By Josh Hall

financial situation

City council approves operating budget, will discuss taxes in May

Apr 28, 2020 | 11:32 AM

How the City of Red Deer comes out financially on the other side of the COVID-19 pandemic depends on a number of factors, according to the city’s chief financial officer.

Dean Krejci says how long the restrictions on mass gatherings last, and how well the economy rebounds will play the largest roles in how deep the City’s pockets are when all is said and done.

“The City can always adjust service levels to react to available revenues. It might result in some hard decisions,” he said following Monday’s regular meeting of city council.

At the meeting, council formally adopted the 2020 Operating Budget and will now move on to approving a tax rate bylaw. That will be presented at the May 11 meeting, but because of the pandemic members of council have shown interest in trying to further reduce this year’s property tax increase tentatively approved during budget talks in January at 0.97 per cent.

Council could decide to roll with that number, or they could direct administration to go back and find more savings.

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“Because of how delayed the provincial budget was last year, we had to guess what the 2019 education requisition was going to be. We had estimated there was going to be a two per cent increase, but the actual increase in the fall came in less,” Krejci explains. “We over-collected taxes in 2019 based on our original guess. Now in 2020, we will refund that over-collection on top of having the anticipated increase reduced.”

Typically, Krejci advises council to stay away from zero per cent increases each year, and the advice is still the same, he says, because it has longer-term disadvantages. He admits most of the cons could be avoided if council were to decide to use reserves to pay down the property tax increase on a one-time basis, but there’s still a drawback for residents.

“The problem with that is the property tax has to come back next year. So, for example, if you’re paying $1000 per year in property tax and we artificially reduce it to $900, next year we’ll still use the $1000 base we had, and now you’re up to $1020, so it looks like a huge tax increase.”

Meantime, a report last week by the Edmonton Journal suggested the province is considering allowing municipalities to run deficits, something the Municipal Government Act currently prohibits. Krejci believes if the province allowed this it would only be for one or two years.

“You borrow to make the difference up, and eventually you have to pay that debt off, so any ability for a municipality to do that would have a short lifespan to it,” he says.

The issue of bankruptcy also came up in council on Monday with one member referring to comments from Vancouver mayor Kennedy Stewart about how quickly that city would drain its emergency funds should homeowners begin to default on property taxes.

Krejci says Red Deer’s reserves would last six weeks if no other revenue was coming in.

“At this point, we’re not concerned about bankruptcy. The issue that we’re all grappling with as municipalities is what the economy is going to look like next year. How many businesses will survive and what will the overall economic level of activity be?” says the CFO, who’s been with the City for around three decades.

“How are businesses going to be able to pay their property taxes, and what level of utility use will there be amongst the business community? As they fare, so do our residents. How many of them will be unemployed and how many will have the ability to pay their property taxes and utility bills?

City council also heard back Monday on its annual external audit results. Krejci says the city’s finances were given a completely clean bill of health.