Abbotsford’s 2014 Budget Raises Serious Concerns And Questions

Submitted. At a final public hearing for Abbotsford’s 2014 budget (the first budget delivered by new City Manager George Murray), Abbotsford taxpayer and former City Manager, Gary Guthrie, (who also served as Surrey’s Director of Finance) presented his budget concerns and recommendations directly to Mayor Banman and Council.

Guthrie highlighted the actual tax increases approved by the majority of Council Members since 2007. These increases shouldered by Abbotsford taxpayers are: property taxes up 25% (36% with Plan A); water rates up 77%; sanitary sewer up 105%; and garbage up 83%. Guthrie then explained that these increases occurred while CPP increased by only 7% and the StatsCan’s median employment income for Abbotsford CMA families over the same period went down .5%.

In view of this Guthrie asked Council, “Where are the slides discussing Council’s strategies to correct this complete financial disconnect from the day-to-day reality of residential taxpayers?”

Guthrie, a critic of this Council’s “lavish, unsustainable spending spree over the past 4-5 years” wants to see an end to the financial mismanagement at City Hall and see Abbotsford’s financial health restored.

This will be difficult, however, as Guthrie also pointed out that Abbotsford’s 2014 budget, as presented to Council and the Public, illustrated a lack of financial expertise and a process that is clearly not up to the professional standards that must be required, not only by legislation, but by the 5th largest city in BC.

For more information on Guthrie’s specific taxpayer concerns and questions raised before Council, please see Guthrie’s entire presentation below as delivered on November 4th, 2013 at the public hearing.

Presentation to Abbotsford City Council

November 4, 2013

The City’s Financial Planning process is important to taxpayers.

It tells us how much of our money the City plans to collect through taxes and fees, and how the City plans to spend that money. It’s our opportunity to understand Council’s financial plans and strategies, and determine if Council is responding to citizen concerns.

Like many residential taxpayers, I have been critical of Council’s lavish, unsustainable spending spree over the past 4 to 5 years. I attended last week’s budget presentation to learn exactly how the City plans to recover from this financial mismanagement and restore the City’s financial health.

Last week’s budget presentation didn’t give taxpayers this information. Instead, it only raised serious concerns and questions.

Here is a brief summary of my concerns:

Budget Presentation

Let me preface my comments by saying I’m sure Randy Mallard did what he was asked and worked nights and weekends on this budget. My comments do not reflect on his work or performance.

The budget presentation was an accounting exercise, at best, that lacked ‘big picture thinking’ and any meaningful discussion of strategic financial challenges and issues important to taxpayers.

Those of us in the audience were overwhelmed with too many detailed pages and 154 slides – all crammed full of data that was barely discernible in the auditorium.

For example, what does Slide #8 titled Historic Property Tax Increases mean? It’s a chart showing the City vs Police tax increase ratio. How is this relevant?

A more meaningful slide would show the actual tax increases since 2007, increases approved by the majority of this Council. The tax increases were:

1. PropertyTaxes up25%
add Plan A up 36%

2. Water Rates up 77%

3. Sanitary Sewer up 105%

4. Garbage up 83%

Compare this to CPP increases to 2012 up 7%

Or StatsCan’s median employment income for Abbotsford CMA families from 2007 to 2011 down .5%

Where are the slides discussing Council’s strategies to correct this complete financial disconnect from the day-to-day reality of residential taxpayers?

Media reports indicate some Councillors don’t see Abbotsford’s debt as “onerous.” Other media reports indicate that senior staff received wage increases from 5% to 10%. Council knows exactly how taxpayers feel about Abbotsford’s debt and about these inflated salaries. Will Council be rolling back salaries? Where are these type of initiatives in this budget?

Here’s another example:

While presenting Schedule K, regarding AESC, senior staff explained that Fund Accounting is complex. This is true. It is why the City pays hundreds of thousands of dollars to senior staff to manage this complexity and present understandable information to Council and the public.

