City not planning to address COVID-19 revenue shortfalls through a tax levy increase: City Manager

City Council heard on Monday that the financial fallout from the COVID-19 pandemic will challenge the strength and resolve of the City of Edmonton.

“We often talk about the City of Edmonton’s resilient financial position,” Mary Persson, the City’s Chief Financial Officer, told a physically distanced meeting of City Council.

“It’s in times like these that this fiscal resiliency is tested.”

Temporary layoffs announced

Also on Monday, Interim City Manager Adam Laughlin made public what he called a difficult decision: the temporary layoffs of 1,600 of the 2,000 employees who work in the City’s Community and Recreation Facilities branch.

“These are full-time and part-time cashiers, fitness instructors, lifeguards, art and education instructors, arena attendants, City Hall tour guides, labourers and booking clerks,” said Laughlin, stressing the layoffs are due to economic and public health realities and not the value of staff or programs.

Interim City Manager Adam Laughlin, City Hall, March 30, 2020

The temporary layoffs take effect April 14. It’s expected that the combination of employment insurance and a City of Edmonton top-up will mean permanent staff will receive 75 per cent of their salary for 16 weeks, and provisional and part-time employees for eight weeks.

“The dollars we spend come from Edmonton taxpayers, and we simply cannot sustain full salaries for longer,” Laughlin said.

At the same livestreamed news conference, Edmonton Public Library CEO Pilar Martinez announced the temporary layoffs of 489 positions.

Wider economic impacts

In her presentation to Council, Persson said forecasts from Canada’s largest banks suggest Alberta’s economy will fall into a COVID-19 recession.

“The impact of physical distancing means limited economic activity, including for businesses, which is expected to drastically reduce production, travel, and other demand-side factors driven by consumer spending,” Persson said. “Limited economic activity also affects the demand for oil.”

Mary Persson, City of Edmonton Chief Financial Officer, City Hall, March 30, 2020

Revenues, expenses

City finance experts have run three scenarios for how revenues to the City could be affected by a pandemic, depending on how long—through the end of April, or through mid-June, or through mid-September—its effects are felt.

Every month that recreation facilities stay closed, the City loses approximately $5.4 million in revenue, Persson said. That jumps to $7.3 million in summer months. The September scenario pegs the rec centre-revenue loss at a total of $37.6 million. The revenue loss from transit over the same period is projected to be a total of $54.2 million.

St. Francis Xavier Sports Centre, temporarily closed

Here’s what the scenarios show for possible, approximate overall City revenue impacts:

End of April combined revenue loss: $30.9 million
Mid-June: $67.9 million
Mid-September: $125.9 million

(Projected expense reductions for the same scenarios are $3.1 million. $6.8 million and $13.6 million, respectively, Council heard.)

Persson said “management of expenses is critical to close the funding gap created by the steep declines expected in revenue.”

City Administration makes financial presentation to City Council, March 30, 2020

Revenue shortfalls and taxes

Laughlin said Administration is “not planning to address the revenue shortfalls through a tax levy increase.”

He presented a list of principles—topped by a commitment to safety and including support to stabilize the local economy and to ensure the long-term financial health of the City of Edmonton itself—that would guide how the financial impact is addressed. Persson listed expense management, use of the Financial Stabilization Reserve and a redirection of capital funding to operating budgets as the top three options to address COVID-19’s budgetary effects.

The 2020 tax increase has been approved at 2.08% by City Council.

“I don’t know where we’ll wind up but we’ll be managing down from 2.08, rather than up, if possible,” Mayor Don Iveson said.

Delay of, not elimination of taxes

On Monday, City Council approved three actions to lessen the economic blow of COVID-19.

Business Improvement Areas are now able to delay payment of their levies, if needed. Taxpayers on monthly payment plans can delay their taxes if facing financial hardship, matching the option open to those who pay in a lump sum. Taxpayers now have until August 31 to pay.

These options are intended for those facing financial hardship as a result of COVID-19,” said Persson. “We cannot stress enough, those who can pay should pay by June 30.”

Mayor Don Iveson said: “COVID-19 has presented a challenge and impacts to our revenues, which are down, and our expenses, which are up.”

Property Tax Notice sample

In it together

“If they can pay, they will be helping to keep the City running during these difficult times,” Laughlin has said. “This is a ‘we’re-all-in-this-together’ message that we need to be clear about.”

Money matter factoid: The City spends approximately $240 million per month on its operations, and approximately $200 million per month in capital spending. Reserves cover approximately six months of that amount.

Deficit factoid: Technically, the City can run a one-year deficit with a plan to pay it back over the following years. Cities cannot run structural (permanent and ongoing) deficits, unlike other orders of government.