November 24, 2016 – Annual budgets in most of Canada’s major cities are a mess – excluding key activities, using inconsistent accounting, burying crucial numbers where only experts can find them, and often voted well after the fiscal year has started, according the 2016 edition of the C.D. Howe Institute’s Municipal Fiscal Accountability report. In “Two Sets of Books at City Hall? Grading the Financial Reports of Canada’s Cities,” authors Benjamin Dachis, William B.P. Robson, and Jennifer Y. Tsao grade the financial presentations of major Canadian cities in their most recent budgets and financial reports.
“In nearly all Canada’s larger cities, inconsistent and unclear presentations of key numbers in budgets and end-of-year financial reports hamper legislators, taxpayers and voters seeking to hold their municipal governments to account,” states Robson. “Simple questions like ‘How much does your municipal government plan to spend this year?’ or ‘How much did it spend last year?’ are hard or impossible for a non-expert citizen or councilor to answer,” he adds.
The study’s report card gave Toronto and Winnipeg failing grades. Both received Fs for budgets that do not match their financial reports, approved weeks after their fiscal years had started. More happily, the cities of Calgary, Vancouver, Halifax, Brampton, and Halton did better, with grades of A-.
The authors provide five recommendations to bring Canadian municipal accountability closer to an A grade:
- adopt the same accrual accounting cities use in their financial reports in their budgets as well;
- present the headline figures early and prominently in budgets and financial reports;
- show gross, consolidated, and city-wide spending in their budgets;
- show deviations from budget plans; and
- present budgets and year-end financial reports in a timely manner.
Current defects in presentation matter on the ground, say the authors. Among other problems, city budgets tend to overstate the up-front costs of infrastructure, discouraging investments and biasing cities to finance projects with development charges. The authors also note that Canadian cities are in better fiscal health than other levels of government, and show surpluses more frequently than the distorted budget presentations lead people to believe.
“Some cities have raised their games. But all can improve transparency and accountability by presenting better budgets that city council and citizens can understand,” note Dachis and Tsao. “Clearer, more consistent figures and better accountability for hitting or missing budget targets would bring the financial management of Canada’s municipalities better into line with their fiscal impact and their importance in Canadians’ lives,” conclude the authors.
The C.D. Howe Institute is an independent not-for-profit research institute whose mission is to raise living standards by fostering economically sound public policies. Widely considered to be Canada's most influential think tank, the Institute is a trusted source of essential policy intelligence, distinguished by research that is nonpartisan, evidence-based and subject to definitive expert review.
For more information contact: Ben Dachis, Associate Director, Research; or William B.P. Robson, President and CEO, C.D. Howe Institute: 416-865-1904 or email: firstname.lastname@example.org.