A six point program to improve the City of Toronto’s budgets

Henrik Bechmann
Nov 7 · 10 min read

I’m up to six “buckets” of activities that I think would be necessary to improve the City of Toronto’s budgeting. They are interdependent, which is why I’m presenting them together as a program. Even so, if the budget design improvements recommended in point 1 were implemented, that might provide much of the impetus required for the other five points.

The benefits of wide, inclusive budgeting deliberation and consensus

Quick review of why to try to make improvements in this area. Benefits:

  • Education
  • Deliberation
  • Consensus building
  • Issue identification
  • Solution development
  • Networking
  • Policy refinement
  • Expert civil society input
  • (more)

The six point program

Here’s a list:

  1. Improve budget design
  2. Improve budget creation, the planning part of the process
  3. Improve budget controls
  4. Improve budget evaluation
  5. Improve budget (and accounting) systems
  6. Modernize the civil service

Some details:

1. Improve budget design

The current City of Toronto budget is designed as a monolith, conflating operating costs (day-to-day expenses), transfers to capital (banking of operating surplus, mostly into “savings accounts” called reserves and reserve funds), and transfers to citizens (financial aid), as well as some net financing costs, into a single structure. These cash flows are grouped as “expenditures”, which is contrived. (Do you call a deposit into a savings account an “expenditure”? No, that would be a “saving”, but the City budget does just that. It calls transfers to reserves “expenditures”).

Here’s an example (from Toronto Water) of capital transfers being mixed in with expenses:

Source: 2019 Toronto Water budget, page 16

To be clear, the budget notes now list contributions to capital separately in the summaries, which is progress. But it’s not consistent, nor the primary way of disclosing.

Source: 2019 Toronto Water budget, page 2

Indeed the resulting contrived “balanced” budget (zero dollars in surplus — nowhere near the truth by conventional standards) generates a narrative that Toronto has no money, which in turn supports a “status-quo” mindset that (in my view) obstructs much needed innovations.

In addition, the overall budget is presented along organizational and financing lines, rather than more understandable functional lines. Collections of City controlled divisions are separated from agencies (arms-length organizations) in many City budget documents regardless of function. Also so-called “rate supported” budgets — water, waste, and parking, entirely supported by service fees — are separated from “tax supported” budgets, which are divisions and agencies that are supported in part by taxation, again, regardless of functional groupings.

These designs may be helpful to City Hall insiders as a way to understand overall annual cash budgets in relation to internal accountability (and property taxes), but they naturally lead to confusion and obfuscation in the minds of most.

Using more conventional, and therefore more understandable concepts, would be better. That would

  1. de-conflate the basic budget elements, and
  2. group budget amounts by function rather than organizational or financing criteria.

Specialized reports to do primarily with cash flows could (of course) still be generated separately.

Here is my revised view of the 2019 budget, organized along modernized lines:

Suddenly, at a general level, it’s pretty easy to understand. What’s more, it’s pretty accurate (keeping in mind that I only have public data available to me, and had to make a few substantial estimates).

Here is a view of the types of activity City staff undertake:

Source: Henrik Bechmann

Pretty approachable.

Basic Services

  • Mobility Services = Transit, Transportation (roads), and parking
  • Utilities = Water and Waste
  • Public Commons = mostly Parks and Libraries

Support Services

  • Emergency Services = Police, Fire, and Paramedics
  • Human Services = Income, Housing, and Child support
  • Health Services = Public Health, and Long Term Care

Administration Services

  • Corporate Management = City Council, Mayor’s Office (and other execs), Accountability Offices
  • Planning & Development = City Planning, Economic Development & Culture, and others
  • Licensing & Standards = Building and business licences and such; by-law enforcement
  • Internal Services = a long list such as IT, Legal, facilities management, and more.

My formal proposal for budget design improvements is here. Technical background paper is here. Spreadsheet with 30 or so worksheets to work out details is here. Based (mostly) on Toronto open data portal data.

