Hamilton gets D+ for municipal budgeting

C.D. Howe Institute indicates the city has improved from a F rating in 2011

Talk about awkward timing.

Mere weeks before the 2019 budget process gets rolling, the City of Hamilton has been given a shoddy D+ grade for its municipal budgeting by a think tank report card.

The study by the Toronto-based C.D. Howe Institute looks at how the 25 largest cities and biggest regional governments in Canada provide financial information to average citizens based on clarity, reliability and timeliness.

Hamilton’s D+ may sound substandard, but it could be a lot worse. In fact, it has been.

Back in 2011, Hamilton had the egg-on-the-face distinction of being the only major city in Canada to receive a failing F grade from the institute.

This year, based on 2017 and 2018 financial documents, Toronto, Durham Region, Kitchener, Quebec City, Longueuil and Montreal all got an F for providing insufficient budget information in a “reader-friendly form.”

By contrast, Surrey received an A+ and York Region an A. Hamilton’s D+ translates into a numerical score of 57 per cent under the Howe Institute’s weighted assessment system.

The institute says since a municipality’s fiscal operations determine the taxes, user fees and charges that residents and businesses pay, budgets must allow “motivated” users to find key numbers and compare the upcoming year to the previous year’s figures easily.

Who can argue with that? Unfortunately, nearly all of the country’s major municipalities fall short of that goal, according to the report titled “Show Us the Numbers: Grading the Financial Reports of Canada’s Municipalities.”

Mike Zegarac, Hamilton’s acting city manager and former general manager of finance, acknowledges the criticisms but also pushes back.

Zegarac “absolutely” agrees with the institute’s premise that the public and city councillors should have access to clear and understandable financial reporting.

And he points out that staff has obviously taken some of the institute’s observations about improving transparency to heart since Hamilton’s grade has improved over the years. But Zegarac also argues the report is missing some crucial measurements.

“I think the biggest gap I see is that they’re just focused on two sources of information, which is the budget documents and our financial statements. It really doesn’t try to capture how all the supplemental reporting provides additional information and clarity to the citizens as it relates to our financial performance and how we’re executing on our priorities.”

Zegarac cites, among other steps, budget variance reports and presentations on matters ranging from changes to grant programs to drops in recycling revenue.

Howe’s grading criteria includes scoring cities on budget timeliness, how prominently spending figures appear in documents (Hamilton scored well on that), comparisons to previous year budget estimates, gross versus net spending, consistent accounting, showing and explaining differences between results and plans, and adherence to public sector accounting standards.

Some of the report’s criticism are probably inside baseball for most people. For example, one of the key recommendations is that annual budgets should use accrual accounting, which records revenue when earned and expenses when billed.

The report maintains that the cash accounting system used by Hamilton and other municipalities — which reports revenue and expenses only when money is actually exchanged — allows them to exaggerate infrastructure investment costs and hide the costs of pension obligations.

Zegarac argues, however, that cash accounting makes more sense because that’s how people handle their own money.

Zegarac also thinks it’s a bit “confusing” that Hamilton scored poorly for failing to pass budgets before the beginning of the fiscal year given that the delays are in good part due to detailed overviews of departmental budgets and presentations on boards and agencies. In other words, transparency in action.

Still, Zegarac believes the report, as with previous ones, has value insofar as it identifies opportunities for municipalities to think about financial reporting methods and possible improvements.

Who knows. Next time around perhaps Hamilton will graduate to a C like Vaughan. Or maybe slide to a D- like London.