Toronto Budget Check (version 1): Parks, Forestry & Recreation 2016

Introduction

I’ve been working (with a lot of help) for over two years on the budgetpedia.ca project — an attempt to make the City of Toronto budget more accessible (including more understandable) to the people of Toronto, to support informed debate about the budget. One objective is to present the Toronto budget as clearly as possible. This article is one of the first attempts to do that; to find a clearer way to present budget data, and eventually data regarding variances of actual results. Thankfully, we have some operating budget open data from the City to work with.

The thing is, a lot is thrown into the budget by the City in a kind of big pile, mixing revenue, expenses, inter-divisional charges, capital transfers, capital charges, and capital contributions, making it very hard if not impossible to interpret. What I’m trying here is to pull these elements apart in the hope that the presentation can return to something cleaner and more consistent; something that is easier to relate to in the real world. (After that we’ll want to do the same thing for all 13,000 cost centres in the City, but that’s another story.)

First, here’s the starting pile for Parks, Forestry & Recreation (PFR) extracted from a spreadsheet published on the Toronto open data portal.

Figure 1. Summary of 2016 PFR budget data from a City of Toronto spreadsheet

Operating Budget Layout

Below is my first pass at re-casting this budget structure for the 2016 budget for Parks, Forestry & Recreation. I’ve chosen the 2016 year so that I can do comparisons to available variance numbers (only summary variance numbers are currently available, see later in this article). Before detailed variance numbers are available, in the following figure I use 2017 budget figures for comparison, as a placeholder for variances. I’ve asked the City for detailed actual and variance numbers, and I’ll update this figure with variances when (hopefully) we get that.

Figure 2. PFR Cash Operating Budget, 2016. Source: Henrik Bechmann

Caveat: Although I think this has good structure, I haven’t yet confirmed the detailed meaning of all line items, so more refinements may be necessary.

Also keep in mind that this is a “cash” budget — it doesn’t include non-cash items like depreciation.

There are four main adjustments here.

1. I’ve isolated plain revenue and expense categories from the rest. This should make the top part (and most important part) of the budget statement fairly easy to read.
2. I’ve reduced the Salaries and Benefits, which includes both operating and capital staffing costs (capital is for building things, not operating things), by Transfers from Capital which we’re told is the amount “repaid” to operating budgets from capital budgets for staff used on capital projects. (Well, it’s an approximation for now; there may be other things in this Transfers account). See my article about this for details. In my opinion this mixing of operating and capital costs in the operating budget shouldn’t be done at all; it just confuses things. Are you confused? Never mind, just overlook it and focus on the Operating Salaries And Benefits figure.
3. I’ve isolated Inter-Divisional Adjustments, which are bookkeeping entries to account for one division charging another for services.
4. I’ve isolated Contributions From (To) Capital to make clear what is going to and from the City’s savings.

The result is three basic perspectives of what’s happening in the division:

1. Net Current Surplus (Deficit) which is a plain result of day-to-day operations managed by PFR.
2. Net Operating Surplus (Deficit) takes into account (adds) help given to or from other departments (like the Information Technology division providing computing services to PFR).
3. Net Receipts (Expenditures) takes into account (adds) money taken from or given to City savings accounts (reserves and capital accounts).

I think that helps make things clearer at a high level, and better still it provides a good pattern for drilling down into PFR’s operational units, like parks and community centres, when we get to that. But by all means give me feedback (at mail at budgetpedia.ca).

By contrast here’s the layout of the same categories from the PFR analyst notes for 2017 (the numbers won’t match the 2017 column above because the figure below comes from the preliminary budget). As you can see its components are comparatively muddled, when thrown together like this.

Figure 3. Analyst notes summary. Source: PFR 2017 Analyst notes

Note that “approved positions” and “salaries and benefits” are actually combined operating and capital positions and costs. There is no note provided by the City analyst alerting the reader to this.

Service Budgets

To indicate how this pattern can be used, here is a quick breakout of the Current Surplus budget section of the statement above, by Services (from the same City open data spreadsheet).

Figure 4. PFR Service budgets (current transactions), 2016. Source: Henrik Bechmann

Note that for this version we have left out inter-divisional charges, and contributions to and from capital. Also note that Transfers from Capital should not be required here to adjust Salaries and Benefits, if the City did not include capital staff costs (incorrectly in my opinion) in the operating budget.

We would like to use actual results for comparisons and variances. We would also like to provide similar statements for individual cost centres, like individual parks and community centres. But first the City has to make the data for these available.

