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"Ever wonder if City Council is as contentious and chaotic as it is sometimes portrayed? Here you can get a progressive perspective on some of the issues from someone who spent four years in the trenches. Totally unbiased, though! Feel free to comment but keep it respectful, just like they do at council."

Sunday, January 29, 2012

Some not so capital ideas

"Those who cannot remember the past are condemned to repeat it," wrote the philosopher George Santayana.Say it isn't so, because a couple of councillors' short memories could spell suffering for all of us when it come to the capital budget.

To my surprise, the budget discussions got off to a rocky start last week. Not that I didn’t realize that there would be some difficult moments. After all, when you have a significant number of councillors pushing for a tax freeze but costs keep going up, there’s bound to be some friction. It’s just that I didn’t expect it to begin with the capital budget.

Compared to the operating budget, the capital budget is small potatoes, less than $100,000,000 in what is nearly a billion dollar budget. Most of the money, whether from taxes or other sources, goes to the day to day operating costs—paying salaries and insurance, clearing streets and sidewalks, cutting the grass in parks, covering the utility bills.

But there are also those other costs that arise from time to time: replacing a roof, resurfacing a road or buying new cars or computers. Anyone who has run a household understands that. You have to maintain your physical assets; you need to plan for those expenses and you have to undertake them in a timely fashion or it will end up costing you a whole heap more. And from time to time you will want to upgrade, put in a addition for a growing family or remodel the bathroom, maybe even buy a whole new house.

If you’re smart, you’ll plan ahead to make sure you can do these things. You can’t do them all this year, so you’ll keep tabs of what needs to be done and when and set aside enough money so that you can keep borrowing down to a minimum because even in a time of low interest rates, you have pay back more than you borrowed and that cuts into what you can spend on your groceries. And if you do have to borrow, you want to make sure that you get the best deal possible which means it’s a good idea to have some collateral on hand. And, of course, you want to set aside a few bucks in case of an unforeseen emergency.

These are basics of budgeting. It’s so obvious, you’d think everyone would be advocating it, especially those who are elected to look after the financial interests of the city.

When I was on council, the Board of Control took a first crack at the budget, followed by Committee of the Whole. By the time it got to Council, things were pretty much settled.  Without a Board of Control, the budget now goes first to the Strategic Priorities and Policy Committee which is a committee of the whole.

The discussion last Thursday started at 9:00 a.m. so that members could be fresh and not be rushed in their deliberations. Several had made arrangements with their places of employment; at least one had to cover the cost of a replacement. All but Councillors Judy Bryant and Harold Usher were in attendance. Some were perhaps not quite as alert as had been hoped since they had been receiving delegations on the matter of fluoride until after 1 a.m. that very morning.

The morning began with a brief report on the public input followed by a presentation of the 2012 capital budget and the 2013 to 2021 capital plan. It’s hard to believe that long term planning has not always been part of the budgeting process, that some council members at one time went on a major spending spree, taking on significant debt with no clear idea of how to pay it back. That was back in the late nineties and the beginning of the current century. Since they were lucky enough to get a break on pension costs for a couple of years, they then applied those temporary savings to hold down taxes. This was followed by the prospect of double-digit tax hikes as the pension payments kicked in again and they had to find the money to meet those costs. A few heads rolled. The city was in danger of losing its Triple A rating.

It took Jeff Fielding as chief administrative officer and Vic Cote as chief financial officer to get things back on track. Under their guidance, Council adopted a 10 and 20 year capital plan to even out expenses, a limit on acquiring new debt, vacancy management to delay replacement hiring, a system for building up reserves, a pay-as-you-go plan for life cycle maintenance. By the time I joined Board of Control, these policies were well-established and fiscal sanity was being restored. Tax increases were kept within the rate of inflation.

The current council had received the details on the capital budget in early December and had had plenty of time to study it and get clarification on the various items. It was obvious not everyone had taken the time to do so.

The time to talk about principles and policies of budgeting is June, when the targets are being established. These principles and policies guide the staff as they plug in the details of the budget for council’s consideration. In January and February, you approve the specifics.

Councillor Joe Swan kicked it off. He was in a philosophical mood and seemed to be unclear about the purpose of the meeting. He wanted to talk about the whole purpose of a budget. “Spending should create wealth,” he mused. He wanted to “help the community understand that it’s not just about cost, it should provide services to the community.” There was nothing sacred about reserve funds or the surplus.

“Wealth creation is a fuzzy principle,” retorted Councillor Nancy Branscombe. “This is the day we’re going to go through the budget and make a decision.”

But Swan wanted to challenge some of the principles. “We’re the policy committee,” he pointed out. He wanted to make policy.

That sat well with the mayor. He thought that maybe there was a little extra money that could be taken out of the life cycle renewal budget, use debt to finance it since interest rates are so low.

His views were not shared by the City Treasurer, Martin Hayward. The city’s strategic financial plan was in the opposite direction, more pay as you go and less reliance on debt.

But the push was on to find more money in the capital budget to pay for the shortfall on the operating side. Councillor Dale Henderson thought perhaps more money could be taken out of the reserves. He was reminded that London’s reserves are modest and are used to maintain our Triple A rating and keep interest costs low. And debt can’t be issued until the works are completed. You still need cash on hand.

Councillor Joni Baechler reminded everyone that this year $60M will go for servicing the debt. That’s a big bite out of your operating budget. It had been created by an earlier free-spending council. She didn’t mention that on the Board of Control at that time and in support of the expenditures were Councillors Swan and Bud Polhill.

And so it went, with a council divided between those who wanted to raid the reserves, sell off well-performing assets, and delay completing the needed repair and maintenance of the assets and those who wanted to stick to the plan that had brought finances under control.

Ultimately, the former won the day. Swan proposed a motion to have staff bring back a cut list for the capital budget for the next meeting on February 9. His motion was seconded by Councillor Paul VanMeerbergen and supported by the mayor and Councillors Polhill, Armstrong, Orser, Henderson and White. Opposed were Baechler, Branscombe, Matt Brown, Hubert and Denise Brown.

It was at least some of those to whom Swan referred to in the media afterward as “tax and spend” councillors. But it was Swan himself who was part of the group that put the city into debt.

And what are some other things he thinks the city could cut?

Well, why not the $2M for affordable housing that Council uses to leverage many more millions from other levels of government and from the private sector? After all, do we really need affordable housing? Does building it really create jobs? Do we really have to honour our London Community Housing Strategy adopted only a year and a half ago?

Once the motion had passed, there was no point in continuing the meeting. Clearly a majority were not prepared to make any decisions. It was frustrating for those who had rearranged their schedules at some cost to themselves. It was also an insult to the staff which had brought forward a proposed budget based upon the council approved financial strategy.

At an earlier meeting a councillor referenced a concern that the city seems to be losing its best and its brightest. 

Any thoughts on why?


Anonymous said...

Gina wrote..."At an earlier meeting a councillor referenced a concern that the city seems to be losing its best and its brightest.
Any thoughts on why?

Phil Mcleod's blog today, Monday January 30th, 2012...The Mcleod Report has the answer.
Just trying to stay informed about London's local government is like being at a wrestling match with audiance participation.
If our best and our brightest have to face the music everyday, I don't blame them for moving away from the cacaphony.

Anonymous said...

Yep, Swan likes to play fast and loose with other peoples' money. You'd think after the last council cleaned up the mess he created with the big spending projects of the late 90s and early 2000s (Market, JLC, Central Library, Oxford Street bridge, etc) he would be more responsible. Nope. And we are not surprised. He figures we all have short memories, particularly the people who elected him, most of whom can't afford the grand ribbon cutters he has in mind.