New funding model to replace the Municipal Sustainability Initiative
IT IS THEREFORE RESOLVED THAT the AUMA advocate that the Government of Alberta legislate and index annual funding under the new infrastructure program as a fixed percentage of the province’s total revenue excluding transfers from the federal government and that the annual funding amount be calculated based on the province’s actual revenue from two years prior.
WHEREAS AUMA’s vision is that Alberta’s municipalities have an enduring partnership with the Government of Alberta that recognizes the shared responsibility to fund the infrastructure that Albertans rely on to maintain economically, environmentally and socially resilient communities;
WHEREAS the Government of Alberta has announced that Alberta’s largest municipal infrastructure funding program, the Municipal Sustainability Initiative (MSI), will expire in 2021-22 and be replaced with a new infrastructure grant program;
WHEREAS municipalities require funding from the province to be more predictable, especially given the update of the Municipal Government Act that requires municipalities to approve three-year operating and five-year capital budgets;
WHEREAS in order for Alberta’s communities to continue to offer a high quality of life and remain economically competitive, future municipal funding needs to grow with the long-term infrastructure needs in Alberta’s communities;
WHEREAS the Government of Alberta announced in Budget 2018 that the new infrastructure grant program will use a funding formula based on revenue sharing;
WHEREAS Alberta’s municipalities support a revenue-sharing model that will grow with the economy and offer predictability for financial planning while being responsive to the realities of the province’s revenue sources;
WHEREAS a funding model linked to the province’s total revenue (excluding federal transfers) limits the risk of any loss in funding if the province were to change how it sources its revenue; and
WHEREAS if the annual funding is calculated based on the province’s actual revenues from two years prior, municipalities can more accurately forecast their short and long-term infrastructure funding.
The Government of Alberta launched the Municipal Sustainability Initiative (MSI) in 2007 as a ten-year infrastructure funding program that committed to provide $11.3 billion in operating and capital funding to support municipalities with their growth and sustainability needs. At the end of ten years, only $7.53 billion had been delivered to municipalities and the province announced that MSI would be extended to a 15-year program to end in 2021-22. MSI has represented a significant investment that has helped Alberta’s communities build and maintain the infrastructure needed to deliver a safe quality of life and support economic prosperity for residents.
To prepare for the expiration of MSI, AUMA conducted a review in 2016 to understand the shortfalls of the program and how alternative funding models could benefit Alberta’s municipalities. The review identified that while annual funding has been reasonably stable, it has lacked predictability as the funding amount will change each year based on political priorities at budget time. A second key shortfall is how the funding has not kept pace with the growth of the province’s population or economy. For instance, between 2010 and 2017, the province’s budgeted own-source revenue increased by an average of 3.91 per cent per year[1].
Over that same period, MSI only increased by an average of 0.03 per cent per year. In dollar terms, the 2010 funding represented 3.0 per cent of the province’s own-source revenue. If that 3.0 per cent of provincial own-source revenue had been maintained, municipalities would have received an additional $1.1 billion in funding between 2011 and 2017[2].
AUMA’s review considered several funding models and AUMA sought input from members through a working group, AUMA’s standing policy committees and working sessions at the 2017 and 2018 Spring Municipal Leaders’ Caucus. AUMA’s analysis and input from members indicated that a model based on a fixed percentage of provincial revenues is most likely to deliver a predictable framework where the funding will grow with the economy, and also demonstrates a partnership to share in the risks and benefits of the province’s revenue system. In early 2018, AUMA delivered its recommendations to the Minister of Municipal Affairs and was pleased to see the province use Budget 2018 to announce its plans for a new revenue sharing model and deliver a commitment to consult municipalities in 2018.
The AUMA Board is recommending that the new funding model be indexed to the province’s total own-source revenue. While the funding model could be indexed to a select number of the province’s forty revenue sources, there is a risk that the province could change its tax policies in the future in order to shift its source of revenues. That type of change could reduce long-term municipal funding and as such, AUMA’s aims to eliminate that risk by having the new funding model indexed to all provincial revenue except for transfers from the Government of Canada.
To further increase predictability, the AUMA Board is recommending that the annual funding be calculated based on the province’s actual revenues from two years prior. For example, the 2022 funding would be calculated based on the province’s actual revenues in 2020. Due to the timing of when the province’s financial statements are released, municipalities would know the next year’s funding amount prior to developing their upcoming budget as well as have sufficient information to estimate the funding for the next four years. This method of calculation is used by Saskatchewan’s Municipal Revenue Sharing program.
The information presented in this resolution only applies to how overall funding would be determined under a new infrastructure funding model to begin in 2022-23. How that funding is allocated to each municipality will be addressed in a future phase.