An Integrated Multi-Dimensional Budget Model for Municipalities
Note: For those interested in a more in-depth look, I’ve implemented this model in a Data Studio dashboard. Also see Toronto 2021 Budgeted Staffing Costs Dashboard and an article about the staffing dashboard. Note: This article was updated November 16, 2021 to reflect higher flowthrough and outsourcing estimates.
Motivation
Budgets must be interesting to their readers to be useful. Municipal budgets have a lot of readers: councillors, senior and junior managers, workers, businesses, civil society, and interested residents. The variety of readers and the complexity of the budgets makes broad relevance challenging.
I think there are two requirements to overcome this challenge. First, a good coherent model that contains semantics that are relatable to the user. Second, a great user interface. My motivation here is to articulate a good model, so that a great interface can be developed on top. I leave the interface for later, hopefully to specialists.
I’ve tried to use natural language and concepts in the model to make it relatable.
Concretely, I focus on three general concerns (and therefore three main viewpoints) in a budget:
- buying or acquiring resources (resource allocations) — getting funding, and allocating that funding. Inputs.
- applying those resources to authorized mandates (functions) — identifying the targets of the spending, and the activities that spending supports. Outputs.
- managing the process (organization)—providing focal points for the flow and accountability of those funds and activities. Throughputs.
The functional and organizational schemes outlined below rest on the list of Divisions and Agencies that was established by Toronto soon after the 1998 amalgamation (but which continues to evolve slowly).
There’s one other area that is important and yet often a source of confusion, namely the layout of the budget. City councillors and senior staff tend to look at the budget with property taxation at front of mind. So budgets tend to be organized on a cash requirements basis (thus balancing to zero). The reason is that property taxation is the funding source of last resort for municipalities. Also property taxation is a sensitive political issue. This cash focus can lead to some confusion in the City’s current budgets, for example by combining (I would say conflating) savings and spending under the term ‘expenditures’.
On the other hand the standard accounting viewpoint which I favour is organized around basic and long understood, proven concepts of revenue, expenses, and operating surpluses. But here we must be careful about the term ‘surplus’. In the municipal context ‘surplus’ is not free money. It is revenue not applied to day-to-day operations, but rather allocated to capital requirements such as settlement of debt principal, and transfers to reserves.
My model offers both standard and cash requirements layouts.
So altogether what has emerged is an integrated model which I think has good coherence and accessibility, is comprehensive, and works reasonably well with existing data. The outline of the model is represented in Figure 1.
The model is implemented (on a demo basis) in a dashboard I created using Google’s Data Studio. You can see, and experiment with, the dashboard here. The demo is based on a Toronto open data file of the 2021 operating budget, which has over 17,000 line items.
Now the goal of many if not most budget users is to focus in on detailed areas of a budget which are of interest. This can be accomplished in the model by progressively selecting values from a variety of dimensions.
Each of the five dimension types (resource allocation, functional, organizational, standard accounting, and property taxation requirements) act as filters. Selection of values within the dimensions excludes non-selected values, and thus enables scope to be quickly focussed on the selected types of records. Selecting values from several dimensions at once can lead to rapid and interesting investigations. (Internally, dimensions are columns of values in a table.) Combining the dimension selection types can, with practice, be particularly rapid and effective.
What follows is descriptions of the key thinking behind each of the elements of the model.
Resource Allocation Dimensions
The resource allocation dimensions are motivated by one key idea: the core of an operating budget is the day-to-day operations of the organization, and this core should be presented in isolation from other budget elements. By the core I mean specifically the day-to-day work of municipal staff, and the costs required to support their work. The reason for this strategy is that the core operations are relatable. Whenever a citizen interacts with the city, he/she can see the resources that are described in a budget. Whether it be an office worker, a policeman, a streetcar operator or a parks employee, it is immediately clear that the resources observed are represented in the core day-to-day costs. I call this core the direct service delivery.
This strategy of isolating the core is accomplished mainly by disentangling two main areas from the core: flow-through grants and subsidies, and outsourced services.
First, flow-through grants and subsidies, though expenses, are different because they don’t buy anything. They are simply funds that are passed through to the recipients. The main areas for such support are income and housing support, although grants to community organizations for example would also be included in this area. In Toronto’s budget these flow-throughs represent a substantial portion that I estimate to be typically about 16% of the budget.
Second, outsourced services are things like waste collection contracts in certain parts of the city, and contracted childcare services. They are substantial services performed by agents of the City, not by the City itself. In my most recent estimates, I include both internal and external services. Outsourced services are a little harder to nail down than flow-through funds, as I don’t have ready access to the contractual arrangements involved.
I took the flow-through amounts mostly from the City’s Accounting Sub-Category “Contributions And Transfers”, and the outsourcing amounts mostly from the Sub-Category “Contracted Services”. See a list of flow-through items I chose here, and a list of outsourcing items here.
I make another couple of important changes to City logic. In the interests of simplicity, I define revenues as being new external revenues, not including capital transactions like reserves being applied to operations. Again without more information this can be a bit of a grey area. In financial statements, monies placed in reserves which are attached to performance requirements (like water system improvements, or provincially funded development projects) are not recognized as revenues at all until their contractual requirements have been satisfied. (In the meantime they are reported on the balance sheet as deferred revenue liabilities). City controlled reserves on the other hand, are funded initially from operating revenue surpluses. I assume for budget presentation purposes that all budget reserves have been recognized as revenue, and therefore transfers to and from reserves should be reported as capital transactions. This also has the benefit of isolating reserve transactions in one reporting area.
