Our initial fear was Covid-19 spreading unchecked. An overwhelmed healthcare system would have thrown our society into chaos. Two and half months in and the shutdown has exceeded our goals of slowing the virus. The curve has been flattened. Even alarming outbreaks, like on our doorstep in Brooks, have been controlled and contained. Most infected have now recovered. This effort has come at the enormous personal expense to many, but collectively we have changed our behaviour for the common good. This doesn’t mean we are out of danger, but our healthcare system is holding steady. As of May 29 there were 55 hospitalized due to Covid-19 and 4 requiring intensive care (ICU). Here is the capacity for the province.
This success allows us to take a calculated risk—the Phase 1 reopening. If we can maintain physical distancing and hygiene discipline and keep infections to a low rate while taking a step towards normalcy we'll be able to progress to Phase 2 reopening. Though we are still very far from herd immunity and we must continue to be extra cautious around senior care homes.
Premier Kenney and Alberta Health Services have done a tremendous job. The public has as well. It was also inevitable that because we've done such a good job there would be a backlash as people grow restless. The economic pain of the shutdown is more apparent than the pain of Covid-19. Italy still has strong support for a lockdown because of what they experienced. We must remember that just because we’ve been largely spared, others have not.
City Council’s aid package
However, lasting damage to the economy and to consumer confidence has been done. Government financial support has kept most afloat, but many have slipped through the cracks and are still struggling. City council passed our aid package to join the other levels of government in providing what support we can.
Any group project will be imperfect. Everyone has an opinion about the seriousness of Covid-19 and how to manage the economic fallout. That is true of the nine members of council as well. Crafting an aid package to completely satisfy each of us was always going to be unlikely, but this is what our first effort looks like.
The financial cost of city council’s Covid-19 aid package is $8.2 million. That amount is divided between a number of initiatives aimed to help our community through this difficult time:
Council’s 2020 budget, passed in December 2019, had a scheduled 3.5% increase in property taxes as we work towards eliminating our current operating deficit. The tax rates will still increase in line with the approved budget. However, to keep tax bills at 2019 levels (ie no increase), a tax credit will be applied to all residential and commercial tax bills. Half of the aid package ($3.9 million) is for this one-time tax credit.
Up to $1 million will be directed to Community Warmth and the Community Foundation of SE Alberta. Community Warmth is a long running program that helps residents experiencing financial hardship with their utility bills. Typically, this program receives $25,000/year so this funding is a huge increase. The majority of funds will be directed to Community Warmth in installments of $250,000 as needed. The Community Foundation of SE Alberta has been approved by the province as a designated charity eligible for matching funds up to $2 million. The available matching amount for Medicine Hat is as yet uncertain.
Up to $2 million will be directed to local businesses through grants administered through Community Futures Entre-Corp. Entre-Corp is a government funded organization providing financing, training, and advisory services for small businesses.
Up to $1 million is earmarked for expedited investment attraction. Our Chief Administration Officer, Robert Nicolay, has the authority to use these funds to pursue opportunities this situation holds.
$300,000 is for the administration of property taxes and utilities deferral. Council also passed an up-to-24-month repayment plan for those who defer these bills to ease the burden of repayment.
Critiques and risks of this aid package
Size: is this aid sufficient to the scale of the problem?
Probably not. If the impact to the local economy is similar to other cities $8.2 million won’t be enough to help everyone. Vancouver is reporting that 25% of residents won’t be able to pay their property taxes. Last month, Edmonton found that a majority of businesses laid off staff, with widespread closures. With no money coming in the fixed costs of utilities and rent are tough to handle. Edmonton and Calgary are expected to lead the country with largest economic losses.
Municipal councils do not have the same financial options as our provincial and federal partners. Those aid packages run into the billions of dollars, but city council does not have access to those amounts of money. For perspective each single percentage increase in property taxes brings in roughly $800,000 to fund municipal services. So this $8.2 million would typically represent a 10% increase in taxes.
City Hall is facing significant losses due to facility closures, though somewhat offset by reduction in operations costs and labour. There are large impacts from decrease in airport revenue. We have seen a 98% reduction in passenger traffic along with the loss of Air Canada service at YXH. We have seen decreased planning and building permits and reduced investment income.
Genco, our electric generation division, relies on healthy demand to generate a return for residents—something in doubt as long as the pandemic lasts. NGPR, our petroleum division, relies on healthy oil prices—prices that have cratered due to lower global energy demand. NGPR is moving forward with our accelerated abandonment and reclamation efforts, but low commodity prices and volumes are causing financial losses to escalate. NGPR was facing a $30 million loss in 2020 prior to the pandemic. That number is sure to be much worse.