Staff explained how they moved a $1M gaming grant from the bottom of this schedule to the top – a change which did not affect the total. They didn’t apply this change retroactively, so it now appears the City will receive one million dollars of NEW money in 2014 to support AESC, when in fact it will not! This slide is misleading to taxpayers.

More importantly, Staff quickly glossed over the $1.8M supply fee to the Heat hockey team. One of the most politically contentious issues facing our City. No Discussion! Where are the strategies to address this issue?

Staff also indicated that the $1.8M is included in Slide #41 as part of the PR&C per capita expenditures. Is this really where this payment belongs?

The budget contains far too many examples like this that illustrate a lack of financial expertise. The 2014 budget isn’t up to the professional standards that must be required by the 5th largest City in BC.

So here’s a few examples of what I believe should be discussed at the Council table and communicated clearly to Abbotsford taxpayers.

Financial Planning Principles

Most Local Government Financial Plans are prepared using the Principles of Municipal Governance as outlined in the Community Charter, Section 1 (1). The City previously published its planning principles.

Slide #18
For some reason these principles are not mentioned in the year’s budget. Instead, staff advised that the budget was developed using “Themes”, as if this can somehow replace critical financial principles used by most progressive cities.

Here’s an example of a Principle:

Principle: “Growth Pays for Itself”.

I’m sure most taxpayers would agree with this principle.

Slide #59 – DCC Estimated Balances
Repayment of borrowed DCC funds is a major financial issue facing the City. This is the only slide I could find about DCCs in the entire presentation. There is no detail showing how these projected balances will be achieved.

I may have misunderstood, but it looks like future DCCs receipts will repay the borrowed DCC funds. Is this correct? Has the Province approved this strategy and agreed that it complies with the DCC legislation? If so, please make this approval public.

Staff stated that once the funds are restored to a positive balance, the balance line “flattens out because the City will spend the DCCs on future projects – money in money out”. This budget shows no DCC accumulations for major future projects.

Slide #67
Shows tax dollars from existing residents being accumulated for Community Infrastructure and growth related facilities.

Slide #126
Shows water user fees from existing residents accumulating because they’re
“Required for Capacity … initiatives”.

Where in this budget presentation does it show how Growth is going to accumulate its financial share of future major growth-related projects?

There are numerous other examples relating to missing Principles that support critical financial objectives.

Strategic Issues and Financial Challenges facing the City

Some examples:

1) Financial Reserves:

Slide #57
Shows the City 3rd from the bottom in financial reserves per capita in 2011. This was before some of the major expenditures in 2012. Staff project a 2018 level.

There appears to be no discussion on how this is going to be achieved. Delay Fire Hall construction, perhaps? Increase capital transfers to reserves? Or maybe lower assist factors on DCC’s. There are too many unanswered questions about how this will be done!

2)Funding new water source.

Two years ago we had a water shortage CRISIS. Last year the City spent hundreds of thousands of dollars examining new water source alternatives.

In this year’s Plan, there is no mention of a new water source. Has the City developed a financial plan to resolve this pressing capacity issue? Why is there nothing in the budget? How can the 2014 budget pretend this issue doesn’t exist . . . and still remain a critical financial document?

In the 2013 to 2017 Capital Plan, approved by Council 6 months ago, Joint Waterworks had a capital program totaling $3.453M for 2014. Today, six months later, this budget shows a planned expenditure of $2.366M (Slide #134 I think) – a 30% reduction. No explanation for this substantial change!

Of the 6, 2014 capital items listed in the 2013 Plan, only 3 appear in this year’s Plan, along with 10 new items and a $500,000 contingency amount. What happened in the last 6 months to cause such a significant change in this capital plan?

How can taxpayers have any trust in the planning process when there are so many dramatic changes in such a short period of time, with no discussion of these changes?

Assumptions

All budgets are only as good as the underlying assumptions. What are the budget assumptions used in the preparation of this budget?

