City Fails To Live Within Its Means: BENN
How often do you take a cash advance on your Mastercard to make the minimum payment on your Visa card?
This is, at best, a short-term strategy. Staving off the inevitable. Until you close that big deal, get the long-awaited bonus, finally get that inheritance (we’ll miss you mom and dad), sell the house or win the lottery.
With the arrival of autumn comes the city budget process. Some councillors still cling to the illusion that they have any influence over matters of significance. Others host a farce, seeking input from their constituents.
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Municipalities are required to pass a balanced budget. By provincial regulation. No debt is permitted in the operating budget. Sources of revenues must meet or exceed operating expenses. Debt is permitted in the capital budget. Say for an LRT system that doesn’t work. Or a football stadium sandwiched between a retail plaza and a few high rises.
What is important for councillors to understand is that the debt incurred in the capital budget must be serviced from the operating budget. Serviced as in paying interest charges and repaying the principal. The more bonds the city issues in the capital budget, the higher the proportion of future operating expenses must be devoted to servicing those bonds. Welcome to the present, council.
The city has, for most of the last decade, been raiding the reserve fund to balance the operating budget. Raiding the operating reserves by pulling more out of the fund than they are putting back in. The past two years, Ottawa’s budget was balanced not only with funds raided from the operating reserves. It was pretend balanced with a phantom amount, eight or nine figures in size, of “to be determined” grants from senior levels of government. That this budgetary leger du main passed the scrutiny of the provincial regulator speaks volumes about the lack of credibility at the provincial level.
So, here we are in the autumn of 2023. Council has already stated that it will limit the increase in the property-tax rate to 2.5 per cent. That puts a cap on the largest component of legitimate sources of revenue. Legitimate because while the senior levels of government have contributed towards those aforementioned phantom amounts, the totals were nowhere near what council approved in its budget.
Of course, your property tax bill is not limited to just property taxes. There is an education levy and a special charge for solid waste curbside service. Never mind that while you consider an amount that you are required to pay to be a tax, the city prefers the term “levy”. A levy is just a four-letter word for tax. While I am at it, what is so “special” about the curb-side pick-up? Then there are the non-discretionary infrastructure charges, such as water and sewer bills. What will these increase by?
For those who think this problem is limited to the homeowners in Ottawa, think again. Renters will feel the increase as well. After all, property taxes are part of the operating costs that landlords need to pay. Their costs go up, so too does the rent.
On to the spending side of the budget. There is no money for new programs. Heck, there isn’t enough money to support the existing programs. Then there is the white-and-red elephant in the room OC Transpo. It is running an eight-figure deficit. A deficit that must be covered by the city. City council waved the white flag on public transit in September. Ridership is abysmal. Operating costs are going through the roof. Routes are being cancelled, or just failing to show up. Oh, and about that LRT?
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Will the city be able to fund anything other than another set of virtue signals on affordable housing? How about the woefully understaffed and under funded paramedic service? The list goes on and on and on.
Bottom line.
City council could decide to do something different. Set priorities and make tough decisions on programs. To start the process of replenishing the operating reserves. To defer major discretionary infrastructure projects (Lansdowne 2.0). In short, to live within its means.
Or, it can continue to play third-rate budgetary conjurer tricks. It can continue to take a cash advance from one credit card to pay the minimum on the other. And hope that either the province and/or the federal government help them with that multi-year, infinite allowance they keep asking for.
Ron Benn, a finance executive, has been a member of the Centrepointe Community Association for the better part of three decades.
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Ottawa has been operating in this fashion since amalgamation and likely before winch is one reason amalgamation took place. Many if not all of the townships and municipalities brought cash reserves (millions) into the amalgamated city. Most had no debt except Ottawa and most if not all had been working on a pay as you go basis…NOT OTTAWA Remember Claudette Cain and the Nepean folks? Good roads, plowed streets, garbage collection, the Sportsplex NO DEBT there.
Now no transit worth the name, poor to nill street repair and plowing garbage collection questionable, waterfall income, electric busses,fragmenting the tax bill to hide the real increases, but holding the increase to 2.5% a mythical figure if you calculate water, sewer and garbage into the equation.
Downtown Ottawa is becoming barren and so will the tax revenues paid by the feds so watch out for the next few years if you think 2024 is about to be bad!
“Good roads, plowed streets, garbage collection, …NO DEBT there”. Not surprising that there was no debt because Nepean and the other lower-tier munipalities paid for NONE of them. All were Region’s responsibility. Do you know the last operating budget of Nepean (in 2000)? A total of $60m, less than 3% of the total. Nepean’s major responsibilities were fire (not police or ambulances) and libraries. And a healthy communications budget to convince easy “marks” (perhaps like yourself?) of the wonderful job they were doing, extolling NO DEBT, without telling you it was because they had a sugar daddy.
I am a retired City Manager (“CAO” in those cities that don’t embrace professional city management as set out by ICMA – the International City Management Association). In my first post (as a deputy) I asked the C.M. if the council will be able to tackle what appeared to me to be a very challenging upcoming budget. “Unlikely”, he said, “because they won’t be able to make the really tough decisions.” A song that is being played in Ottawa right now.
I have middle-aged children who have always been comfortable living with debt. Credit card companies got them hooked as soon as they started university. This is the generation that took a decade or more to pay off their student loans and are now facing the threat of losing their homes due to doubling interest rates. Similar cavalier financial management is happening at all levels of government based on the blind belief that there is always an escape from massive debt. The City has a legal and moral duty to balance the budget. Please, no more dodgy Public-Private Partnerships that defer or camouflage real costs. If the city and the public want a new stadium, let’s find a way to fund it so that we don’t have to give up public space on historic sites to developer-owned high-rise towers and avenues of grey retail. Lansdowne 1.0 leaves a legacy of broken promises and none of the anticipated profits. Why are we doing more of the same and believing things will change?
All good points, Val. Thank you.
I fear that at some point we might have to pull the plug on Lansdowne but the deal is such a mess that trying to unravel it might be impossible for decades.
That park would look good now and if the public wanted a stadium, perhaps Watson and O’Brien should have asked.
Like Lansdowne, we might have to pull the plug and buy new rolling stock. We might reach a point where it had to be said it doesn’t work.
Lansdowne and light rail don’t work. What a legacy for Watson. And now I’m starting to hear that the mega library won’t go forward.
God we made a mess of things.
cheers and thank you
kgray
Add to Alf Chaiton’s remarks about Nepean the concept that new housing growth in Barrhaven was a thousand or more units per year. These triggered one time development fees and annual incremental property taxes.
Nepean’s top line (revenue) was effectively growing geometrically, but the cost to service that additional growth was growing arithmetically. Think of revenue growing by multiplication (3*3=9) while costs were growing by addition (2+2=4). The Region was paying for the majority of the new higher cost infrastructure (water, sewers, roads), while Nepean’s share was mostly in the form recreational facilities (Sportsplex, Walter Baker Centre).
It would have taken a truly incompetent municipal government to mess up that model. Which is what Gloucester did.