Using one-time savings to reduce property taxes for one year will only lead to higher taxes the subsequent year, the city’s chief financial officer warned Monday.
Councillors, sitting as the standing committee on finance, were debating the construction of stage three of Ray Gibbon Drive. While the city secured a bank loan in 2011 to finance construction, staff instead recommended the city pay for the road out of its own bank account. Doing so would save the city $1.032 million in interest charges on financing of $15.89 million.
St. Albert has a healthy cash position, according to staff, putting away roughly $80 million every three years.
Mayor Nolan Crouse expressed interest in using that savings to reduce property taxes, but Anita Ho, the city’s chief financial officer, cautioned against it.
“If we use this one-time savings to reduce the mill rate, then that means next year we won’t have that savings and will have to increase the mill rate,” Ho said.
Ho said the city would be better off using the money for a capital project.
The city passed the 2013 budget with a property tax increase of 3.27 per cent. Applying the entire savings total to the mill rate could potentially slash that number by approximately 1.32 per cent.
But Ho warned that without finding ongoing savings in the years ahead, that increase would be temporary. Using that money one time wouldn’t change the fact that most of the expenses in the operating budget that led to the 3.27 increase are ongoing. To keep taxes low, the city would have to find $1.032 million every year to prevent adding that 1.32 per cent back into the mill rate.
But Mayor Nolan Crouse said the concept was difficult for him to understand, saying he needed some tutoring on the subject.
“If you are spending less money, you can increase reserves or return it to the taxpayer. It is savings for the taxpayer,” Crouse said.
After borrowing the money internally for the road, the city would pay back the total once the province reimburses it for the stage three construction costs.
Of the total anticipated cost of $75.7 million to build the road, the province is expected to reimburse the city for almost half at $36.78 million. To date the province has given the city $19.55 million for building the road to a highway standard, part of a deal between former premier Ed Stelmach and the city.
The city had passed a borrowing bylaw in 2011 to borrow the $15.89 million externally. While the city did solicit the financing using a request for proposal, it never signed a contract and will face no legal consequences for choosing internal financing again.
Ray Gibbon Drive, scheduled for completion last summer, was delayed by weather and will be finished this spring or summer.
