Council completes budget review deliberations

By Al Beeber - Lethbridge Herald on November 14, 2024.

Herald photo by Al Beeber City manager Lloyd Brierley gives opening remarks to the Economic and Finance Standing Policy Comittee as budget review deliberations began Wednesday. Flanking him are councillor Rajko Dodic and Chief Financial Officer and treasurer Darrell Mathews. The two-day review was completed after one day.

LETHBRIDGE HERALDabeeber@lethbridgeherald.com

Lethbridge city council in its capacity of Economic and Finance Standing Policy Committee on Wednesday began what was intended to be the first of two days of budget review deliberations in council chamber.

However, the SPC instead wrapped up the review late on Wednesday afternoon.

The session began at 9:30 a.m. with opening remarks by City manager and a presentation by Chief Financial Officer and treasurer Darrell Mathews who gave an in-depth overview of City finances, pressures and an economic update.

Mathews talked about the inflationary pressures facing the City including on housing starts and land development which has essentially halted, there now being a four-year supply of vacant lots – 543 – at current absorption rates here.

Brierley told the SPC the review will examine the financial landscape and address any emerging challenges facing the city.

“Over the last few months, inflation has begun to decrease to normal levels and the Bank of Canada has begun lowering the overnight rate,” said Brierley, which is good news for the Lethbridge economy and citizens.

“However, the effects of high inflation and escalating interest rates continue to exert significant pressure on our operating and capital budgets and developer-based revenues,” Brierley added.

“The effects of high inflation have impacted citizens’ daily lives with increased costs for essentials like shelter, fuel and clothing. For the City, the accumulated effect of three consecutive years of zero per cent tax increases from 2020 to 2022 has challenged our ability to maintain service levels in the 2023 to 2026 operating budget period,” the City Manager stated.

He noted that heightened expectations around public safety necessitated additional funding for the Lethbridge Police Service to add 22 new officers and support various programs. Also in the 2023-26 budget, council bolstered resources for homelessness outreach, mental health resources and crime prevention, he added. Council also boosted other initiatives, he said.

While the local economic climate is improving, he said, the impact of numerous Bank of Canada rate hikes between January, 2022 and July, 2023 are still having an impact here, he added.

Mathews noted the bank rate in January of 2020 was 1.50 per cent and rose to 5 per cent by July of last year before dropping to 3.75 per cent in October. It’s expected to be 2.25 per cent by March of 2026.

He said inflation rose sharply in Alberta from 1.1 per cent year over year in 2020 to 6.5 per cent year over year in 2022. Inflation has eased to around two per cent year over year in Aug-September of this year, which is good news but “contrary to common belief, lower inflation doesn’t ensure universal price drops,” said Mathews with the complex relation between inflation and prices highlighted by contractual and wage agreements can impede businesses from reducing prices.

Increases in prices won’t decline to previous levels but will continue to grow at the normal one to three per cent each year, the CFO added.

Mathews noted there is good news regarding local employment levels.

The unemployment rate reached a high of 10 per cent in 2020 with total employment hitting a low in June of that year but there has been positive economic news in the past year and as of September of this year, the Lethbridge unemployment rate had dropped to 5.1 per cent, below the provincial average of 7.5 per cent and below the eight-year local average of 5.7 per cent, Mathews said.

Housing starts have dramatically decreased, he said, which has led to a slowdown in lot sales and a dramatic decline in off-site revenues.

There has been a shift in the types of housing being built here with apartments accounting for 64 per cent of starts this year, compared to 31 per cent of single detached dwellings. Four per cent are row houses and one per cent semi-detached.

Single family housing dominated starts before 2021 but apartments and other multi-unit types have led starts in 2022 and this year. If the trend continues, that will impact City planning for services and land development, Mathews said.

The City’s forecast for 2024 calls for 254 single dwelling permits – there were 144 permits actually issued in 2023, down from 408 in 2017.

Also impacting funding for council is the downturn in permit, development and licence revenues. In 2023, there was a deficit of $1.2 million in those revenues even after reducing the budget for that year. The City is forecasting that to continue due to the lagging effects on these revenues from land development in the latter parts of the operating budget cycle, Mathews said.

These reduced revenues will reduce the future one-time funding available for council from the Municipal Revenue Stabilization Reserve (MRSR), he said.

As of Sept. 30, the offsite account had an overall deficit of $3.5 million, which is expected to increase to $3.7 million by December. In March, council voted to finance the shortfall with repayment from future levy collection.

Because of the shortfall in off-site revenue, City administration has paused all near-term off-site capital improvements planned projects.

Mathews also addressed water and wastewater system here with the water treatment plant reaching capacity and needing expansion to meet future demands as well as support growth and economic development and here in the region with more than 20 per cent of treated water being delivered to regional partners. On peak days, demand exceeds 90 per cent of current designed system capacity, Mathews said.

The zero per cent tax increases and inflation have made it challenging for the City to maintain service levels, he said.

Between 2015-24 the average city tax rate increase was 2.48 per cent close to the 2.41 per cent inflation rate, Mathews added. Recent initiatives will cause tax rates to rise beyond inflation during the latter parts of the budget cycle which was expected due to the approval of additional funding for new services or improvements within the 2023-26 operating budget, Mathews said, noting Lethbridge isn’t alone in Alberta in hiking taxes with other communities increasing them from three per cent to 11.25 per cent.

Many of the presentations were approved in an omnibus motion presented by Councillor Jeff Carlson who said he believes council did the right thing “by and large” it did things the right way two years ago and is on the right track, adding that the community is supportive of the position council has put the organization is in.

Two exceptions excluded included a matter involving the Chinook Arch Regional Library which was dealt with separately and one regarding the hiring of four full-time EMS medical supervisors (see related story.)