Bill Hulet Editor

Here's the thing. A lot of important local issues are really complex. And to understand them we need more than "sound bites" and knee-jerk ideology. The Guelph Back-Grounder is a place where people can read the background information that explains why things are the way they are, and, the complex issues that people have to negotiate if they want to make Guelph a better city. No anger, just the facts.


Thursday, September 7, 2017

Making Sense of Guelph's Finances

I decided to roll up my sleeves and write an article about the Guelph city budget so I could help make the financial situation facing residents more understandable. I was more than a little afraid to do so, and the more I got into the job the more I found that that fear was justified. To give the city it's due, staff have made huge progress towards making financial information about the city more available than it has been in the past. If you look at the city website, for example, you can find a very detailed document that explains the 2016 budget. I downloaded it onto my computer and now have a 341 page pdf to work through.  But unfortunately, the fact of the matter is that Guelph has a budget that is approaching a half billion dollars a year, and it really does require a professional's eye to make sense of it---so there is ultimately no way that I can easily understand and explain all the details. This doesn't mean that a thoughtful generalist (or engaged voter) can't learn from the document, however. So I decided the best thing I could do to help readers is to identify some issues that people sometimes get wrong and which can create confusion. They are as follows:
  • using brute numbers instead of percentages
  • scaling problems that arise because of Guelph's rapid growth
  • confusion between capital and operating budgets
  • Guelph's extra "design features" that render comparisons with other cities problematic
  • emerging long-term problems that most people don't know about
  • "locked in" costs that the city is responsible for paying but has little control over
In addition, I think it is important for people to understand that the corporation of the city of Guelph has "hands off" control over and responsibility for various corporations that are either essential to the operation of the city or are the result of specific decisions in the past that fit into the long term "design features" that the city has decided to follow. These include:
  • Envida
  • Guelph Hydro
  • Guelph Municipal Holdings Inc.
  • Guelph Junction Railway

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The Simplified Explanation of the Guelph 2016 Budget---in all it's glory.
From the city website

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Why it is Important to Use Percentages:

The first thing necessary to understand about the city budget is its absolute size. This is important because people routinely throw around numbers without attempting to put them into a context. For example, it really doesn't help anyone understand local government if they are told "The total budget used by city Council and the Mayor---including both salaries and expenses---comes to $947,400! Why does it cost so much?" The issue here is that "947,400" is just a number on a page until someone puts it into a context. In many instances people automatically think about what that number would mean in their personal life. In those terms, $947,400 is about several times the cost of a person's home. But that isn't a proper comparison for things as completely different as a city and a household budget. A city is much bigger than any one individual, and does a whole lot more. A more useful way of understanding a number in the budget is to consider it as a percentage of the whole. It turns out that Guelph only spent 0.2% of the entire budget on Council.

The difference between comparing what Council costs to your personal finances to the over-all cost of running a city is emotional. When someone just uses a number instead of a percentage, they are often doing so in order to create an emotional response in the reader. Emotions bypass our reason and can often get us to do things that we wouldn't if we calmly thought about what is really the best thing to do. A professional reporter is often trying to "stir the pot" and get people angry so they will share their story in social media, which will generate "clicks" and therefore revenue for their website. Someone working on a political agenda will also do this because they want to get people angry so they will either avoid voting in the next election (because "they" are "all the same") or because they want citizens to vote for their candidate---or best of all---cut a cheque for the cause.

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People might wonder why I routinely point out how other news sites manipulate people into sharing stories so they can generate ad revenue through clicks on advertising---then ask readers of the "Guelph Back-Grounder" to share it on social media and click on the ads to get money to me. The difference all comes down to how it's done. Revenue has to come from somewhere to support independent journalism, and you can either support it through making a conscious decision or by being manipulated by people appealing to your unconscious reflexes. What sort of business model do you want to see succeed? 

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How About Another Graph from the City Website?

