The Town of Banff is taking direct action to rid itself of an infrastructure deficit by adopting a strategy to boost its general capital reserve, fleet reserve and solid waste reserve by increasing transfers on an annual basis.
While council adopted the recommendations of senior accountant Chris Hughes at its finance committee meeting Monday (Aug. 18), there was debate over whether the strategy should be adopted over 10 or 20 years.
Councillor Ted Christensen, while supporting the project of eliminating an infrastructure deficit, expressed concern about the timeframe, preferring to see the 20-year period.
“I question putting the weight on this generation, i.e. these taxpayers and this business group for 10 years,” Christensen said. “I think a 20-year spread, although raising more questions, would be more viable, practical and, frankly, easier to sell to citizens.
“Ten years is too much of a burden for current taxpayers.”
Coun. Stavros Karlos argued addressing this issue sooner than later is the financially responsible thing to do as it would not put the burden on future taxpayers.
“With the best information we have at our disposal today, I believe a 10-year strategy to close the gap is the financially responsible thing to do,” Karlos said, adding how important it is for him to ensure Banff’s capital assets have funding in the future set aside for replacement.
“Any dollar we put in now has huge effects down the road, so we can either do it now or later, but someone has to pay and I don’t want to pay later,” he said.
The deficit was estimated at $1.45 million over the next decade and the recommendation adopted by council was to increase transfers by $144,625 per year in addition to the annual inflationary increase.
Council also voted to transfer $45,000 from the solid waste rate stabilization reserve to the solid waste capital reserve to address that deficit directly. That reserve is funded by a blend of taxes, 25 per cent, and utility rates. Hughes said the transfer would address the utility funded portion immediately with the remainder to be funded over the next 10 years.
As for where the money will come from to transfer more to the general capital reserve account, administration recommended a combination of occupying education tax reductions, increases to capital grants and taxes.
“The key strategy currently identified in the capital plan is to identify drops in education levy from the province to increase transfers to capital reserves,” Hughes said. “We believe with the history of school tax reductions and our increased population it shouldn’t be too hard to close that gap in a 10-year timeframe.”
It has been a long-time practice of Banff when there are reductions in provincial education taxes on property owners to absorb that difference into municipal property taxes. The result is more tax revenue for the municipality without increasing overall taxes.
Mayor Karen Sorensen said occupying the education tax and using the funds in the capital budget has been a great use of those dollars.
“I’m pretty hopeful the tax impact won’t be significant, if at all,” she said. “I understand that may be very naive and optimistic, but I think for the next few years our economy is doing well and this is the time to do this.”
She added future councils could amend the business plan if the tax increase needed to address the infrastructure deficit is unacceptable.
Hughes said the finance department went through an extensive process in 2011-12 to review each capital reserve account to forecast out 100 years for what is needed to replace the municipality’s assets.
“At that point we had an idea where we needed to be and what the gap was, so this year what we have done is go back and test some of those assumptions and revised the models and now we are at a point to provide a recommendation for a 10- or 20-year phase in to increase contributions to major reserves to close that infrastructure deficit,” he said.
Hughes said Banff is one of the only Canadian municipalities to reach the point of addressing its long-term infrastructure deficit, making it an exciting day for council and administration.
He said if not addressed, the deficit would total $13.6 million by 2023 and “that highlights the compounding nature of this. The sooner you address it the better – it only gets harder the longer you wait and grows quite large over time.”
He also detailed some of the assumptions made in the modelling for the analysis of the reserves and contributions needed to address the deficit, including the interest that would be earned on reserve balances and an inflation rate set at 2.57 per cent based on a blend of the 20-year Alberta CPI average and Calgary non-residential building construction index.
“Over the long term, this is the best estimate that we have,” Hughes said.
Another assumption in the model is the level of provincial and federal grants Banff will receive into the future. He said the assumption is at some point they will grow, but for the short term in the model they are kept at current levels.
“These forecasts account for only replacement of existing assets, not the addition of new assets,” Hughes said. “Typically, in most municipalities, new assets are funded through growth, which is a challenge we have had with very limited growth in assessed value. It is something we need to be very aware of when we look at the addition of new infrastructure.”
Council also voted to eliminate the transit reserve by transferring its balance of $289,530 to general capital reserves. The fund was created to replace the transit building and Hughes said it makes more sense to move the funds than have an entirely separate reserve for one project.
