The slippery slope to money trouble?

BLOG #594: The city’s long-term plan to rein in debt and reduce costs by financing some life cycle capital projects from its operating budget is under attack by those on city council determined to get a zero tax increase – perhaps at any cost.

Friday, Jan. 27, 2012 – London

There’s a certain irony that the day after he cleaned out his desk, the cornerstone of Jeff Fielding’s legacy as city manager of London was under attack at city council.

And in what may be a precursor to a far more difficult budget debate than expected, council abruptly adjourned a scheduled day-long meeting, divided over procedure for approving its capital spending plans and suspicious of each other’s motives.

When Mr. Fielding arrived eight years ago the administration was reeling and council’s spending habits were out of control. He put them on a diet, among other things reducing how much of the city’s capital spending was financed by debt and forcing a pay-as-you-go philosophy for what is called life cycle renewal projects.

Very simply life cycle renewal is the money the city must spend each year to keep its infrastructure in good shape – fixing roofs, patching roads, replacing aging equipment.

Mr. Fielding argued – and council ultimately agreed – that life cycle renewal should be financed through the operating budget, from funds raised each year from taxpayers, rather than debt.

The city has a schedule for life cycle renewal based on keeping emergency repairs to a minimum. The schedule can be lengthened, pushing one year’s projects to the following year, but that potentially raises costs and increases risk.

Starting almost from zero and with a target of 75 per cent, the city last year financed 29 per cent of its life cycle renewal projects from current cash – in city budget parlance it’s called a capital levy. This year’s budget calls for 31 per cent, rising to 50 per cent by 2021.

So that’s the Fielding way. Mr. Fielding, though, has left to become city manager in Burlington.

Still, months of budget planning has been built on the agreement he cut with council. And yesterday’s meeting was expected to be an almost routine approval of $93.7 million worth of capital spending, including $17.73 million in life cycle projects paid for out of the operating budget.

And then the proverbial Swan hit the fan.

A member of those free-spending councils of the late 1990s and early 2000s, Councillor Joe Swan began his attack on the Fielding plan by asking how else the capital levy could be financed.

“We need to talk about the elephant in the room,” he said. “This is a policy committee. We should explore options. If one was looking for $5 million in savings to avoid a tax increase and was looking to use the financial tools available, what are the other options?”

Martin Hayward, the city treasurer, answered: “The only alternative would be to put it on debt and that would affect our credit rating. In the long run you’d pay more in interest costs. From my point of view you don’t touch that.”

Au contraire, Councillor Swan replied. He said he was prepared to touch everything – debt, reserves, delay – to find the money to keep taxes at zero. What’s more, he was ready to go through the list of more than 180 life cycle projects one by one to ferret out each case where the capital levy was the financing, and each cut the project or finance it differently.

And to prove his point he moved to cut the first item on the list, $250,000 to repave the Museum London parking lot, financed from the capital levy.

The council chamber erupted.

“There is nothing I want to spend money on that badly that I would jeopardize our financial plan,” said Councillor Nancy Branscombe. “Hell will freeze over before I go back there.”

Councillor Paul Hubert: “I won’t sacrifice tomorrow on the altar of today.”

Councillor Joni Baechler: “We’ve put this city on the road to a really solid financial footing. We’re not there yet but we have moved in a good way. Now we’re sliding back just to get zero.”

Mayor Joe Fontana was clearly on Mr. Swan’s side. A serious split loomed. Mr. Hayward suggested a compromise, which could turn out to be bloody. His team Could develop another list of possible budget cuts to achieve the $5 million council needs to avoid a tax increase. It will, he said, “be a difficult list.” It will be ready for Feb. 9.

By a vote of 8-5, council asked Mr. Martin to review the capital levy projects to prepare his list. There being no point in further discussion on the capital budget until then, Ms. Branscombe moved an adjournment on the capital budget until then.

At 11:30 a.m., on what was to have been a day-long discussion, council broke for the day having approved nothing. Lunch had already been laid on in anticipation. Half the council left without eating.

Said Mr. Swan with a grin: “Scrutiny isn’t a bad thing.”