City To Slide Around $7.2 Million In Reserve Earnings To Finance Operations

Drawing down and sliding around $7,285,107 in investment returns is either a prudent move to finance the City’s operations or it is just a shell game - it all depends upon your perspective.

During Monday evening’s special Council meeting to deliberate the 2022 Budget Council approved drawing down investment earnings, in what at least two Council members saw as a bit confusing, to fund both operations and capital side requirements for the 2022 Budget.

Despite this and misgivings that the funds might be allocated elsewhere Council voted 5 - 1 in favour of the move with only Councillor Dawn Luhning opposed. Mayor Clive Tolley was absent.

“If any random citizen were to read this I don’t know if they would understand where the $7.2 million is going to go to if this is approved,” Councillor Luhning said at Monday evening’s meeting.

Councillor Luhning was speaking about a plan within the proposed budget to move $7.2 million from investment earnings to help fund the Preliminary Budget presented by Administration. A preliminary status quo budget (meaning no cuts to services) with a funding deficit of approximately $1 million has been presented. It is a $1 million hole which needs to be filled.

Earlier Council had been told both the City’s moderate and long term investment pools were earning higher than targeted returns making the move possible.

There are two financial standouts in the earning’s drawdown.

First there is a transfer of $2 million to the solid waste utility reserve fund. Then transferring $500,000 from the same reserve to help finance the Operating Budget.

In the Budget documents an Administration recommendation is made to increase the Solid Waste Reserve in 2022.

An additional, drawdown will see the City drawdown $500,000 draw down from the Equipment Reserve to fund various departments 2022 contributions right back into the Equipment Reserve it was drawn down from. This is the first time monies from Equipment Reserves has been used to finance the Operating budget in this manner and usually funds flow the other way - from the Operations to the Capital Budget.

“Because Administration is telegraphing or saying to us $7.2 million is going to be drawn from investment funds and in Coles notes version where is that going to? Where are those funds going to?” Councillor Luhning asked.

The drawdowns on various reserves - course City of Moose Jaw

Finance director Brian Acker then explained where the drawdowns on the City’s investment portfolio would take place throughout the two investment portfolios - moderate and long term - and where they would be spent. Investment drawdown earnings would flow into both the 2022 Operating and Capital Budgets.

One of the key areas was taking the returns from the Land Development Reserve.

“Land development funds earn our target six percent return those monies flow into our general capital budget to fund our various programs that we have within there,” Acker replied. “Those monies are being withdrawn for what is within the 2022 land development budget.”

Councillor Luhning said Administration may recommend the funding from the investment returns drawdowns go into various areas but Council may have other ideas where the funds go.

“I was just curious. I think the fact that Council needs to have some input into this report before we get it from Administration but anyways,” she said. “There might be things some of us might want try to fund a little bit differently or pay down or whatever. I guess I am having a little bit of trouble.”

The reason for the deficit in the preliminary budget is a $300,000 loss in shared revenue from the Province (municipalities receive a set portion of 1 percent of the PST) as well as there not being a $2.3 million in COVID - 19 restart funding.

Councillor Heather Eby asked questions about the $500,000 investment earning being drawn down from the Equipment Reserve Fund to partially finance various departments’ 2022 payment into the same Equipment Reserve Fund and the impacts if the earnings are not available in 2023.

“We are really just putting $500,000 into our operating budget kind of going to take care of that,” Councillor Eby said.

“Essentially yes. So next year if those monies are not available we return to our regular contribution level,” Acker replied.

“So really this is just basically $500,000 into the operating budget and we are saying it is offsetting that. We didn’t reduce those payments or anything,” Councillor Eby replied.

Council heard in the past $6 million had been drawn down to finance capital and other requirements.

POST COUNCIL ADMINISTRATION MEDIA SCRUM

In the post Council media scrum with City Manager Jim Puffalt described this year’s budget as not an easy one. And whether or not drawing down of the $7.2 million as merely a financial shell game was up to individual perception - but it was not something he agreed with.

“It is a tough budget,” Puffalt said when questioned by MJ Independent about the 2022 Budget. “We can’t control inflation, carbon taxes and power rates (going up).”

MJ Independent had asked if the true increase of the 2022 Budget was not closer to a 10 percent increase, if it was paid through property taxes, but was being hidden at least in part by investment drawdowns.

The potential an overall 10 percent financial increase - including a 1.6 percent requested by the Moose Jaw Police Services - was not disputed.

Asked by MJ Independent if using the $500,000 from the landfill reserve account to finance the Operating Budget was not in fact a hidden property tax increase because the landfill is now financially self sustaining through fees and no longer property taxes Puffalt said it was not.

“Money from the waste management utility is not just charged to property owners,” he replied adding the funds are used for such things as wear and tear garbage trucks have on Moose Jaw’s roads. He went on to state how a person might perceive what was happening was how they “dice it and slice it.”

Puffalt said the Solid Waste Utility was in good financial shape when asked if the $500,000 would best be left in the Utility’s reserve to finance the new landfill.

The Solid Waste Utility is a self financing utility which is financed through monthly residential garbage collection fees or tipping fees at the landfill.

In the past the solid waste utility did not charge for residential garbage collection and the money to operate came from taxes and not monthly per dwelling fees. It is one area, when the change occurred, former Councillor Don Mitchell pointed out was actually a hidden property tax shift from higher assessed and taxed homes (considered often to be wealthy residents) to lower assessed and taxed homes (where it was considered economically poorer people live).

Puffalt pointed out if the money had not been there then the City would have had to find it elsewhere but the City’s investment strategy and three years of good financial returns in those investments make it all possible.

Regarding taking the monies from the Equipment Reserve Fund to re-invest in the required contributions into the 2022 Equipment Reserve Fund he saw this as a good thing.

“We are viewing this ourselves the equipment reserve is self funding,” Puffalt said.

Regarding the $1 million Preliminary Budget shortfall the City Manager said it was actually a $3.25 million deficit Administration was filling with the loss of $300,000 in Provincial Revenue Sharing and there being no $2.3 million in COVID - 19 restart money from the Province.

During the course of the media scrum MJ Independent did point out how the $1 Million hole or shortfall in the budget coincidentally was almost the same amount as the draw downs funnelled into the Operating Budget through the Solid Waste Utility and the Capital Reserve Fund.