Sunday, December 17, 2006

Draft budget:
4.3% spending growth is just the beginning

London's $900 million draft budget for 2007 calls for spending growth of between 4.3 and 4.4 per cent — roughly twice the rate of inflation:

The All-items index excluding energy posted a 2.0% increase between October 2005 and October 2006, rising for the second consecutive month. Costs incurred by homeowners, such as replacement cost and mortgage interest cost, were largely responsible for the upswing in this index.

As announced last month, Statistics Canada now produces and disseminates the Core Consumer Price Index as defined by the Bank of Canada. This index, used by the Bank for the purpose of monitoring the inflation-control target, rose by 2.3% between October 2005 and October 2006.
City staff rationalize the "difficulty" of containing spending increases to the rate of inflation by saying that the city's "'basket of goods' is different from the 'basket' used in calculating the general inflation rate" — a pretext that can be used without effort again and again — and refer to a few mandated or downloaded costs but downplaying the city's direct control of discretionary spending that makes up just "a little less than half of the budget."

Estimated growth in revenue from assessment of 2.0 per cent has been much ballyhooed in the Free Press as an antidote to spending growth, potentially reducing property tax increases to as low as 2.6 per cent, but council would have to refuse all service growth requests from the uncommitted 1.7 per cent of the assessment growth for this to happen — an unlikely prospect for politicians who are already looking out for their favourite programs after the news of a single-digit increase. Chief administrative officer Jeff Fielding is advising council not to focus "on areas of the operating budget that achieved target" but instead "to focus on service growth." Specifically, Fielding recommends that council "consider" using 1.3 of the 1.7 per cent uncommitted assessment growth revenue to fund requests for those programs that exceeded the city's 3.0 per cent growth targets:
  • London Middlesex Housing Corporation,
  • Upper Thames River Conservation Authority,
  • Police Services, and
  • Library Services.
Full approval of these requests, in the absence of any unanticipated revenue or additional council-directed spending, would result in a property tax rate hike of 3.9 per cent. Fielding knows quite well that council has a poor record on refusing such "considerations," meaning that the property tax rate increase is likely to be much higher than 3.0 per cent when all is said and done, unless council were to divert its expected multi-million dollar surplus to tax relief — a proposition to which they have been disinclined in the past — or if new bailouts from the province arrive.

Either way, spending will have increased at at least twice the rate of inflation, if not much more by the time council is through with the budget. The city's self-congratulatory posturing as sound and responsible financial managers is an astounding farce, but we can expect to hear it repeated as much in the months to come as it was during the election. From the city's media release, Tom Gosnell, the city's budget chief, has this to say:
"… the City of London is responding to the community's call for affordable taxes and high value for money."
Comedy value, maybe…