Operating Variance

The City of Toronto’s Budget Committee reviews budget variance reports quarterly (most of the time — sometimes they’re delayed), which are reports that examine differences between budgeted and actual receipts and expenditures at the highest program level (divisions and agencies). The reports also contain ‘dashboards’ that summarize performance, and some textual explanations of highlighted issues. See for example the year-end operating variance report for 2016.

Here are the summary PFR variance figures for the 2016 year-end, as taken from this report (appendices B and C). See my worksheet for details.

PFR Variance results, end of 2016

It’s possible to estimate the capital staff costs that doesn’t belong (from capital hiring variance), which would put the receipt and expenditure shortfalls to about to about $9M and $11.2M (no net difference), but that doesn’t help much.

A couple of notes right away:

1. I’m using the term ‘receipt’ as a more accurate antonym to ‘expenditure’. Receipts include, but are not limited to, revenues (earned money), as they include transfers from capital. Likewise expenditures include, but are not limited to, expenses (money directly spent to support revenue generation), as they include transfers to capital.
2. Note that the 2016 approved budgeted expenditure listed in the variance report (from the end of 2016) varies from the council approved budget (from February 2016) by about $1.7M. This is ‘normal’, though I haven’t investigated the exact reasons yet. I believe council-approved adjustments are made to the budget throughout the year, but haven’t confirmed this.

The trouble with such a high level variance report is that it’s impossible to tell what the sources of the variances are. They could be operational (variances in revenues or expenses), bookkeeping (inter-divisional charges or recoveries), or capital transactions (contributions to or from reserve funds or capital accounts), or some combination. Moreover the source of the variation could vary from year to year, so experience doesn’t even help. Therefore the variance listings themselves are of limited usefulness. Plus variance figures are distorted by the inclusion of capital staffing costs in operating budgets.

We have requested actual figures to the same level as the City’s open data portal, so that we can investigate a little further for insights into receipt and spending variances.

There are a few notes about PFR in the operating variance report, but they don’t help much either:

page 14

Ferry Replacement Reserve:

Parks, Forestry and Recreation achieved higher than budgeted ferry revenue in 2016. The overall objective of the Ferry Replacement Reserve is to minimize debt requirements. As a result, $2.164 million of the 2016 final year-end surplus available for distribution will be allocated to the Ferry Replacement Reserve.

page 15

Parks, Forestry & Recreation, Long Term Care Homes and Services and Facilities, Real Estate, Environment and Energy experienced the highest vacancy rates.

page 16

For Parks, Forestry and Recreation utility expenditures were $1.179 million or 5.5% over budget largely attributed to warm winter and hot summer of 2016 which lead to higher consumption for outdoor ice rinks in the winter and air conditioning of facilities in the summer months.

page 29

dashboard notes

A positive net expenditure variance of $2.164 million due to the delays in commissioning of new recreation facilities, delayed hiring for capital projects and operating initiatives approved in the 2016 operating budget. This underspending is partially offset by under-achieved user fee revenue for parks permits, recreational facilities, memberships and drop-in recreational programs.

289.2 positions below approved complement due to delays in the opening of parks recreational facilities as well as hiring challenges with “hard-to-fill” classifications. After considering budgeted gapping, this represents the equivalent of a 3.7% operating vacancy rate.

Another point: language matters. Underspending is consistently characterized as “a positive net variance”, even if the underspending represents a failure to deliver promised services, indicating a staff bias to underspend.

Capital Variance

The City of Toronto is notoriously bad, consistently, at achieving its capital projects targets. See my recent blog about this.

Parks, Forestry & Recreation is no different. In the Capital Variance Report for the Year Ended December 31, 2016 (page 3) the City reports that of an approved capital budget of $242.3M, PFR managed to spend $114.9M (47%), leaving $127.4M unspent.

In the capital project dashboard, page 13, the following are summarized as reasons:

Source: Henrik Bechmann

The curious or expert reader can examine the source documents listed in my summary spreadsheet for details.

Of course it’s good whenever capital projects, mandated by Council and through them Toronto citizenry, are completed. It’s striking though that year after year after year PFR and other divisions fall behind without being able to resolve issues with delays. This translates to opportunities lost for the rest of us, and, as far as I know from observing well-run businesses (I was a software consultant to departments of major corporations), problems like this are fixable.

We should continue to shine a light on this, and work with the City to find innovations and solutions to take advantage of capital project opportunities when they are made available.

Please give me feedback about any of this! mail at budgetpedia.ca

Henrik Bechmann founded the budgetpedia project in 2015, and is currently the project lead (see budgetpedia.ca). The opinions expressed here are his own.