Pathways to Excellence for City of Toronto budgets

by Henrik Bechmann, July, 2024

Introduction

This is my budget advocacy swan song. I’ve been at it for nine years, I’m getting too old (74 in August 2024), and although I’ve made good progress in budget designs, none of my suggestions have yet been taken up by the City. I hope that others will move forward with this, and that this roundup will help.

As a general comment, I think both senior staff and most councillors have become too comfortable with a budget system which is far too obscure. That needs to change, since measured accountability with the current system is virtually impossible. There’s a huge need to push the City toward excellence in budgeting, as the City is manifestly not doing enough themselves. If you’re reading this, I hope you’ll consider picking up that torch.

Note: I may update this article from time to time. Suggestions are welcome. See Appendix 3: Change log for change listings.

The basics

I think the core of a good municipal budget is an operating (day-to-day) budget that lays out

• the external revenues that the municipality plans to receive in return for services it plans to deliver, and
• the external expenses it plans to pay to deliver those services.
• the operating surpluses that are available for capital, debt repayments, and reserves.

A companion capital budget lays out the investments the municipality makes in infrastructure to support the service delivery that people expect.

Finally, a cash budget lays out the cash flow, cash-on-hand, reserves and debts the organization needs to finance its activities.

But there’s more.

The budget needs to be understood in terms of its purposes, and every purpose needs to be respected. There are three basic reasons for budgeting:

• planning: laying out spending plans to achieve goals
• control: providing the basis for spending discipline
• insight (analytics): providing the basis for learning — what are the commitments; how’s it going; how can we do better

The budget’s purposes can be achieved by administering an effective budget lifecycle.

1. budget formulation based on inclusiveness, consensus and deliberation, with clear missions
2. clear presentation and disclosure of budget elements
3. ongoing accurate measurement and evaluation of budgets against actuals, to evaluate and improve performance
4. timely and open evaluation of results

Sitting above all that, the municipality needs to define and articulate encompassing missions, and the vision, values and goals behind them.

Taken together, the municipal budget needs to be understandable by all audiences — the front-line workers, the junior and senior managers, the City councillors and their staffs, the city’s civil society, and all engaged citizens. This supports broad engagement which leads to better outcomes.

All of that needs to be supported by first class administrative systems.

It’s a tall order, with many moving pieces, but excellent budgeting belongs at the centre of a successful city. Unfortunately, I’ve found that the City of Toronto doesn’t do those things nearly as well as it could. But I think the City’s shortcomings can all be overcome.

My main focus as a volunteer advocate for good budgets over the past nine years has been finding ways to make the core budget as clear and accessible as possible, so that it can support engagement dynamics which improve outcomes for all. But there are also many other complementary ways in which the budget system can be improved.

Pathways

The pathways for budget improvements I’ve found include

• improvements in report design
• improvements in support systems
• improvements in lifecycle management

I lay out some details below. But first, here’s a quick roundup.

Suggestions I’ve made for improvements to Toronto’s budget

Core report design (9)

1. normalize budget accounting practices closer to standard accounting practices (but I think it’s OK without amortization).
2. Mainly, de-conflate internal cash transfers from external revenues and expenses.
3. Also, post recoveries as offsets, for example:
   - offset inter-divisional recoveries as contra-expenses to inter-divisional charges, and
   - offset (reduce) capital budget items from the operating budget costs, or exclude them entirely
4. report debt interest separately from debt principal repayments
5. move Toronto Police Service Parking Enforcement Unit from Corporate Accounts to Agencies for better disclosure
6. include the entire TCHC budget (and other excluded consolidated entities) in the Toronto budget, for comparability to audited statements
7. re-cast the capital budget as an asset management budget because a large portion of the City capital budget is actually operating expenses
8. completely re-work the operating variance report based on de-conflation of internal cash transfers from external revenues and expenses (important!). It’s currently remarkably misleading.
9. in the audited Statement of operations and accumulated surplus, for clarity isolate revenue dedicated to capital in order to show strictly operational revenues and expenses. Mirror this in the budgets.

