Meeting budgetary challenges during an economic slowdown requires political leadership and a tolerance for change that improves service delivery rather than preserving the status quo.
By Bob Robertson
Published November 26, 2008
The City of Hamilton has embarked on the development of the 2009 operating and capital budgets. It is a certainty that the budget for this upcoming year will be even more acrimonious and difficult than usual.
To understand the context of the scope and complexity of the problems impacting the city this year requires an understanding of the current situation.
The City of Hamilton has a budget of approximately $1 billion. The budget includes operating monies for current salaries and goods, capital for facilities, equipment, and so on.
The key expenditure areas are protective services and social services. The key sources of revenue include: property tax, user fees, and senior government grants.
Historically, Hamilton has simply increased property taxes to balance the budget. However, with one of the highest residential rates in the Province, this option is increasingly limited.
The budget is basically a revenue and expenditure plan for the city, adopted annually by City Council.
One of the problems with the budget in Hamilton is lack of leadership. As a group, Council supports a "status quo" budget, which simply takes the previous year budget and considers "incremental" change.
This approach is evident by the conscious lack of direction by Council in the run-up to the budget. Council does not seem interested in providing guidelines for the upcoming year.
Most cities actually develop realistic budget targets in advance; Hamilton does not. Most cities develop multiyear operating and capital budgets; Hamilton does not.
Another area that illustrates the lack of leadership of the Council level is simply attendance at budget meetings. Many Councillors do not attend Council meetings and do not understand the complexity of the budget.
Finally, a recent tangible example of the lack of leadership is the leadership of former Mayor Larry Di Ianni. In December 2003, Di Ianni was advised that the budget needed work on two fronts.
First, the Province of Ontario was not contributing to the social service costs to the extent required by Hamilton. Quite simply, property tax was not a sufficient source to support social services.
Also, Hamilton needs a "fair shake" from the province on social costs. As pointed out to Council in 2002 and 2003, Ontario is the only Province to load social costs onto municipalities.
The Mayor was advised to set up a task force of community leaders to support a change in the funding formula. Although this component was essentially accomplished, the second remains a real challenge.
The second issue was the realistic assessment of the budget - all sources of revenue and all expenditures. This component was deemed too politically sensitive to deal with at the time.
The budget in Hamilton is an annual plan for expenditure and revenue for the calendar year, in this case 2009. In recent years, budgets have been approved by Council in May, when almost half of the budget year is complete. Clearly, this approval timing illustrates a strong desire for "no change" in budgets.
Overall, the problem with the budget has been a very limited interest in balancing revenues and expenditures. Infrastructure is in a very bad state from bridges to water systems. Many citizens will remember the "Locke Street floods", a symptom of the state of the infrastructure.
As another example, Hamilton has a large inventory of lead pipes that must be replaced as a health issue of significant consequence. Unfortunately, this issue is not high on the Council agenda.
Most organizations, including most governments, look for improvements or "better ways" to provide services to citizens. In Hamilton, improvement is viewed as change and something to be avoided at all costs. There is no organizational culture for innovation and improvement within the city. This culture of maintaining the "status quo" is pervasive and fundamentally must be changed.
The foregoing variables represent "business as usual" in Hamilton. For better or worse, Hamilton has evolved over time in this manner. Once the economic engine of Canada, Hamilton has comfortably settled into a slow, gentle decline.
Unfortunately, external economic factors have changed significantly in the last few months. The 2009 budget process will be markedly different and more difficult.
The global economic crisis means that governments at all levels will be required to tighten their belts. In the case of cities, most commentators predict significantly lower building permit revenues, higher energy costs, and in some cases, industries may simply close their doors, which has direct negative impact on local property tax revenue.
In addition, many cities are seeing a direct impact of the credit crunch with foreclosures (residential or commercial properties) a real possibility.
The solution to the problem is difficult but simple.
First, Council must be fully engaged in the budget process. They must understand the current budget and where it is going.
Second, there needs to be an earlier start to the budget process, including a realistic assessment of all projections going into the next year.
Third, although going to the Province regularly for a "one-time" cash fix makes for good politics, the city must get its own house in order.
Fourth, staff at all levels must be encouraged to look critically at the budget, and openly develop options for Council to consider.
Fifth, the budget must be more open, transparent and have the support of the citizens. In Hamilton, public involvement is sadly lacking but this component is critical to a "good" budget.
Although it will be a difficult budget year, there is still time to resolve the issues facing Hamilton.
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