Wednesday, January 24, 2007

Cost of living in London continues to rise

Council last night passed the first part of the city's 2007 budget, approving five and eleven per cent rate increases for sewer and water charges respectively, adding an extra $48 to the cost of living to the average London homeowner. Two points of the eleven per cent hike for sewer bills will be set aside to build a future pollution control plant in the south of the city, a controversial measure according to environmentalists who fear that an additional plant will enable further growth. Sewer and water charges in London increased over 50 per cent between 2000 and 2005, and the new hikes come on top of further 9.6 and 5 per cent increases respectively last year as well. Whether service levies are seen as a proxy for taxation or not, the precipitous climb in rates over the past seven years indicates that alternative methods of delivery through privatization should be explored to reduce the financial burdens on Londoners. At the least, independent examination of the service budgets should be undertaken to find inefficiencies and to lower costs to the city.

Passing the service levy portion of the city's draft budget that calls for an overall increase of 4.3 per cent in spending and tax revenues receives much less attention for council than the property tax levies. One hopes that the rest of the proposed budget does not pass with such ease.

London 2006 Financial Report CardOn the subject, the city has released its 2006 Financial Report Card (PDF) to measure political progress towards "strategic goals." The picture presented is more a celebration of the relative stability of the city's finances and economy than the serious difficulties they still face — and a stability, it must be noted, that is relative to the reckless and barely restrained increases in taxes and debt between 2000 and 2005, or what the city likes to call "investments." It should also be noted that the municipal government's taxes, spending and share of the overall economy still continue to increase, and still at percentages above inflation, but only that the rate of those increases has subsided relative to the six years prior to 2006. So break out the champagne, but hold on to those dixie cups because we're still going to need them.

Although the self-congratulatory tone of the report is struck with a pleasing balance of dry modesty, there are a few items of interest to the casual taxpayer, if not administrators and politicians as well, littered among the frequent disclaimers about "factors" like "service level, age of infrastructure, demographics, geography and weather" or whatever that are meant to deter us from making any kind of conclusion or interpretation. Financial performance is evaluated on just six indicators and only in comparison to nine other Ontario municipalities and the median of an undisclosed number of municipalities compiled from the BMA Municipal Study 2006. Unsurprisingly, London scored much higher than the median for Debt Per Resident ($1,129 vs. $745 in 2006), although London's credit rating does allow it to finance its debt at a slightly lower per-dollar cost, a pyrrhic consolation at best.

More surprisingly, however, London's Property Tax Per Avg. Home (including education charges) scored only slightly higher than the median ($2,854 vs. $2,723 in 2006) and the Net Levy Per Resident ($1,071) was actually slightly lower ($1,093), although this apparently contradicts a 2005 study that showed that the owner of an average bungalow in London paid $3,734 in property taxes and surcharges in 2005 while owners of similar homes in eight of nine other municipalities paid on average $392 less. Nevertheless, London's administration also scored slightly better in 2005 than the median for the Net Expenditure Per Resident on various municipal services (notably for council as it considers the library's budget request, it is much higher for libraries in London). But the unincriminating value of these per capita statistics is compromised by the lower median family income of Londoners — a more telling indicator would be that Londoners paid the twelfth highest percentage of their incomes on property taxes and surcharges of 67 Canadian cities studied in another report by BMA. And on the subject of economic growth, the city's report card uses a flattering measure of growth in assessment revenue, a very indirect indicator for Londoners who not only suffer from declining median family income relative to other Ontario cities but also higher unemployment rates between 2004 and 2006 as well.

In all, the apparent consolation of London's relative financial stability according to the report is tempered really by the poor performance of other Ontario cities. The average homeowner in London is still on the hook for well over $4,000 in taxes, surcharges and debt — a fancy layout and graphics won't buy a celebration of this most important fact.

Update: Reader Jake pans the report card in the comments in the way I wish I could have done:

… No publicly-traded corporation would ever distribute a Year End Financial Statement in that format.
… and Ian Gillespie provides his "new and improved translation" of the city's fiscal strategies, among them:
"Contain Costs: Vital to creating the capacity required to accommodate growth, cost containment initiatives have been implemented across the corporation to close the gap between the cost to provide services and the ability to fund them."

