Spring 2020 Supplemental Capital Budget Adjustment
The Supplemental Capital Budget (SCBA) is an integral component of the City Council approved multi-year approach to set the 2019-2022 Capital Budget. It allows Council to adjust the budget in response to changing project needs, new funding opportunities and challenges, emerging issues, and changing priorities. It supports the City’s financial management outcome of ensuring the City of Edmonton’s resilient financial position and enables both current and long-term service delivery and growth, as outlined in Edmonton’s Corporate Business Plan 2019-2022.The COVID-19 pandemic response has significantly slowed the local and provincial economies. The City continues discussions with the provincial and federal governments about infrastructure stimulus funding to support the local economy, albeit no new funding has been announced at this time.
This week, council did reaffirm most of our previously approved 2019-2022 Capital Budget with a significant asterisk. As the financial recovery will likely extend by the originally anticipated mid-September estimate, we will have to make additional changes within our budget. I’ll provide a further explanation of that work later in this post.
Now more than ever, a collaborative approach to our economic development is key to ensuring resilience within our communities. As a society, past the health effects, we are now starting to see the economic impacts that COVID-19 will have. If you have the chance I highly suggest reading the Road to Recovery Report put together by Edmonton Global. Listed within the report are a set of suggested measures to help put governance on track to the road to recovery. While most financial crises or “shocks” are driven by damage to an economy’s supply side (specifically capital formation), the COVID-19 pandemic is driving both supply and demand side damage. The future state of our economy will be dependent on early and effective policy intervention with innovation being the key to resilience. Our economic shock will be dependent on two variables:1) Rapid and effective control of virus spread.2) Effective economic policy intervention.
On April 10, 2020 the Mayor sent a letter to the Premier of Alberta and Minister of Municipal Affairs providing a list of more than $2.1 billion in stimulus shovel-ready priority projects for 2020 and 2021 that would create approximately 10,000 jobs and directly benefit people in the Edmonton region. In addition, City Council has prioritized provincial support for the City’s Small Business Revitalization Enhancement Program. As a result, council approved $10 million at this time to support small businesses in Edmonton.
COVID Fiscal Scenarios
As mentioned above, the financial position of the city has changed significantly in the last few months. If you had the opportunity to read my budget blog post last month, you would have read about the close to $140 million that has already been reduced to address the budget shortfall. That scenario assumed a full return to normal by mid-September. At this point, that scenario is likely not realistic.
During our budget discussions, concerns were raised about the possibility of an extended financial impact. Below is a graphic representing the potential scenarios dependent on provincial and federal support (cities received support vs. do not receive support) and the timeline of the COVID-19 crisis (shorter with smaller economic shortfalls to longer with higher economic shortfalls).I believe that we need to prepare for the scenario of a longer crisis and no provincial or federal funding. The Mayor put forward the following motion so that we could prepare for that scenario:
That Administration:
1) Bring an updated operating and capital budget analysis to include low and high-impact scenarios out to the end of 2020 and 2021 to give multi-year context for budget shortfalls arising from COVID19.
2) Analyze the balance of the 2019-2022 Capital Budget and bring forward prioritized infrastructure cutback scenarios to tax-funded discretionary (pay-as-you-go) and debt supported projects to transfer to offset ongoing operating budget shortfalls.
3) Apply the following principles to part 2 above:
a) that cuts be prioritized based on growth before renewal and minimizing risk to critical assets like bridges,
b) that the corresponding infrastructure deficit is in cosmetic or lower-risk areas where possible,
c) that facility closures be considered, and
d) that the leverage of discretionary dollars against time and provincial or federal grants be maintained where possible
4) That the prioritized budgeting process be advanced to provide a prioritized list of programs and services simultaneous with the above
This motion was passed unanimously by council. I chose to support it because as mentioned above, I expect a longer economic recovery and therefore the budget changes made to date will not be enough. Since I would prefer to minimize any possible tax increases or any additional layoffs, cuts to infrastructure would be the next appropriate step.
The principles listed in that motion are very important because it focuses possible cuts to growth projects instead of renewal. Creating an infrastructure deficit would just create a more expensive problem in the future and that’s not a reasonable solution. We have made massive increases to our renewal budget over the last six years in order to catch up on many years of under-investing. For example, in late 2014, council increased the budget for arterial road renewal from $25 million/year to $55 million/year. That was needed to start catching up on years of neglect on our arterial roads. Renewal of infrastructure that is at the end of life is not something we should sacrifice unless absolutely necessary.
The other principle that I felt was important is point D. Cancelling all growth projects would be unwise because as part of our economic recovery, we need to see construction projects proceed that will get people working. This is a similar message we are hearing from both the provincial and federal governments. While investing in infrastructure doesn’t help every single industry, it certainly keeps a lot of people employed. Therefore the suggestion that we try to avoid cutting projects that are funded by all three orders of government is one that I agree with. Those projects will employ thousands of people for many years. That stability will help our recovery efforts.
City Hall Grounds and Speed Limit Changes
There were two particular items that received some further attention during our discussion this week and I wanted to provide the reasons I supported proceeding with both projects.
The first is work that is occurring around City Hall. During my virtual Community Conversation on May 28th, it was referred to as a ‘beautification’ project and if that is what it was, I would have supported the motion to postpone that work. In fact, I would have supported cancelling that project entirely. But what was being debated was primarily an infrastructure renewal project. The surface and subsurface infrastructure is at the end of life.
Postponing that project by one year would just create a larger problem one year later and we’d also incur another year of maintenance costs which is approximately $500,000. That to me was the most important reason to proceed with this project. Like we are doing with our roads, buildings, sidewalks, etc., we are still proceeding with renewal work. You wouldn’t postpone work on your foundation unless you were out of options. The motion by the Mayor will present us with many other options before we make cuts to core renewal work.
A second consideration relates to timing. This project would start this year and ideally be finished before the start of our festivals in 2021. With almost every festival cancelled this year, we have an opportunity to do some renewal work with minimal impact to our festivals. Postponing this critical renewal work would now have a greater impact on festivals in 2021 and 2022. I’ve had many people ask me about if we can use this time to do more renewal work. I think this is another example of a project where we should use this time to minimize the impact.
Specific to the speed limits, the motion made this week would not have cancelled that work but simply delayed it by one year. Unlike other capital investments, all traffic safety work is specifically funded through traffic fine revenue (ex: photo radar) and that funding cannot be used for general operations. As traffic safety concerns have only increased during the pandemic, I don't believe that this particular project should be delayed as there are costs to deal with the outgoing traffic safety concerns.
Of course, lower speed limits alone will not solve all traffic safety issues, but it's a quicker solution that can be applied across the city to begin to help with the traffic safety concerns. If you want more detail about the residential speed limit discussions, please visit this link which will take you to a video I recorded at the end of the speed limit debate earlier this year.
Summary
We will need to make changes, the Mayor’s motion will provide us with a more thorough review of our capital budget using principles that were unanimously agreed upon by council. The financial challenges are not likely going to get easier for the city and therefore we will have some more uncomfortable decisions to be making in the coming months.
MOTIONS
https://www.edmonton.ca/city_government/documents/meetings/SpringSubMotions.pdfhttps://www.edmonton.ca/city_government/documents/meetings/SpringMay26.pdf
Written by A. Knack and R. Maggay
