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November 13, 2019

The dispute between Calgary and Alberta over the city’s budget and provincial transfers needs a few facts. One, especially, would help: the city’s actual bottom line.

If you don’t know it, you are not alone. Here are two hints. Calgary ran a surplus in 2018. And, for context, the city’s total expenses that year were $3.9 billion.

So how big was the surplus? You probably guessed something like $1 million, or $10 million — surely no more than $100 million. You know how heated and anxious the city’s budget debate gets each fall: threats of cuts to social services and policing, hikes to taxes and fees, delays in maintaining and key infrastructure. If Calgary’s isn’t in the red, it must be barely in the black.

Yet the actual surplus for 2018 was more than $1 billion. Seriously. Calgary collected more than $4.9 billion in revenue, which covered less than $3.9 billion in expenses, leaving a surplus upward of $1 billion.

An amazing number — and not just compared to what the budget debate and quarrel with the province would suggest. Calgary’s surplus was more than one-quarter of its expenses. That’s like Alberta, with $56.3 billion in expenses in its latest (2018-19) fiscal year, showing a $15.1-billion surplus, instead of its actual $6.7-billion deficit. Or the federal government, with $356 billion in expenses, showing a $93-billion surplus, instead of its actual $14-billion deficit.

We might applaud provincial or federal surpluses that big — but the key point is: they would not come out of the blue. Their budgets would prefigure the good news, and the debates around them would feature potential program increases and tax cuts. Calgary’s surplus is different — as though it happened by accident.

Check back, though, and Calgary’s huge surplus looks less accidental. The same happened in 2017. Also in 2016, and 2015, and 2014. Every year, revenues exceeded expenses by more than $1 billion. Calgary collected 27 per cent more revenue than needed to cover its expenses in 2017, the same margin as in 2018. In 2016, it collected 35 per cent more revenue than would cover expenses. In 2015, 31 per cent more. And in 2014, 33 per cent more.

Look across Alberta — indeed, across Canada — and there’s another sense in which Calgary fits a pattern. Our cities typically show large surpluses not anticipated in their budgets. Why? Canadian cities, Calgary, among them, typically present budgets that do not match their year-end financial statements. Calgary’s budget does not record capital investments as assets and amortize them as they deliver their services. That sensible approach is what Calgary uses in its financial statements — and what Alberta does in its budgets and financial statements. Instead, Calgary’s budget shows them as cash outlays — which makes them look hard to afford, with two results.

One is that the city builds less infrastructure, and more slowly, than it could. Another is that it collects too much revenue up-front — notably development charges that make housing more expensive, and transfers from a deficit-ridden province — for the infrastructure it does build.

So while surpluses mean Calgary has a healthy balance sheet — positive net worth of $19.7 billion at the end of 2018 — their accidental nature creates problems. Calgary’s balance sheet includes an astonishing $7.3 billion of financial assets — money that could have been invested in public infrastructure, or not taxed at all.

More attention to these facts would promote a better discussion between the city and the province. Calgary needs a better budgeting process. Alberta can help: as elsewhere in Canada, archaic provincial rules promote cash budgeting for capital, and foster these surprising surpluses.

Yes, Calgary would like more money, but Alberta has financial pressures of its own. Better city budgets would help both governments get where they need to go.

Published in the Calgary Herald 

William B.P. Robson is president and CEO of the C.D. Howe Institute.