Toronto’s 2019 Budget Notes original documents can be accessed here.

2. Improve budget creation, the planning part of the process

The benefits of an open, inclusive budget development process are listed above, and flow from fundamental democratic values. Unfortunately, Toronto’s budget development process at the moment is almost entirely internal, and hidden from public input and scrutiny. What’s more, Financial Planning staff have put forward proposed codification of the internalized model in the Municipal Code, which would add another barrier to a more democratic process. See Financial Management and Control By-law Review and Update (from March 9, 2018 exec committee report), page 8ff). Although this particular proposal was tabled, I am told it will likely resurface this fall.

The budget planning process should involve a broad governmental structure (see diagram below), standing committees, and front-line workers, as well as the senior managers that take the lead today. This, in my view, would lead to far better outcomes, as well as the stability and efficiencies that flow from broad consensus.

Here is a view of an engagement model that I think would support deliberative budgeting. Formalization of neighbourhood associations is currently under consideration, while talk of Ward Councils (or some analog) is becoming more widespread. The other elements already exist. There’s nothing easy about this, but I believe the talent and enthusiasm to establish and maintain such a model is available to the City.

Source: Henrik Bechmann

3. Improve budget controls

Budgeting isn’t just about planning. It’s also about ongoing (at least monthly) feedback, active learning, and in the end, some approximation of accuracy. Personally, I think 95% accuracy on budgets is quite good; less accuracy could be allowed for new work, better accuracy might be expected for routine work.

As an example of some of the problems Toronto has, here are some capital project annual budgets vs. results from 2007–2016. These show variances of about 1/3, and are among the clearest examples available of a disconnect between budgets and actuals. The numbers have improved somewhat I think, but not much. These variances are so large, and so consistent, that these budgets should be treated as nothing more than aspirational. Really not good.

Source: Henrik Bechmann

Chris Murray, the City of Toronto Manager, stated at his recent IMFG talk that this size of variance was clearly an issue, and he wanted to improve recent results that he cited at 63% capital budget spending, to 80%.

In the meantime the budget committee receives quarterly variance reports, but only at a high level (with Division and Agency as line items), for both operating and capital budgets, with only general notes to explain variances. Also not good.

In principle, good controls would involve monitoring actuals vs budgets monthly, with efforts to make corrections on an ongoing basis. The spending could be adjusted to conform to the budget, or if that wasn’t appropriate owing to changing requirements or changing circumstances, then the budget would be changed into a forecast that varied accordingly.

Best practice would be to offer interactive dashboards which would allow both managers and the public to drill down several layers, on demand, up to cost centres (of which the City has some 13,000). We have the architectural pieces in place to support this, but the implementation has failed.

Better accountability would encourage managers (including line managers) to invest in envisioning their budgets in some detail, to allow for the best accuracy possible.

See number 5, systems improvements, below for further commentary.

4. Improve budget evaluation

An important part of any budget cycle is to comprehensively evaluate the budget against actual experience at the end of the budget period. The objective is to take lessons learned forward into the upcoming cycles.

Published evaluations are attached to annual fourth quarter variance reports (such as the 2018 final reports— operating, capital), and annual financial reports (such as the 2018 financial report). These tend to be very general, and mostly descriptive rather than prescriptive. Nor are there public forums for review of the published material.

There are several ways budget evaluations could be improved.

One is to bring budgets and financial statements in closer alignment. They do not have to be identical (financial statements are for financial reporting; budget are for management), but they should be reasonably comparable.

The main way to do this would be to de-conflate operating and capital numbers in both financial statements and budgets. For financial statements, I’ve submitted a proposal to the Toronto Audit committee to achieve this . It’s pretty simple, and is currently in practice in Winnipeg, Edmonton, and Calgary.

The idea would be to take these senior government contributions

… and move them (with some minor items) to the bottom of the statement of operations.