Ancillary reports (2)

1. add a briefing note on Corporate Accounts, which are large, numerous, and confusing
2. add a briefing note on the portion of the capital budget which is actually operating expenses

Reporting enhancements (3)

1. disclose that the TTC is an exception for inclusion of capital costs in the operating budget
2. isolate outsourcing and pass-through grants and subsidies in the operating budget, as these are substantial, and different from other categories
3. offer several clear taxonomy (classification) views: input (resources), throughput (organizations), output (services); allow these to be mixed

Controls (2)

1. strive to achieve approximate parity between budgets and actuals
2. add an ‘actuals’ column to the operating budget by category spreadsheet for detailed analysis, publish contents to this column at least annually.

Support systems (7)

1. get out of the trap of excessive use of spreadsheets; automated processes instead
2. create public interactive dashboards for open data operating budget by category data
3. provide general access to online, on-demand drill-down of budgets and actuals to the cost-centre level. Last I checked there were about 13,000 cost centres
4. Add formal coding to all classifications in the open data budget data, to facilitate year over year comparisons, and automated analysis
5. correct errors in operating budget by category open data spreadsheets for 2022, 2023, 2024 (!)
6. add product managers (responsible for quality) to system development initiatives, including the Deloitte contract (Financial Systems Transformation Project) and the budget creation system under development. This is different from project managers
7. generally take more internal responsibility of systems development

Lifecycle management (4)

1. staff should stop selling budgets knowing that they will be substantially under-spent; be fully transparent about cash accumulation objectives
2. there should be a well-facilitated multi-month inclusive budget formulation process (including front-line staff, middle and senior managers, councillors and their staff, civil society, and the public), particularly for the first year of a Council. There are always many City public consultations, and many of these could be fed into the budget process
3. rely on missions, staff talent, feedback loops, and innovation more than status quo, policies, procedures, and compliance
4. have in-depth, inclusive, budget evaluations (including against audited statements)

Total suggestions listed: 27.

Technical details

There are four main sections in the remainder of this article in which I review where we stand, and what can be done.

1. Budget reporting: Toronto currently uses bad budget accounting rules which results in terrible inaccuracies and obscurity. This can be fixed.
2. Budget performance evaluation: It’s currently very hard — virtually impossible — to compare City budgets to its externally audited financial statements. Also internal operating variance reports are badly distorted and misleading, owing to the above bad accounting practices. These can be fixed.
3. System support: Toronto’s system support for budgets is weak. Too much City budget work is done with spreadsheets which are limiting and error-prone. This is true more than a quarter century after amalgamation. It’s a big fail, and comes with huge opportunity costs. This can be fixed.
4. Budget formulation: Budget formulation has been almost entirely captured by an elite of City staff in recent years. Indeed without good budget report design, performance evaluation, and system support, inclusive budget formulation is hard. Thus the budget loses the benefit of the amazing talent available in Toronto’s civil society, and elsewhere. This can be fixed.

Budget reporting

Improvements in budget reporting in my opinion provides the greatest potential to drive the budget system to a level of excellence commensurate with the size and stature of the City of Toronto. Such improvements can be made, or at least started, at a relatively high level, and can therefore efficiently ignite momentum for deeper improvements.

Accounting principles

The main principle of accounting is to categorize transactions in ways that can be readily understood. At its core, based on millennia of experience, that means separating external transactions into revenues (money coming in for goods or services) and expenses (money going out for goods or services), and tracking the difference between the two (operating surplus). That’s the operating budget. The capital budget involves tracking investments (trading money for assets for example — involving no net change in value to the organization). Finally, there’s cash management — tracking internal cash transfers regarding reserves, capital investments, and debt. Sure, there are nuances which we can leave to the professionals, but the substance of the operating budget, the capital budget, and cash management is straightforward.

Strangely, Toronto fails at the very first point — isolating internal from external transactions. It uses what it calls a “modified cash basis” of accounting for its operating budget which conflates external revenues and expenses with internal cash transfers. The result (together with other errors, see below) is that budgeted revenues are consistently overstated by about 10%, and expenses (the City uses the term “expenditures”) are overstated by about 25%. These figures are not only inaccurate, the conflation obscures what they mean by mixing very different categories. Also, because those revenues and expenditures are coerced into exact balance, the visibility of operating surpluses is lost.

I have some theories as to the motivation for the use of the “modified cash basis”, based on its history, but I think that’s more of an academic exercise. In practice, it should simply be abandoned.