The projected losses due to Covid-19 for city operations are still being calculated, but council’s 4-year budget passed in 2018 already had a $12.5 million deficit scheduled. We were facing a tough financial picture before this pandemic.
The provincial order to allow anyone to defer payment of property taxes also creates a cash flow problem for municipalities, prompting some mayors to call for direct aid to municipalities.
City council has $240 million in unrestricted reserves. However, $180 million is earmarked for our abandonment and reclamation obligations, leaving $60 million in our protected Heritage Savings Reserve for immediate use if it was absolutely necessary. The $8.2 million aid package and any additional budget shortfall will count against our reserves.
So perhaps this amount of aid is not enough, but it leaves us the option to pass another package if needed in a few months. But with the ever evolving situation, further aid would require more analysis and debate.
Flat tax break
City council understands that a significant portion of Medicine Hat has seen their revenue dry up. However, in the midst of a health emergency we also know that the majority of municipal services must continue. To provide essential services we need to collect funds.
Providing a tax credit will help, but the flat discount is woefully inadequate to the unique nature of Covid-19’s economic impact. It’s inadequate because we know that the economic impact of Covid-19 is not even.
The intent of Alberta’s lockdown orders is clear, but often inconsistent. This isn’t government’s fault as perfect consistency is a tall order, but it doesn’t make it any less frustrating. Large retailers were able to stay open and continue operations, while smaller businesses were forced to close, creating an unfair playing field. Some businesses have been devastated, while others only marginally affected, with others doing better than before. Some businesses have been able to access provincial and federal supports, while others are unable to.
In other words, some need more help and others don’t need any. A flat tax gives those unaffected economically by Covid-19 a break where none was needed. For others this tax credit isn’t enough.
This is one case where equal help to everyone is the wrong approach, but municipal governments lack the ability to effectively provide targeted support to those who need it because we don’t have access to income information for residents.
One alternative would be a pay-what-you-can approach for property taxes. The upside is that it would allow those that need more help to get it without a lot of bureaucratic hoops. The catch is that we would be essentially trusting those that could pay, to pay their full share. I think more trust is exactly what we need right now, but politics is the art of the possible. And right now there’s little appetite for this radical experiment.
$2 million to Entre-Corp
Out of all the aspects of this aid package I have the most concerns about this item. The success of these grants will depend on the eligibility criteria, which has yet to be determined. If the money is used to help local businesses adapt to Covid-19 that would be useful. However, there is sure to be controversy if the funds are used to launch new businesses, when so many existing businesses are struggling. The intent is to get these funds out the door quickly.
Controlling costs at city hall
The city has a number of challenges on this front as well. Staff have been laid off where possible, but the lion’s share of municipal services are essential or necessary services. In the midst of a health emergency those services are all the more critical. 40% of our budget is emergency services—fire and police. Development and Infrastructure takes another 19% of our budget.
This emergency also does not negate the current rules that city hall must follow. The city has laid off 15% of its workforce, about 170 positions, but must manage it’s workforce carefully to ensure that essential services are not disrupted. Moving too aggressively to lay people off in a union environment would create destabilizing effects. Any permanent staff who are laid off, has the right to bump a person with less seniority if they’re qualified for similar positions. That has the potential to cause chaos as a cascade of bumping could occur throughout city operations.
The city’s primary interest through the pandemic is to ensure the continuity of essential services. Hospitals (and the rest of us) need uninterrupted water, electricity and infrastructure. That means comprehensive planning. An outbreak of Covid-19 within city workers would complicate an already tense situation. Teams for every essential service have been created to provide redundancy. Disrupting those plans through aggressive layoffs would increase other risks during this fragile time.
The thought occurred to me to slash pay for city workers, after all we pay market wages and what exactly is a market wage with these historical unemployment numbers? But unilaterally cutting wages would cause other problems because we need essential city workers now more than ever and it’s not like the cost of things (other than gas) has fallen.
However, we know that our tax base has been greatly diminished and consequently our ability to provide the same standard of services is not possible. There’s no question that city council will have to do more to control costs given the reduced ability of our community to pay for services. Overnight a significant part of our community suddenly lost their income, affecting everyone’s ability to pay our bills. All levels of government are working together to help as much as we can, but the bill for all these efforts will come due.