A new funding deal between the Alberta government and the province's two largest cities ties funding for capital projects to gains and dips in provincial revenues.

Bill 32, introduced Thursday by Municipal Affairs Minister Shaye Anderson, also legislates a set amount of transit funding for Edmonton and Calgary after current commitments end in 2026-27.

Anderson said these moves make up what he calls a historic deal because it puts the commitments into law.

"No other province has a legislated revenue-sharing agreement with municipalities like this," Anderson said. "And no other province legislates long-term transit funding either, except for Alberta. This is a big deal."

The revenue-sharing plan replaces the Municipal Sustainability Initiative, or MSI program, which wraps up at the end of the 2021-22 fiscal year.

Bill 32 would put the funding formula into legislation for the first time. In 2022-23, the two cities would share will share $500 million, with $211 million going to Edmonton and $289 million to Calgary.

In the following years, the cities will gain or lose funding based on the province's revenue growth and fuel sales.

If the provincial government earns more revenue in a year, Edmonton and Calgary can expect increases to their funding three years later. A dip in revenue means a drop in what the two cities will receive.

The three-year delay is aimed at giving the cities certainty in planning and also gives them the chance to build projects during a downturn in the economy.

Edmonton Mayor Don Iveson said the formula gives the city predictability even if revenues fall.

In the past, the MSI has been suddenly cut by as much as 20 per cent in response to a drop of government revenues of two to three per cent, Iveson said.

"Legislation gives us certainty that if there is a policy shift of government that that has to be done with notice, that has to be done in public, and municipalities would have a chance to respond," he said. "Not in the fray of a fiscal update or or a budget."

While Calgary Mayor Naheed Nenshi approves of the new fiscal framework, he says it could translate into less money for the city in the short term. (CBC )

Calgary Mayor Naheed Nenshi was unable to be at the news conference in Edmonton. He told reporters in Calgary that while he is pleased about the legislated framework, it could mean less money for the city given the province's current economic situation.

"We should share in the upside and one of the challenges with this is there's a lot of downside," he said. "So we don't actually return to 2017 levels of funding until the early 2030s.

"So it will actually mean that capital will be very, very constrained in the city of Calgary for a long time."

Bill 32 would also legislate predictable annual transit funding for Calgary and Edmonton, continuing the committed $3-billion funding for LRT to 2026-27, and starting an annual commitment of $400 million, split evenly between the two cities, the following fiscal year.

The funding will come from carbon tax revenues, which will be explicitly outlined in the proposed legislation.

Iveson said the money allows the cities to approach the federal government for matching funds and helps with long-term planning. He said Edmonton could have the Capital Line South LRT extension ready for the opening of the new hospital planned for Ellerslie Road and 127th Street.

Funding source put into law

The decision to enshrine the source of funding in legislation has the potential to be controversial. Jason Kenney, leader of the Official Opposition United Conservative Party, has vowed to abolish the carbon tax if he becomes premier in the spring election, which could have an impact on revenues.

If Bill 32 becomes law, a future UCP government would have to table amendments to relevant sections of the act and debate the changes in the legislative assembly.

Bill 32 also has a new $50-million annual program to be used by regions for economic development projects like upgrades to convention centres or regional airports. One-third is allocated respectively to the Edmonton and Calgary Metropolitan boards, with the last portion split among the rest of the province.

The government is in talks with the Alberta Urban Municipalities Association (AUMA) and Rural Municipalities of Alberta (RMA) on a replacement for the MSI program after it expires.

Slightly more than half, or 53 per cent of all Albertans, live in Calgary and Edmonton.

The bill also changes eight areas of the city charters for Calgary and Edmonton. They include allowing cities to establish their own debt and debt-servicing limits, meaning the cities would have to obtain their own credit ratings.

Edmonton and Calgary city councils will be required to hold public hearings on these matters.

The bill also extends what cities can charge developers in off-site levies. They are currently used to cover the costs of drainage, sewer, water and roads in new neighbourhoods. The bill extends what cities can cover with levies, like the costs of building recreation centres.