Municipal Sustainability

Strong municipalities support healthy communities, a prosperous province and a strong nation. The Government of Alberta is committed to creating accountable, responsible and transparent local governments. Doing so requires respect for the autonomy of municipal governments to make local decisions. At the same time, the municipal and provincial governments of Alberta recognize the need for partnership to make sure that Alberta communities are strong and healthy, now and into the future. The Government of Alberta provides legislation and other tools to support the viability and accountability of municipalities.

Part 4 of the Municipal Government Act allows for municipal restructuring processes, including status changes, amalgamation, annexation, and dissolution that can be used to address municipal viability.

Municipal Affairs has also developed a number of tools for assessing and supporting municipal sustainability. These include capacity building tools, key measures, the self-assessment questionnaire, and the viability reviews process.

Further Background. The viability review process was conceived in 2010 as a key component of the Municipal Sustainability Strategy (MSS). For further background on the strategy and the viability review process, view the 2010 Report of the Municipal Sustainability Strategy Working Group here.

Municipal Restructuring

Municipal restructuring involves changing the type of municipality, adjusting the borders of a municipality, creating new municipalities, or dissolving existing municipalities. These changes are meant to help meet the needs of Alberta communities and their residents. Municipal status changes are changes in the type of municipality and are based on population size or density. Amalgamations and annexations involve changes to the geographic boundaries of municipalities.  Formation is the creation of a new municipality.  Dissolution means that a municipality ceases to operate or exist as a distinct municipality.

Status changes are when a municipality changes from one type of municipality to another type. The types of municipalities are based on population size or density and include municipal districts, villages, summer villages, towns, cities, or specialized municipalities.  A municipality’s status type can change based on decreases or increases in the size or density of the population, or other special considerations.

Amalgamation is when two or more municipalities with shared borders join together to become one municipality. Municipalities may amalgamate if they believe they can operate more effectively or efficiently together rather than separately. Municipalities usually initiate amalgamation voluntarily. The Minister of Municipal Affairs can also initiate an amalgamation.

Annexation is when one municipality acquires land from a bordering municipality in order to provide room for its own population growth. The municipality from which the lands are acquired should not be affected in a negative way due to the annexation. Municipalities can initiate annexations by making an application to the Municipal Government Board.

Formation is the creation of a new municipality as allowed by the Municipal Government Act. The creation of a new municipality is also known as incorporation.  In 2001 the Minister of Municipal Affairs directed, under the authority of section 76 of the MGA, that new municipalities should not be created if doing so leads to an increase in the total number of Alberta municipalities. Currently other municipal restructuring processes are being used to promote viable Alberta communities.

Dissolution is when a municipality ceases to operate or exist as a distinct municipality.  Dissolution is allowed in sections 130 to 134.1 of the Municipal Government Act.  When a municipality dissolves, another municipality usually takes over governance of the area. Dissolution may be beneficial for a number of reasons. For instance, if a municipality is struggling financially, another municipality may have more financial resources to provide services to residents. It may also be more efficient to have one municipality providing many of the same services, such as emergency or utility services, to a larger area. It may also make sense to become part of another municipality if there are ongoing difficulties with filling council positions. A viability review can help individual municipalities determine whether dissolution is a good option.

Capacity Building Tools

Alberta Municipal Affairs, the Alberta Urban Municipalities Association, the Rural Municipalities of Alberta, and other Alberta municipal associations have a wide variety of capacity-building tools to support municipalities as they respond to the changing needs of their citizens. Links to these tools are provided in the Capacity-Building Tools document, which can also also be accessed through the links provided in the self-assessment questionnaire.

Self-Assessment Questionnaire

The self-assessment questionnaire PDF / MS Word is intended to provide local municipal councils and administrations with a tool to evaluate and understand their current situation, to identify areas of strength to continue building upon, and also to identify areas where improvement may be desirable or necessary.

The questionnaire provides linkages to capacity-building tools, offering easy access to meaningful opportunities to strengthen municipal performance where desired or necessary. Information on interpreting the results of the questionnaire, and determining next steps, is included at the end of the questionnaire.

Alberta Municipal Affairs and your municipal association are available to provide assistance and additional information to support the completion and interpretation of the questionnaire.

Viability Reviews

The current process for viability reviews, which began in June 2012, helps promote municipal sustainability. The viability review process replaced the dissolution studies formerly used by the ministry. The process helps municipalities determine their viability and, where necessary, develop a plan that leads to municipal viability.

The viability review process provides information to the public and to municipal leaders in a timely and inclusive way. The process also brings key decision makers together, and empowers communities to make sound decisions about their future based on collaboration, cooperation and a vision of success.

For more information on the viability review process and information on current viability reviews, go to the Viability Reviews page.

 

Municipal Indicators

Alberta Municipal Affairs is implementing a new performance measure for the ministry, and associated indicators for municipalities. 

The ministry performance measure will calculate the percentage of municipalities that are deemed to be “not at risk” based on defined financial, governance, and community indicators. The new ministry performance measure builds on the work of the Government of Alberta’s Municipal Sustainability Strategy.

