WHEREAS dissolution occurs when a municipality ceases to operate or exist as a municipality or municipal corporation; and
WHEREAS the Municipal Government Act stipulates the dissolution process, which includes a viability review and vote of the electors; and
WHEREAS the decision taken by the Government of Alberta to have another municipality take over governance of the area may have significant financial impacts on that municipality; and
WHEREAS the dissolving municipality that is deemed not viable creates a liability for the receiving municipality; and
WHEREAS issues that render the dissolving municipality as not viable are not rectified prior to dissolution, but rather inherited by the receiving municipality; and
WHEREAS dissolving municipalities carry significant capital costs, including infrastructure deficits as well as debt and operational costs that the receiving municipality must address; and
WHEREAS the dissolution of an urban municipality places an unfair financial burden on the receiving municipality;
THEREFORE, BE IT RESOLVED that the Rural Municipalities of Alberta advocate that the Government of Alberta review the total financial compensation, timelines, process, and other support provided to receiving municipalities to better mitigate and manage the immediate and ongoing impacts resulting from the dissolution or amalgamation process.
While the focus of the dissolution process is on the dissolving municipality and assessing its viability, the receiving municipality goes through significant changes and is often required to take on additional responsibilities once the former municipality has been absorbed into the surrounding receiving municipality. These significant changes and additional responsibilities include reviewing and aligning levels of service, organizational capacity, facilities, fleet, infrastructure condition, legal files, accounting records, employee files, and policies and planning documents. Considerable effort is also required to communicate with current and new municipal residents. These efforts require significant staff time, already subject to organizational capacity constraints, and financial investment. There is a significant administrative burden associated with absorbing a dissolved municipality. The receiving municipality must review human resource elements, legal files, bylaws, policies, assets, and all other aspects of municipal administration. There is no clear toolkit or process for how to undertake this review and integration.
Sustainability is the largest concern for a receiving municipality. Often a municipality is deemed not viable when its annual operating expenditures continually exceed operating revenues. This may be the result of over-expenditure or under-taxation, or it could be the result of a large-scale event such as a loss of a significant tax revenue source. These issues are not rectified prior to dissolution but inherited by the receiving municipality. This creates a liability for the receiving municipality from the outset.
As such, the receiving municipality not only needs to complete the work of aligning and absorbing the dissolving municipality but also of determining how to make it viable while minimizing the impact on current and inherited taxpayers. This is further complicated by taxation limitations for most municipalities. In the case of Parkland County, taxation revenue for the dissolved Village for Wabamun was nearly halved due to the Municipal Government Act requirement for a single tax rate. Often, difficult discussions and decisions on level of service are required following a dissolution.
Further to ongoing operating losses, dissolving municipalities frequently carry significant capital costs. When a municipality is struggling to pay operating costs, it is not unusual for capital projects and maintenance to be deferred. This creates infrastructure deficits that the receiving municipality must address. Similarly, significant capital projects leading up to a dissolution can increase debt and/or operational and maintenance costs. These commitments are also left to the receiving municipality to address. Although there is some relief provided by the provincial government in terms of debt, it is a set amount that may or may not be sufficient in each instance of dissolution.
Parkland County has experienced two dissolutions in recent history:
In 2021, Parkland County received a $1.2 million Alberta Community Partnership (ACP) – Municipal Restructuring (post-restructuring) grant to support the Wabamun dissolution. To date, total financial costs regarding this dissolution are $817,495, which does not include tax revenue losses or the cost of staff time. Costs associated with infrastructure deficit and future replacement are still being calculated. At this time, capital expenditure and utility capital forecasts estimate a required investment of $18.6 million between 2023 and 2025 in emerging capital projects to support the future sustainability of the hamlet.
The transitional and infrastructure/debt servicing streams (post-restructuring) of the ACP program provide up to $1.2 million in funding to receiving municipalities (up to $250,000 for transitional operating expenses and $950,000 for infrastructure and debt servicing capital expenses). The dissolution of Wabamun above illustrates that this funding is insufficient to cover both short and long term impacts this dissolution has and will continue to have on Parkland County.
Inadequate infrastructure funding as a result of municipal dissolution is not a new issue. In 2013, Camrose County presented a resolution regarding water and wastewater infrastructure funding based on challenges they encountered with their newest hamlet of New Norway.
Municipal structures and the role of municipal restructuring have received increased attention in recent years as municipalities grapple with their sustainability. In October 2022, RMA released Municipal Structures: An Alternative Dialogue for Municipalities in Alberta, a report and self-assessment tool that touches on dissolution and poses questions and considerations for municipalities to address when identifying if municipal restructuring is the best solution for a given challenge or issue as opposed to a single threshold or formula.
