William Robson is president and CEO of the C.D. Howe Institute. Nicholas Dahir is a research assistant at the institute.
City budgets are a mystery to most Canadians. The municipal services they fund are central to our quality of life, and they affect our property taxes and charges for services such as water access and garbage collection. Yet few of us delve into these seminal documents that lay out plans for revenue and expenses for the coming year – and if we do, we likely come away bewildered. Canadians need and deserve more transparent city budgets.
If you have not yet peered into the murk of municipal budgets yourself, we encourage you to visit your own city’s website and search for its most recent budget. We are now well into March, so your municipality’s 2023 budget should be online. If it is not – the lateness of many city budgets is a topic for another day – the 2022 one will do. Chances are you will encounter a baffling array of numbers labelled “gross,” “net,” “tax-supported,” and “rate-supported” for the coming year’s expenditures. Keep digging, and you may find projections for total revenue, total expense, and anticipated surplus for the year among the overabundance of hyperlinks to summary and supplemental information. Or you may not.
Either way, you might conclude that municipal finances are incomprehensible. Before you give up, however, we encourage you to search for your city’s year-end financial statements for 2021. These are easy to find either in a city’s annual report or posted separately – and so are the key numbers in them. You will find your city’s total revenues, expenses and surplus for the year clearly labelled and close to the start of the document, next to an auditor’s report that almost certainly attests that the presentation conforms with public-sector accounting standards, which the Public Sector Accounting Board has required for municipal financial statements since 2009.
Public-sector accounting standards give a clearer picture of a city’s capacity to deliver services – for example, by accounting for assets such as roads, sewers and buses over the course of their useful lives. Indeed, the consolidation of city activities in municipal financial statements is a model of clarity. Yet, oddly, most cities present few, if any, budget projections as clearly as they present the results of their financial statements. And the numbers don’t match – city budgets treat capital assets as though they were used up when purchased, like cups of coffee.
When the often-confusing presentation of a city’s budget projections does not match the usually clear presentation of its financial results, citizens can’t answer – and may not even know to ask – what should be simple questions. For example, how much more, or less, does my city plan to spend and tax this year than it did last year? How much more, or less, did it spend and tax last year than it budgeted? In too many of Canada’s major cities, you can’t easily find the answers to these questions. And even when a city’s financial statements contain a column labelled “budget,” the numbers in that column may not match those in the budget itself.
There is a glimmer of light amid the murk. The C.D. Howe Institute produces an annual report on the fiscal transparency of more than 30 of Canada’s most populous municipalities. When the current reporting standards for financial statements first came into force in 2009, not one of the municipalities on our list presented any numbers – not even total revenues, expenses or surpluses – consistent with public-sector accounting standards in its budget. Not until 2016 did more than one-quarter of them show any such numbers. But in 2021, for the first time, a majority did, and in 2022, 18 of 32 municipalities did so – the highest share yet.
Showing any budget numbers consistent with public-sector accounting standards is not a high bar to clear, and many cities still show only their expenses or the bottom line. But we are at least now seeing a trend in more cities being transparent in their budget projections.
Why is the movement toward more transparent municipal budgets so slow? Partly bureaucratic inertia, and partly concern that, if the surpluses cities show at year-end were prefigured in their budgets, pressure to spend more would grow. But perhaps most important is the fact that opaque municipal budgets are intimidating. People, especially elected councillors, do not like admitting they are baffled.
Happily, a few people have put up their hands to ask for clearer numbers from their municipalities, and they got them. Most major Canadian cities are now showing at least some budget numbers that councillors and citizens can compare with past and future results. Progress toward more transparent municipal budgets has started, but must also continue. Canadians deserve it and should demand it.