 Building Better Budgets: Canada’s Cities Should Clean Up their Financial ReportingBen Dachis and
William Robson
C.D. Howe Institute Commentary, 2015, issue 439 Abstract: In nearly all Canada’s major cities, what should be a simple exercise – comparing the spending voted by city council in its annual budget with the actual spending reported at year-end – will baffle any but the most expert reader. While most of Canada’s federal and provincial governments now present their budgets on the same basis as their financial reports, municipal governments typically do not. As a result, judging whether a city over- or under-shot its budget targets, and by how much – which should be a simple matter of comparing headline numbers – is not possible for a typical councillor, taxpayer or citizen. The critical common element is that most cities use an antiquated form of budgeting. Most of Canada’s senior governments, when preparing budgets and end-of-year reports, use modern accounting methods that record the cost of long-lived assets such as buildings and infrastructure as those assets deliver their services. Municipal budgets, by contrast, budget capital on a cash basis, exaggerating projects’ up-front costs and understating them later on expenses. Largely for this reason, no major city in Canada offers a clear budget presentation, and none earns an “A” in our report card on budgeting practices. Among the cities that earn the worst grades for baffling budget presentations are Edmonton, Winnipeg, Windsor, Toronto, Vaughan and Ontario’s Durham Region. This study also shows how a reasonably intelligent but time-constrained non-expert user – a councillor or taxpayer – might understand the differences between budgeted and actual spending in Canada’s major cities. The gaps are enormous – and indicate that opaque budgeting is a major obstacle to fiscal accountability at the municipal level. Importantly, these cities’ end-of-year financial reports, which use accounting similar to that used by senior governments, show a cumulative surplus of $41 billion since 2008. Their total surplus was $6 billion in 2014 alone. This record suggests that cash budgeting has led cities to over-charge today’s taxpayers for long-lived capital projects. In Ontario, Vaughan, Halton Region, and Markham stand out in this respect; among major Western Canadian cities, Calgary, Saskatoon and Surrey, B.C. also appear not to be spreading the costs of capital over time as fairly as they could. Changes in provincial legislation could foster better municipal budgeting, but cities also have the capacity to present more meaningful numbers on their own. Having comparable accounting standards among all levels of government is critical to understanding the relative fiscal health of each level – especially important if provinces look to give cities new tax powers or direct financial supports. Both provinces and municipalities should take steps to improve the fiscal accountability of municipalities and the stewardship of municipal funds. Keywords: Public; Governance; and; Accountability (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:cdh:commen:439 Access Statistics for this article More articles in C.D. Howe Institute Commentary from C.D. Howe Institute Contact information at EDIRC. |
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