov. 14.

Next up is the operating budget, which will be presented on Nov. 14. Again, councillors will have the opportunity to ask one round of questions at that meeting, and then will have until Nov. 21 to submit written questions. Answers will be made available to the public on Nov. 28.

Finally, the utility services budget will be presented on Nov. 25. Councillors can submit written questions until Nov. 15, with the answers made available to the public on Nov. 24.

The agenda for the non-statutory public hearing for the 2023-2026 budget will be published on Nov. 17, after which residents can register to speak. The public hearing itself will take place all day on Nov. 28 (and Nov. 29, if required). The results of an earlier online engagement opportunity are expected to be released in time for council's deliberations.

Budget deliberations will begin on Dec. 1, with meetings scheduled for Dec. 2, 7, 9, 12, 13, 14, and 16, should council require them.

Once all amendments to both the capital and operating budgets have been made, council will begin voting on each one. After all amendments are dealt with, they'll vote on the main capital and operating budget motions. Any subsequent motions will be considered last.

Carbon budget

This four-year budget cycle will be the first to start incorporating Edmonton's carbon budget and accounting framework. In order to hit its climate mitigation commitments, Edmonton can only produce 135 megatonnes of net carbon by 2050. Significant progress will need to be made by 2030 if the city has any hope of staying within that budget.

"We are one of the first municipalities that are exploring this, and that's not an easy thing to do. We don't really have any reference model, or any best practice to refer to, so we're being pretty courageous," said Harmalkit Rai, the city's deputy city treasurer and branch manager of financial services. He explained more about how the process might work on Episode 185 of Speaking Municipally.

Current financial update

Earlier this year, administration estimated a tax increase of 8.5% would be required in 2023 to maintain existing services and pay for approved growth projects, followed by 6% in 2024, 5% in 2025, and 4.7% in 2026. Simply maintaining existing services would still require an annual average tax increase of nearly 3.5%.

As of June 30, the city was projecting an operating surplus of $24.4 million for year-end, despite higher costs for fuel and snow and ice control.

The Edmonton Police Service is reporting a deficit of almost $4.7 million as of May 31, due in part to less ticket revenue and higher spending on personnel than projected. The year-end forecast projects a deficit for EPS of $5.4 million.

The city projects to finish the 2022 fiscal year with $4.2 billion in outstanding debt, or 68.5% of the Municipal Government Act debt limit. The city's debt is expected to peak in 2025 at $4.92 billion.

According to administration's latest projections, the financial stabilization reserve — the city's rainy day fund — will have a balance of about $120.7 million as of Dec. 31, far below the $187.5 million target and only just above the $112.9 million minimum balance.