As a matter of interest, I asked Claude, Anthropic’s AI chatbot, what it thought of Toronto’s budget practice of conflating internal cash transfers with external revenues and expenses. In no way do I defer to AI for expertise in this area, but I include the answer here because it happens to be a clear, concise summary of concerns I’ve been raising for years. I couldn’t have said it better myself.

Source: Anthropic’s Claude chatbot

The additional errors that I mentioned above relates to non-standard accounting practices used by Toronto. For example Toronto classifies two important internal “recoveries” as external revenues, rather than expense reductions (offsets). The first recovery is for some expenses in the operating budget, for engineers for example, that are actually covered by the capital budget. These are recovered by what the City classifies as Contributions from Capital. The second recovery is for internal Inter-Divisional Charges which are balanced by Inter-Divisional Recoveries posted in favour of the charging divisions. But both recoveries are incorrectly posted to budgeted revenues. Neither of those internal recoveries are external revenues; they should be classified as internal expense offsets (reductions) to cancel out the original internal operating expense charges. The mistake of treating those recoveries as revenues causes overstating, and in the case of inter-divisional recoveries, double counting, in the hundreds of millions of dollars every year.

Frankly it took me quite a few years to accept that the City of Toronto is making a basic mistake in its choice of accounting principles for the budget. But accepting that, and insisting on a better way, is in my opinion essential to establishing a meaningful path for improvements.

It turns out that there’s an easy, obvious, and very conventional replacement for the “modified cash basis”. I call it the “cash allocation basis” of accounting, which produces a “normalized” budget. It involves

• isolating internal cash transfers (including money set aside for debt principal payments) from external revenues and expenses, and
• generally standardizing budget accounting, including those incorrect internal recoveries mentioned above.

Here’s what the normalized budget looks like at a high level.

Source: Henrik Bechmann

This is close to accurate. It isolates budgeted internal cash transfers (operating surplus), and separately discloses amounts that we budget for external collection (revenues) and spending (expenses). In other words it’s normal; easy to understand.

By contrast, the City lists the 2024 budget at 17,019,035.2 (in $000), for both revenue and “expenditures”. That’s inaccurate, and obscured.

It should be said that the normalized budget uses exactly the same line items as the City budget, but the line items are sensibly organized. This means that the City could easily implement this change to create normalized budgets.

Detailed budgets look very familiar when normalized. This makes them easy to read and understand. Sure there are a lot of numbers, but it just requires a bit of focus to follow. Consistent application of this design would also allow natural drill-down all the way to the thousands of City cost centres. Here’s an example of an overall budget summary.

Source: Henrik Bechmann

Again, the budgeted revenues and expenses are all external, not conflated (as the City does) with internal cash transfers. Nor does the normalized budget have non-standard adjustments. Normal; easy to understand.

Good accounting principles allow for good analytics

Here are a couple of pie charts based on normalized 2024 budgets, as a small sample of analytics that are possible with normalized budgets.

Source: Henrik Bechmann

The left pie chart shows that about half of Toronto’s budgeted revenue comes from (obligatory) local levies. On the right, about half of all budgeted revenue gets allocated to direct staff services (the cost of the staff and the direct costs of supporting them).

Another benefit of isolating internal cash transfers is that you can see more clearly how cash flow is budgeted. In the next chart you can see what portion of budgeted cash comes from the net of external operating revenue and expense transactions, and what comes from internal sources like reserves. This is essential for production of meaningful variance reports.

Source: Henrik Bechmann

The first column is simply the difference between external revenues and expenses. The second column shows internal cash transfers (mostly from/to reserves). The third column shows the cash shortfalls or surpluses that are resolved by unallocated corporate surpluses, and eventually property taxes (the bottom right number).

Some additional anomalies

An oddball (there are others) is that Toronto includes Parking Tag Enforcement in its Corporate accounts (about $300M), instead of in its list of operating program budgets. Parking Tag Enforcement is run by the Toronto Police, and therefore should be listed with agencies. It’s an important distortion which I often try to fix in my prototypes, including the above.

Here’s another, interesting anomaly. It turns out that a large portion of the City’s capital budget (about 45%) is actually treated by Toronto’s external auditor as an operating (day-to-day) expense rather than a capital expense. According to senior City staff, of the 2022 capital budget of $5,520M, $2,482M is allocated by the auditor to operating expenses. This includes $1,142M of the State of Good Repair (SOGR) budget (about half), and $1,340M as an expense of capital grants and contributions to “external organizations”. So to be accurate, Toronto’s capital budget should really be called something like the asset management budget. Just over half is invested by the City in long term capital acquisitions and building (an actual capital budget), but the rest is expensed for operational repairs, grants, and contributions. (I tried getting more information about the $2,482M allocated to the audited operating budget through FOI, but the request was denied as they claimed, preposterously, that they had no records of that).

