BUSINESS

Canadian Municipal Budgets 'Baffling' To Taxpayers, Lawmakers: Study

01/16/2014 08:45 EST | Updated 01/25/2014 04:01 EST
Getty

Toronto Mayor Rob Ford has a lot of support in the 905 — the sprawling suburban region surrounding Toronto — thanks to his image as a fiscally responsible leader.

But maybe those 905 residents should be asking Rob Ford to jump ship to their own cities, because while Toronto comes out on top in a ranking of most fiscally accountable cities in Canada, the suburban cities of the 905 rank among the worst, according to a new study from the C.D. Howe Institute.

That's despite the fact some of these 905 cities are actually running large surpluses. The study says these cities' accounting methods are causing them to overstate the costs of projects at their start, then understate the costs later on.

The study ranks municipalities according to the difference between what they say they will spend in their budgets, and what they end up actually spending.

On that measure, Toronto is tops in Canada, with a 3.7 per cent difference between planned and actual spending. Compare that to nearby Halton Region, where Oakville and Burlington are located, and where the difference is a full 22.2 per cent.

Story continues below

Most Financially Irresponsible Cities

The study, titled "Baffling Budgets: The Need for Clearer and More Comprehensive Financial Reporting by Canada's Municipalities," uses this measure to determine fiscal responsibility apparently because it’s almost impossible to measure it in other ways.

“City budgets are needlessly confusing because the headline totals for revenue and spending are usually not comparable to those in the year-end financial reports," said study co-author William Robson in a statement.

"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."

Canadian cities are using outdated accounting methods that more senior levels of government have abandoned, co-author Benjamin Dachis said.

Cities record capital spending projects (such as building a new road or school) up-front in their budgets, instead of using the “accrual” method other governments use, which measures the cost of the project over the period of the budget.

The result is that cities exaggerate the costs of projects at their start, and then understate the cost of operating those projects, Dachis said.

Robson notes that some of the cities with the biggest discrepancies between planned and actual spending — Halton Region, Vaughan and Markham, to name some — are actually running surpluses.

"This record suggests that cities have tended to over-charge up-front for capital projects," Robson said, “and thus not matched the costs of these projects to the taxpayers who will enjoy their benefits over time."

The authors note provinces could force cities to be more accurate in their reporting, but cities themselves can also take steps to make their budgeting more transparent as well.