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February 1, 2022 – Many of Canada’s major cities publish budgets that are opaque and confusing, according to C.D. Howe Institute’s new annual report card on municipal fiscal accountability.

In “Solving the Municipal Budget Mystery: Fiscal Accountability in Canada’s Cities, 2021,” authors William B.P. Robson and Miles Wu assess the clarity, comprehensiveness and timeliness of the budgets and year-end financial statements of 31 major Canadian municipalities. They award these cities grades ranging from A to F based on their 2021 budgets and 2020 financial statements.

Regina and Saskatoon – whose financial documents fail to meet a minimal standard of transparency, usefulness and timeliness – sit at the bottom of the scale. Vancouver (A+), Surrey (A), Quebec City (A), Markham (A-), Richmond (A-) and Vaughan (A-) stood out favourably. The quality of municipal financial statements in Canada has risen over time, the authors note. Notable improvers in this year’s report were Edmonton, Hamilton, London, Quebec City, Waterloo and Winnipeg.

The financial statements Canadian municipalities publish after year-end are typically well organized, following public sector accounting standards (PSAS) and presenting key figures where individuals can easily find and identify them, write Robson and Wu.

However, most Canadian cities do not present budgets that match their financial statements.

“Most do not present PSAS-consistent figures that are easy to find, and many do not present them at all,” Robson and Wu explain. “Most of the 31 present separate operating and capital budgets, with the latter prepared on a cash basis that pays for major projects up front rather than an accrual basis that spreads the cost over the useful life of the project. Even experts will struggle to reconcile such budgets with past results or to use them to predict what the municipality will report at year-end.”

Robson and Wu also criticize the common separate presentation of tax- and rate- supported activities in budgets, noting especially that netting rate-supported activities understates municipal revenues and expenses. Their key recommendation is that municipal governments should present budgets using the same accounting standards and format that they use in their year-end financial statements.

“If all municipalities presented budgets using the same accrual accounting they use in their year-end financial statements, the numbers in the two documents would be directly comparable – a big step forward in transparency,” the authors explain.

In addition, provincial governments that impede the preparation of PSAS-consistent municipal budgets, by mandating separate operating and capital budgets, should stop doing so. As well, using consistent accounting would show city-wide consolidated gross revenue and spending figures that represent the city’s full claim on its citizens’ resources and activities.

The poor grades earned by several municipalities also reflect budgets presented after the fiscal year had already started, and late financial statements.

“Before Canadians grant their cities more taxing powers or increase the support they receive from senior governments, they should insist on better transparency and accountability for cities’ use of public funds,” Robson and Wu conclude.

Read the Full Report

For more information contact: William B.P. Robson, CEO, C.D. Howe Institute; Miles Wu, Research Assistant; Lauren Malyk, Communications Officer, 416-865-1904 Ext. 0247, lmalyk@cdhowe.org

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.