In summary, I think it’s fair to say that Toronto’s budget accounting principles would have to be fixed before anything else makes sense.

Helpful categorizations

Categorizations are only as good as they are useful. So if our budget categorizations are not helpful, we should change or adapt them. Given the variety of audiences for the budget, having several categorization options makes sense.

I’ve found that there are several basic ways to categorically summarize Toronto’s budgets. These are called taxonomies. All capable accounting software has the ability to group numbers by user-defined taxonomies, so these could all be implemented by the City. The categorization examples that follow are early pro-forma versions that I produced a few years ago.

• Resource allocation taxonomies (inputs) summarize the budget accounting categories of revenue sources and expense destinations for operating transactions. These categories are readily available through Toronto’s accounting system, as shown by its current reporting. Here’s a simple pro-forma example.

Source: Henrik Bechmann

• Organizational allocation taxonomies (throughputs) summarize the budgets by the organizational units that have responsibility for them. These can be aligned to the summaries that Toronto currently produces, which tend to be by organizational unit (notably separating agencies and City divisions). Note that the revenue, expense, and surplus totals are the same as above, but the distributions vary.

Source: Henrik Bechmann

• Service allocation taxonomies (outputs), sometimes called functional taxonomies, summarize budget transactions by the services to which they are applied. I’ve developed a general service taxonomy that crosses organizational boundaries, in particular merging city divisions and agencies. In the example below note that the revenue, expense, and capital allocation totals are the same as the resource allocation taxonomy version above.

Source: Henrik Bechmann

In my service taxonomy, basic services are intended for all, support services are government’s constructive intervention in people’s lives, and administrative services are more or less what you would go to City Hall for.

There’s another taxonomy that would be helpful, which is the…

• Auditor allocation taxonomy used in Toronto’s externally audited statements. These are provincial standards for all municipalities. This taxonomy would make comparisons of the audited results with internal budgets easier. For that matter it would enable reasonable comparisons to other municipalities. Here’s an example from the 2024 audited financial statements. (See also Ontario Financial Information Returns — FIR, which are regulated to use this auditor taxonomy)

Source: City of Toronto

Here’s a taxonomy based on audited statement category groupings. It’s conceivable to use this taxonomy for budgeting, which would make comparisons between City budgets and audited actuals easier. Since the underlying categories are mandated by Ontario, the taxonomy could also be the basis for inter-municipal comparisons.

In this taxonomy

• General administration is General government + Planning & development
• Recreation & Culture is mostly Parks, Library, events
• Protection services is mostly Police, Fire, by-laws
• Support services is mostly Income, Childcare, Housing, Health supports
• Basic services is mostly TTC, roads, parking, waste, water

All of these taxonomies should be readily available in Toronto, but aren’t. Good taxonomies make for good analytics. Analysis of the distributions within categories, and inter-organizational comparisons and timelines of categories are widely used to provide insights into budgets and results, because that works.

In a good interactive dashboard the various taxonomies could also be combined in interesting ways. Here’s an example, combining human services and expense resource allocations.

Source: Henrik Bechmann

The point would be to design these taxonomies, and their accessibility, to be as useful as possible to the various audiences of the budget. An interactive dashboard would be ideal.

Finally, here’s some creative budget thinking from the 2023 Chloe Brown for Mayor campaign (I was privileged to be asked to help with this). If budgets should be driven by missions, then it makes sense for execution to be driven by commissioners, particularly if they are mandated to be inclusive and collaborative. The budget can be recast to reflect that.

It’s a great example of how budgets can help express intentions.

In any case, without fixing the basic accounting rules, the categorizations are very hard to work with and understand.

Budget performance evaluation

Budgets need to be compared to actual results to evaluate performance. These comparisons provide insights into budget dynamics that inform and improve future planning. It’s an essential part of the budget cycle.