Finally, regarding transfers from capital, my understanding is that these are intended to compensate for the fact that some resources reported as operating budgets are intended to be applied to capital projects (creation of new and improved assets), and this is expressed by generalized application of capital transfers to operating costs. In Toronto budgets these are also expressed as revenues, though in my opinion they should more accurately be thought of as operating expense reductions. Again to avoid getting caught in a trap for now, I just report all capital transfers in the capital allocations section of the budget. This again has the benefit of isolating such transactions in one reporting area. It should be noted that in the other direction (budget to capital) Toronto typically allocates over $300M of operating surplus (on an entirely discretionary basis) to capital projects to reduce the need for debt.
In general, resource allocations as I implement them are refinements of Toronto accounting ledger groupings, with the changes intended to relate better to commonly understood ideas.
So here is what a budget statement organized around these resource allocation ideas would look like:
As you can see that reads pretty naturally from top to bottom. That is the intent. Of course similar information can be presented for sub-sections of the budget (along any dimension), down to the level of detail the city open data file supports (“City Services”).
A couple of additional notes on the above layout.
First, I have listed financing costs as both a separate and a net item in the expenses (rather than allocating tp revenues and expenses separately), because I view financing as a tangential activity to municipal operations.
Second, note that the Internal Adjustments Total is ~-$1.2M. This is compounded bookkeeping or internal City procedural errors. Obviously internal charges and recoveries should balance exactly to zero.
Functional Dimensions
The functional dimensions are developed as a taxonomy, with systematic application of shared attributes, logical symmetry, generalizations, conciseness of tiered scope, and balance of size. As with any set of dimensions, the goal is to have them be relatable. Classifications are only as useful as they are meaningful to users.
At the top of this taxonomy are three classes which I believe rely on general attributes that are easy to understand. These classes are:
- basic services
- support services
- administration services
They are differentiated by the types of service they represent:
- basic services are intended to be used by all or most citizens on an ongoing basis
- support services are specific targeted constructive interventions on the part of the government in people’s lives
- administrative services are what most people think of as work at City Hall — general management, planning & development, municipal controls, and internal services
This sets the stage for the next level of the taxonomy.
For basic services:
- utilities — waste and water. If Toronto hydro were an agency (rather than an independent corporation), it would be included here
- mobility — Toronto Transit Commission (including WheelTrans), Transportation Services (roads), and Parking
- public commons (Parks, Forestry and Recreation, Toronto Library), destinations (like the Zoo, Yonge Dundas Square), and Conservation and Heritage
For support services:
- emergency & security services (police, fire, paramedics)
- human services (this is the City’s name for the cluster of income support, housing support, and child support)
- health services (public health and long term care)
For administration services:
- corporate management (council, mayor, clerk, city manager etc.)
- planning & development (four divisions that work toward the future)
- permits, licensing & standards (buildings and municipal code)
- internal services (legal, engineering, fleets, etc.)
Corporate accounts as a category rounds out the budget figures, representing as it does (or should) non-program items.
For more detail about how all this looks, see the dashboard.
Here is a budget statement organized mainly by functional groupings:
Note that the total figures in the rightmost column are identical to those in the resource allocation layout. It’s just a different viewpoint. Resource allocation layouts can be combined with functional layouts in any number of ways, in any order, at any available depth. Moreover a dashboard allows for relatively immediate investigation of any dollar figure of interest.
If the City of Toronto decides to implement its service-based budget reporting, then that dimension could enhance the current model, or depending how it is implemented, the service dimensions could even replace the functional view.
The Tax Requirements View
The sample statements in Figures 2 and 3 use the Standard Accounting layout, including sections for Revenues, Expenses, and Capital Allocations (Operating Surplus). Here’s a version of the Functional Dimensions statement which uses the Property Tax Requirements layout. This combines all cash receipts and disbursements, except Property Tax itself, resulting in functional amounts that correspond to the property tax requirements.
As you can see it’s quite a bit shorter because it combines three sections (revenue, expenses, capital allocations) into one (property tax requirements.
Also note the 0.13 (pennies) amount for utilities. Water and Waste actually have very large surpluses, but Toronto moves these into corporate accounts. Personally I’d prefer to leave them with their sources for greater transparency.
Organizational Dimensions
The organizational dimensions are taken from Toronto’s documentation, such as the summary spreadsheets of the 2021 launch presentation, after page 55. I made a minor revision, moving Toronto Police Parking Enforcement from Corporate Accounts to Agencies.
The main advantage of the organizational perspective is that it is familiar to city insiders.
Here is a budget statement organized mainly by organizational groupings:
Again the Revenue, Expense, and Capital Allocation totals are identical to the Resource Allocation and Functional totals, but of course the distribution varies. (Toronto doesn’t provide groupings for agencies).
A More Detailed Example
To demonstrate some of the flexibility of this model, here is a more detailed study of Human Services (income, housing, and child support), randomly chosen. It shows a functional view of the Human Resources cluster, followed by resource allocation details. The statement comes in sections to make it more readable.
First the revenue section:
Next the expenses section:
Finally, the capital allocations section:
Conclusion
I think that this budget model, or something like it, could form the design basis for a robust, broadly helpful budget access system. I think the model could also accommodate future challenges, like expanding to include cost centres (there are about 13,000 in Toronto), and perhaps including Toronto’s planned service-based reporting. But a number of things would have to happen:
- A consensus that this model or something like it is the right direction
- collaborative refinement of the model, particularly with City staff
- inputs from all user stakeholders: councillors, City managers and staff (unions?), business, civil society, and engaged citizens
- agile design of reports, and one or more great interactive dashboard interfaces
In the meantime, the curious can download the spreadsheet, and experiment with the dashboard.
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’
