There is No Spoon
At yesterday’s Corporate Services Committee meeting, five council members (including me) debated what the budget formula guideline should be for the city’s 2016 budget and beyond. I won’t explain everything in detail here, but staff suggests that the city use a budget formula that is only slightly different than Guelph’s current formula and is comprised of three elements:
5-year average of Ontario Inflation Index (CPI)
+ 5-year average of property assessment change (MPAC)
+ investment factor
For the 2016 budget, this formula would result in a tax increase guideline of 4.4% (2.08 CPI + 1.82 MPAC + 0.5 investment)
Staff does not recommend several other ideas that they considered:
• no budget guideline
• guideline based solely on affordability (eg. % of household income)
• guideline based solely on CPI
• guideline based on other inflation index (CI or MPI)
I wanted to give my current position on the budget guideline issue and how it relates to several options.
CPI-only Guideline Is a Logical Fallacy
Some fiscally conservative residents believe that taxes should be as low as possible and thus benchmarking the budget guideline to CPI is one way to achieve that goal. Mayor Cam Guthrie championed a CPI guideline during the 2014 election and logically followed through with his position by making a motion to this effect at yesterday’s meeting. I respect the mayor’s belief in his foundational platform but strongly disagree with its implementation as a budget guideline.
Many supporters of using CPI fall into two groups: the ones that think tax increases are too high and want them to be lower; and the ones that believe CPI should be used since it is an indication of tax affordability.
To those who want lower tax increases:
CPI does not achieve this in a budget guideline. If inflation spikes over the next few years and comes in at 6-10%, I’m sure you won’t want staff recommending budget increases of 6-10%. You want lower tax increases, period. Consequently, the CPI guideline does not fit your mandate. Instead, the tax guideline should simply be set at some sort of low number (0%, 1%, etc.) to satisfy your desire for lower tax increases.
To those who believe CPI should be used since it reflects affordability:
This belief is simply incorrect. CPI guideline for taxes does not have a direct relationship with family affordability but rather an inverse relationship. That is to say, when inflation is high, your family has less disposable income to spend on a tax increase and the city should work to keep it low. Conversely, when inflation is low, your family can afford greater tax increases since you have more money left in your pockets after paying for your living expenses. Tying municipal tax increases to CPI creates the exact opposite effect of what you believe: that the city should consider affordability when levying property taxes.
There is No Good Formula; It’s All In Our Head
I have come to the conclusion that there is no good way to determine the best formula that staff can use when creating a proposed budget because there are no relevant indicators that aligns with the city’s requirements. I believe there are only three options that make any sense and it is unlikely that any one of them would receive support from a majority of council.
A) Use No Budget Guideline
Council turns to the professionals – our highly qualified and experienced city staff – to submit a budget they believe is best for the city as guided by council’s shared agenda. Council can then add or subtract from that proposal as we believe best serves our residents. I would certainly be comfortable with this option, though one experienced councillor suggested to me that this method was tried in the past and it resulted in 6-9% suggested tax increases from staff that savaged councillors in the public. That councillor does not want to revisit a similar situation going forward.
B) Simply Pick A Number
Council could decide that staff use a fixed number as a guideline when creating the budget. It could be 3% or 2% or 4% or 0% or π or whatever. By selecting a number instead of using a formula, we are acknowledging that the creation of a formula is an exercise in pointlessness. I could support this logical and transparent application to the budget guideline, but getting the majority of councillors to agree on any one specific number would be like herding white cats in a snowstorm.
C) Replicate the Budget From Previous Years and Provide a Detailed List of Possible Expansions to the Budget
This method of creating a budget guideline is probably the most logical, consistent, and transparent that council could use. We direct staff to present a budget to us that maintains the same service levels as the previous year with no expansions, cuts, or new projects. In other words, what does the tax increase need to be to keep things the same as before?
Staff could then provide council with a list of suggestions regarding how we can add to (or even subtract from) the city budget, whether it’s to address infrastructure issues (fixing roads, pipes, and bridges), new capital projects (like a new south-end rec centre or downtown library), reserve fund allocations (what accounts should be topped up), or additional staff (more bylaw officers, asset managers, etc.).
Using this method would require a shift in how multi-year capital projects are funded, which is something staff is examining right now anyway. For example, if building a new rec centre costs $10M this year, $30M next year, and $20M the following year, “keeping things the same” requires adding to the budget the monies needed to advance the rec centre from year to year.
Taxes are a supercharged political issue in Guelph. This is especially true in the south end in Ward 6 since there is a perception that we pay higher taxes than the rest of the city. Setting a budget guideline is a necessary but ultimately fruitless exercise since staff isn’t bound by the guideline (it’s not a policy, only a guideline) and council will ultimately add to or subtract from the budget anyway.
Why does council spend so much time on this issue? Precisely because it’s political. We should instead make a decision based on logic and reason and promptly return to overseeing the operation of our great city.