Unfortunately Toronto’s budget evaluation capabilities are extremely weak. I would say that Toronto’s operating budgets is extremely difficult to compare to its audited statements, and Toronto’s internal operating variance reports are kind of bizarre (they’re actually a kind of net cash flow variance report, mathematically tending to zero variance).

Against audited financial statements

Comparison of internal Toronto budgets with externally audited financial statements is hard owing to the extreme transformations of the City budgets that are required to make them comparable to audited actual results.

The largest differences of the audited operating budget compared to the City internal budget are:

• Standardization. This is mainly the correction of conflation of internal cash transfers with external revenues and expenses. Also important recoveries are incorrectly reported as revenues when they should offset expenses.
• Inclusion of amortization. The auditor includes about $1.5B of amortization (in both the budget and annuals). The internal City budget excludes this. I think that’s fair, as a cash budget is practical.
• Net accrual of deferred revenue. Revenues that are contingent on performance are placed into deferred revenue by the auditor until spent, when they are added to revenue.
• Substantial allocation of the City’s capital budget to operations
• Inclusion of the full TCHC budget. This is about $350M

For more detail, I examined the differences between the City’s 2023 “expenditure” budget and the auditor’s “expense” budget.

There are 4 avoidable, and 2 manageable differences between the City operating expenditure budgets ($16,467M) and the audited operating expense budgets ($16,912).

Avoidable differences:

• addition of consolidated entity budgets not included in the City budget (mostly a portion of the TCHC budget): $316M
• removal of internal cash transfers that don’t belong in expenses (contributions to reserves and capital): ($2,390M)
• removal of debt principal repayments (not an expense): ($495M)
• standardization of accounting allocations (standard allocations are by definition clearer than the non-standard versions used by the City): ($648M)

Manageable differences:

• allocation of portions of the City capital budget to the audited operating budget (about half being a portion of the City State of Good Repair budget; about half being expensed capital grants and contributions to external organizations) : $1,919M
• addition of amortization (not included in the cash-based City budget): $1,743M

The avoidable differences could (and in my opinion should) be avoided simply by adopting them for the City budgets. See my writings about normalizing the City budget. There would be many benefits to this.

The allocation of a portion of the City capital budgets to audited expense budgets could be better explained by recasting the City capital budgets as asset management budgets which disclose the difference between the operating expense portion and the true capital investment portion.

The amortization difference is legitimate, because the City budget is (rightly I think) a cash basis budget, while the audited budget is rightly an accrual basis budget.

Although it’s currently difficult to compare internal and audited budgets, trends shown by the audited budgets are illuminating.

Here is a chart of variances between budget and actuals using audited statement data. Quite different from City variance reports, which minimize variances (see below).

Source: Henrik Bechmann

This chart shows that in his last 5 years in office, Mayor John Tory accumulated $8.5B in surpluses, $7.3B of which was un-budgeted (nominal$). In 2020, 21, and 22, Toronto received $3.9B in Covid support. Even without that there was a $4.6B 5yr surplus. This strongly suggests that the Covid support was banked.

None of this comes close to showing up in the City’s internal operating variance reports (next section), never mind being disclosed in advance. It begs the question — why the large discrepancies. Unfortunately I’m not aware of a thorough public evaluation of this result.

Against operating variance reports

The operating variance reports that the City produces are distorted as the result of the problems mentioned in the accounting principles section above. They are in fact a kind of net cash flow variance report, which is not the same as an operating variance report. Consequently, in my opinion those variance reports are pretty close to being worthless, and indeed are misleading.

Keep in mind that in effect what the City calls “expenditures” are in fact a combination of spending (expenses) and saving (transfers to reserves and such). Given relatively stable revenues, changes in these “expenditures” balance each other out. Underspending leads to greater saving from fewer expenses; overspending leads to less saving from more expenses. In either case the combined net variance is minimal.

For example, in 2021 Toronto’s operating variance report for the year reported a top-line variance of $51M, while the audited financial statements reported a variance between budget and actual of ~$2.2B. This vast difference is quite astonishing (though explainable), and urgently needs to be fixed. It’s not helpful; it obscures what’s going on. The variances in audited and internal reports don’t have to be identical, because the budget is done on a cash basis, and the audited statements are done on an accrual basis, but they should be relatively close, and the reconciliation of the two should be straightforward and understandable.

