Talking Fall Budget Adjustments

Last month, Council began discussions on the recommended 8.1% tax increase announced by Administration. The presentations we received so far touched on why the increase is required to help maintain current service levels, ways to attempt to tackle the shortfalls we are facing and how to create a sustainable environment to ensure future Council priorities can be completed. 

The good news is that this is down from the 13% increase originally projected in August which was in part caused by a significant shortfall (inflation, lower than expected transit revenues and our need to replenish the Financial Stabilization Reserve). However as 1% now equals approximately $21M (up from $16M at the beginning of the term), 8.1% still equates to about $166M in additional spending, with little in new programs or services to show for it.

Click on any chart below to enlarge it.

The Challenges Ahead

In the mid 2000s, Edmonton saw growth of around 2.5% per year. If you recall, during that time, housing got really scarce really fast, which caused rental rates to double (if not quadruple in a short period of time). It was so severe that the provincial government at the time (under Ed Stelmach) had to introduce new provisions to protect tenants.

It took a while, but the economic engine of Edmonton roared to life, and the political will to promote development was there. By 2013, Edmonton had reached net new construction of over 13,500 new units, most of those multi-family.

To say the 2016 oil crash, followed by the pandemic set us back would be an understatement. In late 2020, Council heard that these two events had set Edmonton back by a decade, which was devastating news to everyone who had been working towards getting our city to a place where we could consistently manage growth against the pressing needs of our aging infrastructure and housing stock. 

I reflect on that briefing often, when discussing everything from houseless numbers, to our rate of growth, to the pressures we’re feeling in the labour market. With all the focus on those critical areas, we often overlook another that has also lost a decade of progress: industrial growth.

This is important because non-residential industrial assessment is high value, low service tax base for municipalities, and the region has been eating our lunch on this. Catching up to the region, and being competitive going forward will require council’s full attention for the remainder of this term and likely the next two that follow. They may also have to consider amalgamating industrial lands from nearby municipalities (I tease, in part because this will put the region on edge, but the situation is dire enough to consider it).

Council's Priorities for 2025

One of my main focuses during the budget presentation was allocating the budget to where Edmontonians feel it’s most valuable. When I was interviewed by the media, I clarified that often, when we talk about budget, the majority of suggestions that come in are to cut existing (and in progress) capital projects, which is oftentimes not possible, since the projects come out of the capital budget and would require the city to cancel contracts, often with steep penalties.

This is what Edmontonians identified as key themes in the budget engagement exercise:

One of my main points of clarification was understanding how prevalent these themes were. But the exercise didn’t prioritize them or give weight to them, meaning of the 528 respondents, we aren’t sure how many people identified public safety as an issue, and how many identified long-term climate solutions, or overlapping government responsibilities. 

It's important to understand this because of the next slide that was shared:

Why is this important? Because it hints that when people were asked, they would rather see service reductions or user fee increases than any further tax increases. And while it wasn’t included, I would have liked to see the tricky question of whether Edmontionans would prefer, or even consider a reduction in infrastructure investment.  

Reviewing the Data

Here are a few recent polls that have given me pause:

Alberta, helpfully captured in the “Prairies” category, has the lowest rate of people in the country who think they are better off than they were last year. And even more alarming, fewer women than men think their lives have improved. Also note the high number of working-age people who feel they are worse off than they were a year ago.

Another from Abacus Data via The Logic:

Now back to a City of Edmonton survey:

Similar to what you see in the Nanos poll cited above, Edmontonians are not feeling optimistic about their future.

Before I get back to the subject matter at hand, I also want to point out the response from this “Other Comments” slide:

So a caveat, only 53% of respondents had something to say. But notably, 74% of those people put the budget ball in our court. Only 5% (!) of respondents are looking to other orders of government to do their part. And only 2% are willing to pay more. This caught my attention because council has hinged a lot of our collective messaging on getting other orders of government to come to the table, but this indicates to me that Edmontonians may not be endorsing that message.

So from this, I take that Edmontians want us to focus, prioritize and do so within what is budgeted. They aren’t eager to see net reductions in services, but there is an overwhelming sense that the solution lies within the problem.

Some Opportunities

As Councillor, it is now my responsibility to sit with my colleagues to try and reduce that proposed number, without cutting the things Edmontonians have told us they want, and need. As you can imagine, that is a monumental challenge for a City facing the budgetary environment that we are currently in. I am not comfortable with 8.1% and know the burden that places on residents for yet another year. 

While there are structural budget issues (eg. industrial growth), I think there are moves we can make to begin to address them.

First, the greatest gift this council can give to the next one is a zero-based budgeting process. The current system worked well when you had low turnover term to term, but in a 75% renewal environment, it's worth reevaluating if what is in the base still reflects the priorities of Edmontonians.  It is an onerous governance process but worthwhile if we are to correct course in less than a generation.

The second suggestion is also related to capital and infrastructure. Last year council considered allocating 1% of the tax increase to a dedicated infrastructure reserve, but ultimately decided against this. If Council agrees, I’d like to see a 25% reduction to neighbourhood renewal (which would slow our progress by a mere 6 years) as the seed funding for an infrastructure renewal reserve. The more aggressive 35% reduction would also work, but I am concerned this would have a more significant impact on neighbourhood infrastructure. I also think we need to revisit some of our policies that are driving the scale of neighbourhood renewal and ensure they are still consistent with where Edmontonians are.

We also have something called the Community Safety and Well-being reserve, which is funded from about $20M hived off from the EPS budget in 2021. I’m not proposing getting rid of the funding or reallocating it at this point, in part because council has already made a decision on it for this year. Instead, I think the reserve should be eliminated and funds returned to general revenues. I appreciate that the funding is already allocated for 2024 and 2025, but the programs should compete against other municipal priorities going forward.

In the medium term I think we need to explore total divestment of some lines of business. I continue to be of the mind that our Real Estate portfolio should sit outside the city and be managed as a portfolio of assets on their own. I also think we should think about divesting of other lines of business, such as waste. These suggestions aren’t in any way a critique of the fine people who work in these areas, but founded on the questions of whether or not council can effectively govern these areas against conflicting interests, and where a shareholder relationship may be more appropriate.

This week, we reconvene to continue these important budget discussions. Did I miss a suggestion? Is there anything you would particularly like to see? SEND ME A NOTE.

For More Information:

CITY OF EDMONTON: BUDGET & FINANCES