Although the ministry performance measure is reported as an aggregate percentage, the underlying municipal indicators can provide each municipality and the department with useful information and alerts to emerging challenges.

Source Data for the Municipal Indicators

The indicators are calculated using formulas applied to specific data collected by the ministry, including:

  • information provided by Alberta municipalities annually through audited Financial Statements and Financial Information Returns;
  • municipal election results collected in accordance with the Municipal Government Act (MGA) and the Local Authorities Election Act;
  • information provided by Alberta municipalities following the completion of a municipal census; and
  • a count of instances whereby the Minister was required to intervene because a municipality was operating in contravention of the MGA.

The Municipal Indicators and What They Measure

The 13 municipal indicators are summarized in Table 1 of this document.

Each indicator is intended to measure a specific aspect of the municipality's governance, finances, or community.

Each indicator has a defined benchmark. The benchmarks established by Municipal Affairs for each indicator are rules of thumb that provide a general indication of acceptable risk; however, a municipality may have unique circumstances or alternative strategies that justify a different result.

How the Municipal Indicators Are Used By Alberta Municipal Affairs

The department will use the municipal indicators to calculate its performance measure for Outcome 1 of its business plan: Albertans live in viable municipalities and communities with responsible, collaborative and accountable local governments.

The performance measure will be based on the percentage of municipalities that are deemed to be "not at risk". A municipality is deemed to be “not at risk” if it does not trigger the “audit outcome” or “legislation-backed ministry intervention” indicators, and does not exceed more than two of the other 11 indicators in the annual calculation.

If the municipality does not meet the criteria for being “not at risk”, it does not necessarily mean there is any cause for concern; however, the municipality is encouraged to review the circumstances giving rise to the indicator results to ensure it is not exposed to potential or emerging risks.

Multiple indicator benchmark exceptions may indicate an increased concern for exposure to potential or emerging risks; in cases where multiple exceptions are triggered in a year, the department will offer advisory supports to the municipality. In those rare situations where a municipality triggers on the defined number (or more) of indicators for three consecutive years, the ministry will initiate a viability screening, to determine whether a viability review should be initiated.

Publication of Detailed Municipal Indicator Results

In addition to the use of the aggregate performance measure in the ministry’s annual report, Alberta Municipal Affairs will make the detailed results of the municipal indicators for each municipality available to the public through the ministry’s website.

The indicator results will be reviewed internally for accuracy, but will otherwise be published based on the calculated results without modification. To the extent that a municipality is impacted by events beyond its control, the indicators will be allowed to reflect the impact of those events. For instance, if a municipality’s on-time financial reporting is delayed due to a natural disaster, the related “on-time financial reporting” indicator will nevertheless be shown as an exception. This will ensure full transparency of the current situation for all municipalities in Alberta, and will reflect the possible associated elevation of risk regardless of cause.

An isolated indicator exception may serve as an alert that the municipality may be experiencing challenges in a specific aspect of its operation, but does not imply that the municipality is “at risk”. The indicator results are based on high-level reporting, and further review is necessary before determining if there is a valid concern underlying an exception.

An exception to an indicator benchmark does not indicate fault or mismanagement on the part of a municipality; an indicator may be triggered by events beyond the control of council and administration, or may result from circumstances that are being effectively managed. For example, a decline in population may cause an exception to the associated “population change” indicator benchmark, but the municipality may be making adjustments to effectively accommodate for the change. As another example, a municipality may exceed the benchmark for the “debt service to revenue percentage” indicator by using surplus funds to rapidly pay down its debt; to the extent that the municipality has allowed for this in its three year financial plan and five year capital plan, the debt repayment may be a prudent fiscal strategy.

Prior to publication of the indicator details, municipalities that do not meet the “not at risk” criteria will be advised of their indicator results by letter. This will allow the municipality to prepare in advance for related questions it may receive from its residents and business owners.

 

Table 1 - Municipal Indicators

Indicator

Description

Expected Result

What It Means

Suggested Follow Up For Exceptions

Audit Outcome

Audit report in the municipality’s audited annual financial statements.

The audit report does not identify a going concern risk or denial of opinion.

The municipal auditor has been able to complete the audit and express an opinion, and has not identified a specific concern about the ability of the municipality to meet its financial obligations.

Follow auditor recommendations to resolve denial of opinion issues. Consider obtaining professional financial consulting services or requesting a viability review to address going concern issues.

Legislation-Backed Ministry Interventions

Interventions authorized by the Minister of Municipal Affairs in accordance with the Municipal Government Act, such as a viability review, or where directives have been issued pursuant to an inspection.

The municipality has not been the subject of a Municipal Affairs intervention.

Municipal Affairs is not undertaking formal intervention with respect to the municipality.

The Minister typically intervenes only when requested by a council or through a petition, and only issues directives in cases where significant concerns are evident.

Complete Minister-directed processes and actions.

Tax Base Ratio

Tax base ratio is the proportion of the total municipal tax revenue generated by residential and farmland tax base, regardless of whether it is municipal property taxes, special taxes, or local improvement taxes.

The municipality’s residential and farmland tax revenue accounts for no more than 95 per cent of its total tax revenue.