Here’s a little thought experiment. Toronto measures variances of “expenditures” in its operating variance reports. Variances are mostly conflations of external transactions and internal cash transfers. So let’s say there’s some expenditure budget of $100,000, consisting of $80,000 of expenses and $20,000 of contributions to reserves. Then the actuals come in at $50,000 of expenses, and $50,000 of contributions to reserves, for total “expenditures”, still, of $100,000. According to the City formulation, there’s been no variance! Crazy, right? But this is the method applied to its variance report. It’s wrong, and can easily be fixed by implementing conventional accounting rules — the normalized budgeting approach discussed above, notably isolating internal cash transfers from external revenues and expenses.

Against capital variance reports

The City capital variance report has some merit, although it reveals that the City’s capital budgets are more aspiration than budget. Here’s a chart created by Damien Moule and Matt Elliot for Matt’s City Hall Watcher.

Source: Damien Moule and Matt Elliot

Here’s a table by Damien about the ballooning reserves referred to in Damien and Matt’s chart above. Note the 275% increase in reserves over 10 years.

Source: Damien Moule

The operating budget evaluation problems can be fixed. The capital budgets require more discipline and better evaluations.

For operating budgets, an interactive dashboard should be available to both staff and public which allows users to drill down as far as cost centres (of which there are many thousands), make arbitrary comparisons between organizational units (for budgets, actuals, and variances), and investigate timelines for trends. The dashboard should include both budget and actual figures when available.

System support

The City of Toronto amalgamated into a single municipality in 1998. Around 2006 the City of Toronto embarked on the creation of its Financial Planning and Reporting System (FPARS) as its central financial management platform. In 2013 Toronto’s Auditor General issued dire warnings about the development of the system. In 2019 I wrote an article Signs that Toronto’s FPARS (financial control) system may be failing. In 2021 Toronto closed FPARS. After more than $60M of effort, it had only been partially implemented. It was a failure.

Now the City has embarked on a Financial System Transformation Project to replace FPARS (outsourced to Deloitte), albeit only for City Divisions, plus Police and Library as far as I can tell (about half the City organizations) as well as a new budget tool system (a budget tool revitalization project). I have grave concerns about both.

Notably I see no sign of product managers (responsible for usability and quality) as opposed to project managers (responsible for compliance and timelines). The systems follow classic, high risk waterfall development methods. And of course being thoroughly outsourced, these programs rob the Toronto public service of valuable learning and expertise, while contributing to the learning and expertise of commercial consulting firms. See the Appendices for the wealth of information I’ve collected about these.

Here is a snippet from a Deloitte study called the GL Project (part of the Financial System Transformation Project), to provide some colour to the transformations being tackled. Note the large proportion of unused Cost Centres and General Ledger accounts:

Source: page 259 of the FOI response to 2022–02747

For the budget tool revitalization project, the requirements document includes a listing of issues to be addressed, to provide some colour for that project:

The City’s challenges in the current state can be characterized in the following ways:
- Data exists in silos across the organization and is integrated and exchanged across systems at different levels of detail.
- Process inefficiencies, including duplication of work, lack of standardization, and extensive manual effort, which prevents the City from optimizing its planning and reporting activities.
- Lack of quality data, integrated financial systems, and the abundance of Divisional systems leads to significant time being spent on compiling and manually integrating data rather than analyzing it.
- Data is not consistently available in a timely fashion, impacting the timeliness and thereby limiting the effectiveness of analytics.
- Inconsistent forecasting practices limit the understanding of financial obligations beyond the current fiscal year
- Manual effort and process inefficiencies, including:
- Duplication of work due to lack of process standardization
- Interpretation of processes, roles, responsibilities and hand-offs differs across the
City, resulting in process inconsistencies
- Workflows and approvals are not consistently systematized
- Manual reconciliations are extensive, time consuming, and require considerable
quality assurance
- Variance reports, in particular for capital projects, are not systematized

Meanwhile the City’s external auditor warns, year after year, of the risks of continued use of spreadsheets to produce consolidated financial information.

Although I’ve prototyped an interactive dashboard of Toronto’s detailed operating budget data (based on its valuable open data portal spreadsheets of 20,000+ line items) I see no signs of Toronto offering a public interactive budget dashboard for that. Never mind the capability to drill down to cost centre data on demand.