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Scaling Issues Due to Growth:

It isn't hard to accept when you think about it, but most people don't know that Guelph is the fastest growing city in Ontario, and the 7th fastest growing one in all of Canada. In fact, between 2011 and 2016 Guelph's population grew by 7.7%. (Please note, the population numbers are calculated every five years through the national census. This is not an annual growth rate.) This isn't the fastest than the city has grown in it's lifetime (46% between 1951 and 1961, 51% between 1961 and 1971---and 270% between 1851 and 1871), but it is still quite high in comparison to other Canadian cities. 

Professional staff at City Hall have to take these issues into account when they do capital estimates---for both new builds and routine maintenance. For example, consider the expansion of the city police department building, a $34.1 million dollar project. It was originally built in 1960 when the city's population was 38,000. An addition was put on in 1989. The population in 1991 was 88,000---so we can assume that a doubling had occurred by then. (That would put the average annual increase in population between 1960 and 1989 at 2.42%.) The news release that came with the announcement for the Police Hall expansion suggested that this new build was to provide for the next 25 years. At 7.7% growth rates per every five years, this would suggest that in 25 years Guelph will have a total population of 191,000---a 45% increase. If Guelph didn't have to consider a 45% increase in population over the lifespan of this building project, it wouldn't be hard to believe that the police headquarters project would cost a lot less than $34 million.

Of course no one can tell what tomorrow will bring. Guelph gets its water from wells, which means that if we don't want to build an expensive pipeline to bring in water from Lake Erie, there is a limit to population growth. But it is fair to say that planners can consider a significant increase in population in the near future. This means that when it repairs, expands, or, builds new, the city has to create something with capacity that far exceeds its existing needs. This is a problem because the tax payers that are needed to pay for this expanded infrastructure are currently nothing more than a gleam in the eye of a planner. Hopefully they will arrive shortly and help pay for the expanded infrastructure, but in the interim the existing citizens are going to have to pay for a lot of the stuff that those future people will use. (And, of course, the faster that tax base grows, the greater the chance that the city estimates were too low and the facility will have to be expanded again to deal with a dramatic increase in population.)

And this isn't just a question of "big builds" like a new police station. Consider sewers. There has been a lot of work recently on expanding the sewers downtown so they can handle the increased flow from the new condo towers. Because sewers work with gravity, when you expand them you can't just open a trench and put a bigger pipe in. Instead, you have to dig down farther than the existing pipe and put the new, bigger capacity sewer in deeper. And, Guelph has it's bedrock very close to the surface---which means that putting in bigger sewers requires a lot of "jack hammer parties". (A friend who lives on Margaret Street has told me about the joys of having a year's worth of sewer reconstruction outside one's front door.)

All of this just goes to reinforce the point that it is very, very expensive to have a city grow quickly. 

So why doesn't the city just refuse to grow? First of all, it can't. The Ontario Places to Grow legislation basically forces the city to grow whether we like it or not. Secondly, there are groups in the city that really, really, really want this growth to continue. One person in 13 works in construction and 7% of the Gross Domestic Product (GDP) comes from the industry. This means that there are extremely well-motivated organizations that work to ensure that government makes no effort at all to limit growth in the city. It also means that anyone who works in construction, sells stuff needed in construction, or, has any family or business connection with either of these two types of people, is going to be extremely upset with any politician who suggests that the city should limit its growth in order to control taxes.

In fact, during the 1991 election campaign a slate of candidates (full disclosure, including me), ran on a "slow down growth" platform that pointed out that the rapid growth of Guelph's suburbs were responsible for increasing tax rates for people who lived in older areas. (This is a separate, but related issue that stems from the cost of servicing new low density (ie:  suburban sprawl) versus older, high density (ie: walkable) neighbourhoods.) This campaign so scared the Guelph Home Builder's Association that they placed a full page advert in the Guelph Mercury that warned
There are candidates in this municipal election that are against growth and economic prosperity. Send a message with your vote that you want Guelph's businesses to grow, for the employment of your children and the prosperity of your neighbours.
From Daily Mercury, Saturday, November 9th, 1991. Page 11-B 
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Since deconstructing the city budget is a huge undertaking, I've decided to split this story into "bite sized bits" instead of creating an on-line "War and Peace".  Stay tuned for the next part, which will come out as soon as I can find the time to write it.

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Here's another graphic from the budget. The city really
has done a good job on the 2016 report!

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