City of Calgary administration said there are a handful of reasons why it’s difficult to provide a tax rate outlook with current economic uncertainty.
Calgary city councillors got their first taste of the rollercoaster ride leading up to the next four-year budget cycle (2023 – 2026). They heard from administration on Wednesday, the second day of a two-day meeting.
Much of the complexity in this budget is around inflationary pressure, said city manager David Duckworth. He said that while Calgarians are seeing spiking inflation on household expenses, cities experience it in a different way.
“What many members of council don’t know, what the media doesn’t know, what our citizens don’t know, is that this is an atypical year on the heels of a pandemic with rapid inflation,” Duckworth said.
City CFO Carla Male told councillors they weren’t going to talk about what many city councillors expected.
“We will not be talking about indicative rates or their related impacts to citizens,” she said.
“Today, we are starting to build awareness on the financial pressures we face and what it could mean for projected expenditures in 2023 to 2026.”
MPI vs CPI
Male explained that inflation has not only put pressure on the city’s operating costs, but capital ones as well.
Cities experience it differently from the commonly referred to economic measure of Consumer Price Index (CPI). She said that typically measures the change in the cost of a fixed basket of goods and services of a typical household.
The Municipal Price Index (MPI) takes into account the mix of goods and services for a municipal government. This includes city labour costs, costs for contracts and outside services, materials, equipment and supply costs.
“As the global and local economy recovers from the pandemic inflation pressures have increased and pose additional challenges,” Male said.
At the same time, Male said they’re projecting a population increase of 88,000 by 2026. This will increase the demand for services, she said.
“This is equivalent to adding more than the population of Airdrie to our city for the next four-year cycle,” Male said.
“When the pandemic finally ends, the city may find itself having to do a lot of catch up to provide services to its larger population.”
Male said that the city will have to navigate these two pressures as it considers the budget for 2023 to 2026.
The cost drivers could add an additional $700 million in costs to the operating budget, she said.
While council may typically start talking about potential tax impacts this early in the year, city admin wants a graduated process.
Coun. Sonya Sharp asked if they’re projecting potential operating expenditures now, couldn’t they also present an indicative tax rate?
CFO Male said that everything right now – from population projections to inflation – are extremely volatile.
“They get changes almost every single day. And we need to be able to consider all of the different revenue sources rather than the focus on the property tax revenue to be able to make decisions,” she said.
Admin expects to nail down more specific details by a proposed June meeting.
What may throw a monkey wrench into things is the budget projection as it currently stands. It doesn’t necessarily include any additional cash for added downtown stimulus, climate-related work, or added focus to public safety, transportation or recreation.
“I think Council has some homework to do themselves to start figuring out how we’re getting to June 8 and getting out of that meeting with some decisions,” Sharp said.
Coun. Richard Pootmans also wondered if this might be the right time to consider the use of the city’s substantial reserve funds to smooth things out in the near term.
But Male said that much of that money is committed to projects already.
“Using any of those funds for other projects in the interim, even if it is a timing difference could cause some repayment or project delay when the original commitments come due,” she said.
Coun. Jennifer Wyness, a rookie councillor, asked how the budget process had changed.
Male said they’ve always taken a longer-term look at budgeting to set expectations for citizens. What’s changed now is that it’s too early to set that expectation, Male said.
Debate started to shape around where Calgary’s next four-year budget might head.
Ward 13 Coun. Dan McLean took note of the savings achieved in the last budget. In the last cycle, more than $500 million in base budget savings was accrued, according to Male.
“Do you have any plans to keep doing that?” Coun. McLean asked.
Male said continuous improvement is important to the city, and it’s part of the realignment.
Ward 3 Coun. Jasmine Mian said one of the things that makes this even more tricky is how large the organization is. Plus, citizens can’t necessarily be choosy about the civic products they get because there are no comparative prices.
“In the private sector, if people don’t like your product and would like something different they stop purchasing it, and that is indicated to you,” she said.
“Then in the public sector, one of the ways that we provide that feedback is this (city council) horseshoe can talk to all of you and tell you what we hear from people.”
Then, Mian said, there’s the elephant in the room.
“I think elephant in the room is sometimes what people want isn’t always what is needed in the city,” she said.
“And that’s really, really challenging. It’s what I think is the difference sometimes between leadership and politics.”
Councillors are expected to get progressively more information leading up to the June strategic session. They’ll talk about funding solutions in a variety of areas in June and July, before the summer break.
Then decision-making will ratchet up in September, prior to November’s four-year budget.