Translation: We're really, really, really going to try not to spend a whole whack of money on crazy ideas that sound good, but then end up costing us a whole whack of money. Honest. Cross-our-hearts and hope-to-die.


Jake said...

This so-called "financial report card" is just a piece of propaganda that serves nothing more but to give a false sense of fiscal security. It uses a misleading arrow system to compare how the city is performing in certain aspects relative to last year.

It has little actual numerical-based economic indicators that tell how poorly London is doing compared to other cities. The only two that use comparisons are based off of debt per resident, and tax per average household.

The debt comparison uses the term "appropriate debt levels",which places London as the 2nd highest debt level per person only behind Chatham. The excuse of "infrastructure investment" for having a high debt load is a lie--The JLC, Market, Main Library are the largest reasons for a large debt--and they are not considered infrastructure.

The tax rate comparison is a misnomer since no one lives in an average household--it is just a median figure of residential property value assessments in London.

The numbers on economic growth are not a good comparison either since all of the cities used are either much smaller than London, or much larger.

No publicly-traded corporation would ever distribute a Year End Financial Statement in that format.

MapMaster said...

Jake, you should be writing this stuff instead of me. I appreciate the comments.

I note also that the report card uses for comparison the city's Reserve Funds As A % of Total Expenditures. A minor quibble, but most cities use a Debt to Reserve Ratio to describe the relative health of their reserves and their vulnerability, a number that would put London well behind the median instead of in front.

Thucydides said...

Some one with a little extra time on their hands should produce a "Financial report card" using "GAAP" (Generally Accepted Accounting Principles) format and see what happens.

In fact, there are four opportunities to do so between now and 2010...who's up for it?

MapMaster said...

An excellent suggestion, and if:

a) I do anticipate a little extra time on my hands and
b) I can learn GAAP,

I would be very interested in such an undertaking. Consider the item filed away for consideration of either doing or, better yet, persuading someone else to do it.

On the subject of capital "investments," I was reminded of an email I received a few weeks ago from what I will call an "anonymous" source, the essential part of which I have taken the liberty of reproducing here, with apologies to the author:

"There is not nearly enough economic analysis in the budget, re: costs and benefits. Nothing for example similar to what the Ontario Ministry of Finance or Finance Dept. federally does in its background papers.

There is no excuse for this, since General Manager of Finance and Corporate Services Vic Cote himself has a graduate degree in economics and there's lots of other talent at city hall. There is of course no "demand" for it on city council. — But there is an obligation due to the community as a whole as there are scores of professionals and business folks in this city fully capable of understanding an in-depth economic analysis of costs and benefits, i.e. "cost effectiveness." To the extent that this sort of thing is done now, the results are rudimentary, typically superficial and in some cases entirely distorting and far too much driven by leftist ideology.

As a case in point, it is unconscionable for city hall not to be doing "economic impact analyses/statements" on all capital projects, including what microeconomists and public finance economists call "discounting" or "present-value" calculations. Such statements answer the question: What are we really financially committing to in a capital project in the long run, i.e. when we calculate all the accumulated costs into the future, say, 10, 20 or 30 years. Discounting is the first thing learned in an MPA program, and yet Canadian bureaucrats never appear to produce such a calculation.

Cote himself has gotten into the lazy habit of flipping estimates off the top of his head altogether too readily. For example, recently, he discounted bus transit because the costs of gasoline for cars going downtown outweighed the transit expansion marginal costs. This kind of fairyland commentary flipped off without the slightest reference to a real comparative cost calculations is typical of this undisciplined bureaucrat.

Jake said...

Since my major is accounting (eventually plan on getting my designation), I have a good background in GAAP. Mind you, auditing a publicly held company versus a municipality is like comparing apples and oranges.

MapMaster said...

Hi Jake,

If you see this comment, please drop me a line at