Huntsville approves an additional $138,650 for the contribution reserve to reduce the Town’s 32% funding gap
Huntsville General Committee approved an additional $138,650 to the annual contribution reserve to reduce the Town’s funding gap, in the October 25,2023, meeting.
Staff initially recommended the Committee approve an additional $277,300 contribution to reduce the 32 percent gap ($13,321,658).
According to the 2024 Draft Capital Budget, the reserve contribution for the 2023 capital budget is at $6,851,420, resulting in a $612,700 annual increase from last year.
The report continues, “In reviewing the 2023 capital requirements as determined by the Towns existing asset inventory, the total contribution should total $19,560,378. To get to this level of funding over 15 years the amount included in the levy for capital contributions should be increased each year by $890,000.” The budget previously indicated $612,700.
Director of Financial Services/Treasurer, Julia McKenzie, advised, “The amount of the contribution for the levy at the present does not provide sufficient funding to replace all of the Town’s assets. This is called ‘the infrastructure deficit.’”
McKenzie added that since 2012 the Town has continued to increase the levy for capital to deal with the deficit. “Each year the total amount of capital expenses does not necessarily equate to the capital levy, and reducing the amount spent from year to year does not directly impact the levy for a particular year, but rather removes the replacement from one year to the next.”
According to the report, factors such as contracts, construction costs, Town growth, maintenance and renewal or replacing assets, has an impact to the capital budget.
McKenzie indicated that the price index plays a big role, with increases of 15 percent in 2021 and 17.5 percent in 2022. She said, “It should be no surprise that given the inflation we’ve seen in Canada that the cost of rehabilitation or replacing our existing assets has increased significantly.”
She added that improvements to infrastructure also played a key role in the costs. For instance, widening the shoulders on roads to support active transportation, and storm water management to cope with severe weather due to climate change are examples of increases to road infrastructure and costs.
Staff also indicated that roads consume 67 percent of capital reserves, compared to fleet at 11 percent, parks 8 percent, facilities, 6 percent, fire at 5 percent, and other areas at 3 percent.
Julia explained, “Based on the draft budget and forecast…it is expected that over the next five years the reserve balances will be in a negative position.” She added, “We don’t currently, as of today, have savings set aside specifically for each of the capital assets in the Town’s inventory. This is a really good example of the funding gap.”
Staff explained the importance of increasing the contribution to reduce the gap. Julia said, “If the Town increased the funding for the next 15 years by $890,000, this would get the Town to a substantial level of capital of funding based on what we have now and know today.”
Councillor, Bob Stone, suggested that the increasing costs to replace or maintain capital assets presents a challenge. He said, “Presumably with inflation the goal post keeps getting moved…”
Julia concurred. She added, “Provided they haven’t been adjusted for the significant inflationary adjustments.”
Mayor, Nancy Alcock, suggested only increasing the reserve contribution by half the original $270,300 recommended.
Julia advised, “Any bit would help.”
Alcock added, “It just stretches out the time that it will take for us to get to that sustainable level. That is something as a Council that we can consider if we’re looking to bring our numbers a bit lower.”
Councillor, Scott Morrison, indicated that by cutting the contribution in half, “it’s almost a .75 or .8 on the levy. But there is a fine line.”
He referred to an article staff sent him about a town, “experiencing a 34 percent tax increase this year because of Council’s and staff that weren’t putting away, and they were basically depleting the reserves.” He added, “I’m not saying not to cut it in half, I’m just saying that’s some of the consequences.”
Alcock said, “I just don’t think that’s our trajectory though. Our trajectory has been frankly the opposite, which we have, as Director McKenzie pointed out, we continue to increase our contributions to our resources, and this is just saying can we slow it down a little bit. But we’re still increasing.”
CAO, Denise Corry, referred to a 2024 evaluation of assets “which will show we are that much further behind, so the gap will continue to grow, but any effort we make is a great step forward.”
Councillor, Cory Clarke, said, “At least we have a plan and we’re trying to make a situation better where it hasn’t been always the case in the past… At least we have a plan in motion to address the deficit, which is important to do, and we are doing that, but we also realize that we got to deal with the pain of budget too.”