That would leave a pure annual operating surplus, separate from revenues dedicated entirely to investments. Otherwise, the audited statements are pretty good.

On the budget side, my proposal for budget design improvements includes an accrual-based statement, which would be comparable to the audited financial statements. Not that hard. There aren’t many accruals (see here p.4 for an example set) — mainly accruals for pension liabilities, and for asset amortization.

Source: Proposal by Henrik Bechmann

Finally, there are two ways in which the budget and financial statements are structurally out of alignment. TCHC (Toronto Community Housing Corporation) is fully consolidated into the audited statements, but not in the budget. The Toronto Parking Authority (TPA) is consolidated into the budget, but not the audited statements. It would be good to reconcile those. Personally, I favour changing the TCHC into an agency of the Toronto government, and fully consolidating its budget. Likewise with TPA, as an agency it would presumably be fully integrated into the audited statements. For that matter, I think it’s worth considering turning Toronto Hydro into a City agency, but that’s another story.

The main ways of improving evaluations would be to provide on-demand access to all levels of civil service accounting, budgeting, staffing, and performance data for both public and staff, and providing forums for systematic critiques.

5. Improve budget (and accounting) systems

The ideal budget information system would combine budget, actual, staffing, and performance data in a central database, and provide access to tools that offer on-demand access, with comparisons and trends, down to a highly granular level (cost centres).

Toronto doesn’t yet come close to this. The scaffolding is there — the FPARS system (Financial Planning, Analysis and Reporting System) — but isn’t very functional. The development of this system was started in 2010 (there was a pre-cursor as well — abandoned). In my opinion, from the limited information I have, FPARS has failed by any conventional standard. It is very late, and appears to have fragmented into a number of related projects, none of which fully implement the original aims.

Keep in mind that Toronto amalgamated about 20 years ago, lots of time to put a world-class accounting and budgeting system into place.

I’ve written critically about FPARS problems here. Toronto’s Auditor General (AG) in 2013 created a highly critical report about system design, governance, and controls here. At that time the auditor requested a formal project evaluation report, encompassing timeline, budget, and functional components of the project. That has not yet been delivered, and is listed on the AG’s list of incomplete responses here (page 15).

The Financial Planning Division claims to have responded to the AG’s reporting request (see 2019 Financial Services Budget notes here, page 17 and 21–23). This coverage is weak — very general and vague, and what you would expect from a source which is less than enthusiastic about its results.

My best assessment, in the absence of the opportunity for a close-up review, is that the project has major deficiencies, that its Phase I sustainment budget is actually a slow ongoing development program to try to resolve deficiencies. The Phase II portion of integration was originally part of the first project, and is now not much further than the planning, and perhaps lowest level implementation process.

In short, central management, and the public, is sort of flying blind, when it comes to granular information.

But again, the scaffolding is there, so it could be made to work.

6. Modernize the civil service

Although there are many islands of excellence in City of Toronto management (the Library, the Open Data people, some Transportation and City Planning people, and others), it is still mostly old fashioned at the centre.

Currently, this Old Guard favours

  • systems over people
  • process over outcomes
  • compliance over innovation

Modernization would involve reversing these, to value

  • people over systems
  • outcomes over process
  • innovation over compliance

A modern management would be

  • agile and collaborative

and would be supported by

  • open government
  • open data
  • software platforms to support those

— — —

Although my improvement plan for budgeting as a whole is ambitious, I think it (or some reasonable analog) could be implemented quite well with an agile and supportive management.

Chris Murray, the new Toronto City Manager, from what I can see could implement all this. Whether he will is still an open question.

Henrik Bechmann is a retired software developer with an interest in all things related to the Toronto budget. From 2015 to 2018 he was the lead of the budgetpedia.ca project. Twitter: ‘@henrikbechmann

Henrik Bechmann

Written by

Software developer, social activist, Budgetpedia.ca project founder

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