REPORT #1,125: During last year’s election campaign the mayor proposed zero-based budgeting. Instead, as council prepares to create a four-year budget, we’re looking at built-in starting increases of 2.5 per cent. How did that happen?
Monday, Sept. 14, 2015 – London Ontario
During last year’s civic election campaign, Matt Brown promised if he was elected mayor he would seek to impose the discipline of zero-based budgeting on City Hall.
He was elected, by a landslide as it turned out. But you don’t hear much about zero-based budgeting these days.
Instead, as city council prepares tonight to begin the complex process of creating a multi-year budget, the buzz word around City Hall is efficient and effective service delivery.
Zero-based budgeting is time consuming. It starts every year from a ‘zero base’ and every function within an organization is analyzed for its needs and costs. Budgets are then built around what is needed for the upcoming period, regardless of whether the budget is higher or lower than the previous one.
Martin Hayward, the city treasurer, defends the current system. The concept of zero-based budgeting “is built into service review,” he says, “when we ask, do we want to do this, do we need to do it, can we do it differently?”
Having to answer those questions has been a “big change for some departments that were used to more, more, more,” Mr. Hayward adds. To get more now, departments have to make a case through city council’s strategic investment process.
“The real goal,” Mr. Hayward says, “is to have budget increases that are acceptable, and allow council to get its strategic investments done.”
Certainly service review is an effective tool. But a full-out examination of a service – take garbage collection, for example, which costs more than $13 million a year – only takes place occasionally, not annually.
The strategic investment process, which requires development of a business plan for each project, only applies to new initiatives.
Therefore, in crafting the annual base for the four-year budget, the automatic assumption is that a service will continue as is with a little extra added each year to cover rising costs.
The result is what will be acknowledged tonight when council meets as its strategic priorities and policy committee. The four-year budget projections build in an automatic annual 2.5 per cent increase to the property tax rate. That’s for the basic package of services, not including extending coverage to new neighbourhoods nor adding any enhancements.
Over four years, that’s a compounded increase of 10.38 per cent just to maintain existing services as they currently are.
To put that into perspective: The basic budget starts with increases at almost twice the Ontario inflation rate. And it’s more than double what the city has agreed by contract to pay its inside and outside workers during the same timeframe.
Many Londoners are receiving similar wage increases in the 1 – 1.5 per cent range. As such an annual starting point of 2.5 per cent for the basic budget is not sustainable.
That does not include any of the strategic investment projects from council’s list, which will be reviewed at the meeting tonight. That list is 21 items long, with a potential ‘worst-case’ price tag of $74 million.
Before anyone panics, three points: First, that extra spending, if all of it was committed, would be spread over four years or beyond. Second, it is not necessarily beyond the city’s capacity; the so-called Millennial council, elected in 1999, committed $100 million to special projects during its three-year term. Third, the city has other sources of revenue to pay for these projects besides property taxes, including reserves, dividends from London Hydro, debt and government grants.
Fourth, though, whatever gets spent will ultimately impact the basic budget and its built-in 2.5 per cent increase. The expectation is for average annual property tax increases – including the strategic projects – of 2.9 per cent.
It is illustrative to recall what happened after the Millennial council was done spending. There was no property tax increase in 2000 and 2.5 per cent in 2001. Then boom – 4.6, 3.9, 8.1 and 6.6 per cent in the following four years as the bills started to come in.
Mr. Hayward was not the city treasurer during those free-spending days immediately after the turn of the century. His reputation since taking the job is he is a prudent and intelligent steward of the public’s money.
But he is subject to the will of council and the pressures of the administration. So far he’s managed to hold that to 2.5 per cent per year. Absent of zero-based budgeting, though, we don’t know whether it really needs to be. And there doesn’t appear to be anything built into the four-year budget process to force an answer.
Maybe the mayor ought to be asking that question again: How did 2.5 become the new zero?