This concerns me: the open data sets for operating budgets of recent years (2022, 2023, 2024) have been out of balance. I’ve repeatedly notified the City of this issue (and the simple solution), to no avail. This lack of balance undermines the integrity of the data, and jeopardized the data’s usability. It’s valuable data, and would be a shame to lose. Although a technically small issue, this may be emblematic of an inability to respond to problems.

There is much to be said, and research to be done, about Toronto’s systems, but in recent years I’ve prioritized the core design concerns described above. So I leave this area to others to pursue. This work is much needed.

Budget formulation

The whole point of excellence in budgeting is to remove or at least soften barriers to budget engagement for all audiences. My priority has been to find ways of making the budget more understandable as a pre-condition to more inclusive democratic engagement.

In the meantime, here’s a general vision of public engagement to consider.

Source: Henrik Bechmann

The question of City staff motivation

There’s one last thing I feel obliged to say. City staff are smart and well educated, and they’re well aware of what’s going on here. So why aren’t they out in front of this, methodically (and urgently) making changes toward a much better budgeting system?

I’m speculating, but I have some theories that I think need to be aired.

• Staff are trapped. The shortfalls of the current system create a lot of unnecessary work… which keeps staff from the time it takes to make improvements
• They’re (ironically) protective of a bad system because… it works, in the sense of producing results. This avoids the risk of chaos if major changes are made
• It’s not lost on them that the obscurity and complexity of the current system protects the staff from criticism, because it’s too difficult to understand
• It’s not lost on them that the obscurity lets staff pursue their agenda of hoarding cash for the good of the City
• It must be said that the ability to prioritize cash hoarding protects staff’s pensions
• Councillors and staff find it mutually beneficial to praise one another, regardless of underlying problems
• With the artificial balance to zero, Councillors are able to say that although they’d like to fund new programs, there are zero funds available for that
• Owing to the unnecessary complexity, staff are able to claim that all budget issues should be left to them. They’re able to say “leave me alone”.
• Toronto civil service culture is strongly biased toward compliance, policies and procedures, and status quo, and against innovation, talent, and continual improvements.

Another consideration is to take an organizational view. Chris Murray, a previous City Manager, at one time floated the idea of convening the equivalent of a Treasury Board for the City, to impose budgeting and accounting standards on all Divisions and Agencies. I think that’s worth considering.

Appendixes

1. References

Budget reporting

Articles I’ve written about report design:

• Six Easy Steps to Normalize Toronto’s Operating Budgets (August 31, 2023)
• An Integrated Multi-Dimensional Budget Model for Municipalities (November 2, 2021)

My latest annual City of Toronto Budget Catalog (2024). This contains many examples of normalized budgets.

Budget performance evaluation

My article tracing City expenditures to audited expenses: Tracing the City of Toronto expenditure budget to the audited expense budget (2023). (July 8, 2024)

System support

A prototype City of Toronto operating budget dashboard, based on City of Toronto operating budget open data, modified to be normalized.

My article about FPARS before the City of Toronto declared it a failure: Signs that Toronto’s FPARS (financial control) system may be failing (March 22, 2019)

Research opportunity! Very detailed project data about the Financial System Transformation Project (1000pp+, 2022) and the Budget Tool Revitalization Project (2024).

Books to guide system development research:

• Recoding America, Jennifer Pahlka, 2023
• Hack your bureaucracy, Marina Nitze and Nick Sinai, 2022
• How Big Things Get Done, Bent Flyvbjerg and Dan Gardner, 2023
• The Big Con, Mariana Mazzucato and Rosie Collington, 2023

2. Additional resources

City of Toronto open data of operating budgets. (Be careful, the three most recent years are out of balance).

The Budgetpedia Google Drive repository. Hundreds of files collected over the years. Somewhat chaotic, but sorted into Communications, Development, Management, Operations, Research folders.

The budgetpedia.ca website (v0.1.7). Just a prototype, but has some interesting info.

Medium articles, by Henrik Bechmann, and old ones by the Budgetpedia Civic Tech TO team. Most of my articles were musings. Maybe vaguely interesting to see the evolution of thought.

3. Change log

• July 23, 2024, added Books to guide system development research in References
• July 28, 2024, added taxonomy example based on audited statement groupings. Also minor textual revisions.

Henrik Bechmann is a retired software developer. From 2015 to 2024 he was a “student” of City of Toronto budgets. Twitter: ‘@henrikbechmann’