The municipality is able to rely in some measure on its
non-residential tax base to generate a portion of its tax revenues. These properties are typically taxed at a higher rate than residential and farm properties.

Ensure taxes on residential and farm properties are sufficient to meet budgeted expenditure requirements.

Tax Collection Rate

The ability of the municipality to collect own-source revenues, including property taxes, special taxes, local improvement taxes, well drilling equipment taxes, and grants-in-place-of-taxes.

The municipality collects at least 90 per cent of the municipal taxes (e.g. property taxes, special taxes) levied in any year.

The municipality is able to collect its tax revenues and use those funds to meet budgeted commitments and requisitioning obligations.

Review tax collection and recovery policies and processes.

Population Change

The change in population of the municipality over the past ten years based on the Municipal Affairs Population List.

The population has not declined by more than 20 per cent over a ten-year period.

Summer villages and improvement districts are excluded from this measure because they typically have little or no permanent population.

The population of the municipality is stable or growing.

Consider how services and infrastructure can be scaled down to accommodate reduced demands.

Current Ratio

The ratio of current assets (cash, temporary investments, accounts receivable) to current liabilities (accounts payable, temporary borrowings, current repayment obligations on long-term borrowings).

The ratio of current assets to current liabilities is greater than one.

This indicator is not measured if the municipality’s total assets exceed current assets by a factor of two or more; these municipalities typically have significant financial resources including long-term investments, but manage with minimal current assets.

The municipality is able to pay for its current financial obligations using cash or near-cash assets.

Consider increasing revenues or reducing costs to provide additional working capital.

Accumulated Surplus

The total assets of the municipality net of total debt, excluding tangible capital property and debts related to tangible capital property.

The municipality has a positive (above zero) surplus.

An accumulated deficit is a violation of Section 244 of the Municipal Government Act. Municipalities in a deficit position are required to recover the shortfall in the next year.

The municipality has more operational assets than liabilities, which generally provides the municipality with cash flow to meet ongoing obligations and manage through lean periods of the year where costs may exceed revenues.

Consider increasing revenues or reducing costs to provide additional surplus and maintain working capital.

On-time financial reporting

Whether the municipality has completed submission its annual financial statements and financial information returns to Municipal Affairs by the legislated due date.

The municipality’s financial statements and financial information returns for the preceding calendar year are received by Municipal Affairs no later than May 8.

Financial reporting is an important aspect of municipal accountability to its residents and businesses.

The municipality is preparing its audited financial reports on a timely basis.

Consider additional resources to complete year end accounting on a timely basis.

Debt to Revenue Percentage

The total amount of municipal borrowings, including long term capital leases, as a percentage of total municipal revenues.

The municipality’s total borrowings represent less than 120 per cent (160 per cent for municipalities with a higher regulated debt limit) of its total revenue.

The municipality has maintained reasonable levels of borrowing debt.

Review anticipated funding sources for debt repayments to ensure borrowing commitments can be met.

Debt Service to Revenue Percentage

The total cost of making scheduled repayments (including interest) on borrowings as a percentage of total municipal revenues.

The municipality’s total costs for borrowing repayments do not exceed 20 per cent (28 per cent for municipalities with a higher regulated debt limit) of its total revenue.

The municipality has assumed a reasonable level of borrowing repayment obligations.

Review anticipated funding sources for debt repayments to ensure borrowing commitments can be met.

Infrastructure investment – asset sustainability ratio

The total cost of annual additions (through purchases or construction) to tangible capital assets (vehicles, equipment, buildings, roads, utility infrastructure, land) relative to the annual amortization (depreciation) on all tangible capital assets - measured as a five year average.

The municipality’s average capital additions exceed the average amortization (depreciation).

The municipality is replacing its existing tangible capital assets and investing in new assets and infrastructure at a rate exceeding the estimated wear or obsolescence of its existing assets.

This measure does not account for the effects of inflation; typically, replacement costs for new assets exceed the historic cost of existing assets.

Review asset replacement activities over past years and anticipated capital additions in future years to ensure average annual additions exceed average annual amortization. Consider conducting a study of municipal infrastructure to ensure that future service requirements can be met.

Infrastructure age - net book value of tangible capital assets

The net book value of tangible capital assets as a percentage of the total original costs. Net book value is the original purchase cost less amortization (depreciation).

The net book value of the municipality’s tangible capital assets is greater than 40 per cent of the original cost.

The municipality is replacing existing assets on a regular basis.

If the municipality is adding new services or expanded facilities and infrastructure, it would be expected that the ratio would be higher than 40 per cent.

Consider conducting a study of municipal infrastructure to ensure that future service requirements can be met.

Interest in Municipal Office

The number of candidates running in the most recent municipal election relative to the total number of councillor positions up for election.

The number of candidates exceeded the number of councillor positions.

The ratio of candidates to total council positions measures the willingness of electors to run for municipal office.

Consider increased focus on community engagement.

 

 

Contact Us

For further information regarding municipal sustainability, please contact the Municipal Services Branch by email at lgsmail@gov.ab.ca or toll-free at 310-0000, and then dial 780-427-2225.

  • Date modified: 2018-07-19