Growth through Growth?

Have revenue growth and prudent borrowing funded growth over the last three years?  A virtuous cycle of growth leading to growth?

I will look at revenue and debt changes in the town financial statements.  However, much of this will be up for interpretation.  My aim is to present the information as it stands and then ask questions to stimulate discussion.

1.  Revenue

It would appear from a cursory glance that revenues have skyrocketed since the 2010 fiscal year, going from $16.9m in 2010 to $39.1m in 2012, a remarkable 132% increase.  But if we are funding growth with revenue growth, it is important to also isolate taxation.

In absolute terms tax revenue rose 0.80% in that time, and in real terms they decreased by 3.4%.

$13.5 m in revenue in 2012 came from what I would consider (ie. my opinion) long-term own-source revenue.  This includes things like tax, user fees, investment income, penalties, development levies, and the like.  This total was $12.1 m in 2010.

Where is the other $21 m?

There was a change in accounting procedure that added revenue from the Peace Regional Waste Management Company to the Town books.  That is appropriate but for apples to apples, you can’t use it.  This amounts to $3m.  There was also $6.4m in what appear to be one time revenues (please correct me if I’m wrong) under Gain on Disposal of Tangible Capital Assets and Contributed Assets.

That still leaves $11 million, roughly by how much government transfers increased in that time ($11.3m).

As far as I can tell, the Municipal Sustainability Initiative has been available to municipalities in Alberta since 2007.  Since then government transfers as a percentage of revenue have risen from 26% to 41%, while taxation as a percentage of revenue has dropped from 38% to 19%.

Don’t get me wrong.  Grants should be used when they’re available.  But even Municipal Affairs agrees there should be a limit.  Their Municipal Sustainability Strategy has as one of its key measures of financial sustainability the percentage of total revenue made up of government transfers.  If a municipality goes over 50%, it may trigger a review by Municipal Affairs.

In 2012, that number was 41% in Peace River.  In the 2013 budget, if my calculations are correct, that number is 49%.  In 2010 it was 28%.

Is this the current practice or council specific?  The most similar municipality I could find is Bonnyville.  They have a very similar population, are in the north, exist in an area with substantial oil and gas activity, and had an almost identical population growth between the 2006 and 2011 federal censuses.

Their total revenue increased 50% from 2010 to 2012.  Tax revenue rose 11%, long-term own-source revenue rose 22%, and government transfers dropped 1.13%.

Here’s my read of all this.  We should absolutely be taking advantage of these grant funds while they are still here, as my understanding is they end in 2016.

But here are my questions.

1.  Considering the above, are we truly funding growth with revenue growth?

2.  If so, is the current strategy sustainable?

3.  Is the expenditure of these funds going into projects that will sustain themselves or trigger further growth?

Tomorrow, we look at debt.

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One Response to Growth through Growth?

  1. North Darling says:

    Again, you are mixing revenue growth with assessment growth.
    Thanks again for highlighting that we dropped taxes over the last three year. Just like we said we would.
    You are incorrect about MSI. The operating portion will end in 2016. That amounts to around $100,000 per year. The Capital portion – around 90% of the total Grant – will remain, and continue to increase.
    Over 50% Grants as a portion of income will not trigger a Viability Study. There are eight other indicators of Non-Viability. Having near 50% of Grants as a portion of income means you have an awesome CAO who knows how to approach other levels of Government to pay for Capital Projects. That is what we as a Council expected from our CAOs from the start. I’ll let the record speak for itself.
    I am appointed to oversee all Albertan Town Viability Studies with Municipal Affairs. Grants are good. Taxes are bad.
    Again, you should sit down with me prior to posting these opinions.

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