What is the predicted growth rate for the City? Where will this growth in taxation to come from – residential vs commercial? Population growth in the last 10 years does not support the annual increases in City expenditures.

What inflation rate was used for 2014? 2015? And so on….. all of it MISSING!

Financial strategies

Here are only 4 examples

1) Five Year Planning Horizon

Slide #12
States “ Developed a 2014 Budget only – 2015 will bring a 5 year Financial Plan”.
Given the City’s current financial issues I believe it will require more than a one year budget to resolve our challenges. Where is the long-term thinking and financial strategies? Taxpayers are paying for this financial expertise! This budget illustrates we’re not getting it.

I believe under the Community Charter, Part 6, Division 1, a “financial plan must be adopted annually by bylaw and it must cover a minimum of a five year period”. Is the City planning to skip this legislative requirement for 2014?

2) Taxation Policy:

Slides #30 & #31
Show City residential taxpayers are among the most generous when supporting Industrial and Commercial (IC) tax rates. The City also offers property tax permissive exemptions to organizations like Walmart – the world’s largest retailer.
The Tax Increase Analysis Schedule shows $1.033M for High Street alone in 2014. Was it Councillor Braun who said that these grants may total nearly $7M over 5 years?

Isn’t it time for Council to discuss reducing the residential financial burden and shifting more of the taxation load to the IC sector to bring the City in line with other large communities? This would align with the Principle of Equity or Fairness.
When will Council discuss this subsidy policy in public? Taxpayers have the right to know!

Another couple of examples of financial strategies

3) Utility Rates

Slides #51 & #52
It is unfair that residential taxpayers have subsidized the ICI sector utility rates.
It’s unfair that the City is taking 3 years to correct this when residential taxpayers were given NO notice of rate increases or that their rates were being used, in part, to subsidize others. It’s unfair that after these adjustments, residents will pay 100% of the sewer rates while others will pay only 90%.

Between 2008 and 2011 residential water rates increased on average by 15% per year. Why have these rates not been reduced to levels prior to the increases implemented to fund the proposed Stave Lake project? Council needs to address these unfair rates as part of the budget process.

4) Debt repayment –

Staff indicate plans to repay some external debt early. If principle and interest payments will be reduced, will residential taxpayers see their rates adjusted downward also?
And so on…..

Some other comments….

!1) The Planning Process

Slide # 13
Indicates the planning process used by staff. No mention of Master Plans. We now seem to be deciding how the City spends capital dollars based on business cases, developed internally by staff. When do the citizens have a say in these priorities and how THEIR money is spent, as allowed through the Master Planning process?

2) Fire Budget

The City cannot afford to replace 4 fire halls in 3 years. The $1M planned for 2014 should be spent strengthening the existing fire halls. The current Fire Master Plan should be scrapped and a new Master Plan developed – a Master Plan that taxpayers and the City can afford! This plan continues the unsustainable spending pattern developed three or four years ago which angered so many taxpayers. Besides, the Fire Service just recently opened a new fully staffed Fire Hall (#8). The City can’t afford to have so much money allocated to just one of its service areas in such a short time frame.

Conclusions

I don’t attend regular Council meetings. Maybe some of the missing information I’ve asked for today was presented in staff reports earlier in the year. I don’t know. My point is, the budget presentation is the appropriate time to summarize these reports within the context of the overall budget and present all relevant information at once.

With that said, here’re my conclusions:

1. This year’s budget presentation does not appear to have been prepared in accordance with well-established, recognized professional standards for a City of our size. This is particularly troubling given our current financial stresses.

2. This year’s budget does not present meaningful information in an understandable and transparent way for the average taxpayer.

and most importantly

3. This year’s budget does not directly address the critical financial issues of most interest to taxpayers.

The 2014 financial plan is Council’s last chance before the next election to show taxpayers they are serious about correcting the City’s finances.

I await Council’s deliberation and look forward to receiving responses to the issues I have raised today.

Gary Guthrie