In conclusion, as smaller urban municipalities continue to confront major operating challenges threatening their viability, the lack of adequate provincial funding support to address both short- and long-term impacts of absorbing a dissolved municipality is a major concern for rural municipalities. Receiving municipalities will have their capacity challenged when attempting to undertake the transition process and the ongoing operational requirements of the dissolving municipality. They must also solve the issue of why the dissolving municipality was not viable in the first place. Lastly, receiving municipalities must determine how they can remain sustainable with various imbalances such as infrastructure deficits that often require long range financial planning. Receiving adequate compensation from the Government of Alberta for the new challenges and issues imposed upon them by the dissolving municipality would go a long way to ensure the newly expanded municipality does not suffer the same fate.
RMA has no active resolutions directly related to this issue.
Alberta Municipal Affairs
Alberta municipalities have experienced relative stability and few significant changes to structure and historic boundaries over the past 35 years, with most changes occurring incrementally and typically in response to emerging local and regional needs. Thirteen dissolutions have occurred since 2015, which represents less than four per cent of the municipal sector. Municipal Affairs has traditionally not taken a position on local restructuring discussions in order to remain impartial and not give the impression that the province is attempting to influence a specific outcome.
The province recognizes that the capacity of local governments is challenged by many competing requirements and expectations, including providing core municipal services; complying with legislative and regulatory requirements; addressing increasing citizen expectations of services; and managing and adapting to change as a result of global or local economic shifts, provincial fiscal policy, and legislative and regulatory regime adjustments. Despite these pressures, most municipalities in Alberta continue to be financially viable.
Municipalities continue to be in the best position to explore options to achieve efficiencies and address local challenges. Following feedback from municipalities on funding for the municipal restructuring component of the Alberta Community Partnership (ACP) program and how it created a financial disparity between the dissolution process (or viability review) and the amalgamation process, Municipal Affairs adjusted the funding formula in 2019/20 to reflect improved funding equity between the dissolution and amalgamation processes.
For 2023/24, the ACP program budget is $15.4 million to support municipalities. Eligible projects under the municipal restructuring component of the program include regional governance/amalgamation studies, infrastructure studies as part of viability reviews, and post-restructuring funding for transitional costs and infrastructure/debt servicing in the restructured municipality. The maximum amounts available to receiving municipalities in dissolutions strive to equitably allocate available funding.
Additionally, in 2021 and 2022, the ministry engaged KPMG to independently evaluate the current viability review process by conducting a participant survey for residents and municipal officials who previously participated in a viability review. Ministry staff reviewed the results of the evaluation and have leveraged the information to develop new approaches and tools to improve the program, including the development of a suite of post-review supports following amalgamation or dissolution that will be implemented in current and future viability review processes.
Municipal Affairs continues to respect the autonomy of the potential receiving municipality and will remain responsive to the level of support desired by that municipality and the chief administrative officer. One of the available supports includes the ability for the Minister to appoint an official administrator, as was recently done for the former towns of Black Diamond and Turner Valley. Whether this tool could be used more frequently going forward to supervise a municipality transitioning through a restructuring change could be considered. The ministry continues to welcome the input of the associations through the Municipal Sustainability Strategy Advisory Committee on how the role of official administrator, as a supervisor, may be used as part of the available suite of post-restructuring supports.
In recent years, there has been an increase in interest from municipalities wishing to explore restructuring options jointly and voluntarily. To recognize these shifts in municipal interest towards more municipally led restructuring processes, and to continue supporting the long-term sustainability of both urban and rural municipalities, the province remains open to dialogue with municipalities and their associations regarding ongoing improvements towards the viability review process, and about how best to prioritize available provincial funds that support restructuring.
The Government of Alberta response emphasizes the importance of supporting the autonomy of municipalities that receive a dissolved municipal neighbour. While autonomy is a crucial aspect of effective municipal operations, Alberta’s dissolution process requires rural municipalities to absorb a dissolving municipality regardless of their own capacity to do so and with no say in the decisions and actions that contributed to the dissolution. This often results in the absorbing municipality incurring large costs linked to infrastructure upgrades and service level enhancements, resulting in delays or previously planned projects or initiatives.
For rural municipalities tasked with absorbing a dissolved neighbour, improved provincial data collection of their actual absorption costs, and subsequent financial support that aligns with those costs, would significantly enhance municipal autonomy, as it would allow the absorbing municipality to improve conditions in the dissolved area, and integrate it into plans, budgets, and service delivery approaches, without penalizing existing rural residents and businesses by delaying, cancelling, or re-scaling planned projects or existing services.
While the Government of Alberta responses references the recent KPMG report on the existing dissolution process and subsequent plans to provide new post-dissolution supports, the report results and any planned changes to the process have not been publicly shared, despite a request from RMA.
RMA is currently developing a post-dissolution impacts study, which will examine several recent dissolutions to quantify the actual financial and non-financial costs of dissolution on the absorbing municipality. RMA is hopeful that the report, which will include a series of recommendations on how the province can better support the post-dissolution process, will reduce the risks faced by rural municipalities responsible for absorbing a dissolved neighbour while maintaining local autonomy.
RMA assigns this resolution a status of Intent Not Met and will continue to advocate on this issue.