You Keep Using That Word… I Do Not Think It Means What You Think It Means
Are you as exhausted as I am? Maybe it’s the time change, or maybe it’s the draft budget. Tough to say.
[At 825 pages in 3 volumes, I’m going to say it’s the budget.]
Plus, it sounds like the discussion around our new 4-year financial roadmap is getting pretty ugly out there. So it’s probably time to look at this before people start to say things they can’t take back.
[Things like “I support this budget.”]
For years, the City’s accountants have been telling us we have a structural deficit. Heck, in our Annual Financial Report from 6 years ago, even our current Mayor and our current Finance Chair are quoted as saying:
In the past, our City relied heavily on nonrecurring, one-time revenues…— 2014 City of Winnipeg Annual Financial Report, page 6
It is clear we can no longer continue doing the same things, in the same way.
And it goes on a little later…
Winnipeg, in keeping taxes affordable, has included one-time revenues and deferral of spending and maintenance costs in City budgets. This is not a sustainable model.— 2014 City of Winnipeg Annual Financial Report, page 42
We also find the same types of warnings in our:
- 2015 Financial Statements (page 43),
- and in 2016 (page 40),
- and in 2017 (page 46),
- as well as in 2018 (page 45).
The 2019 Financial Statements aren’t out yet, but we do find those same cautions again in our 2019 Community Trends and Performance Report (which makes up Volume 1 of our 2019 budget) on page 187.
So was I ever excited when I saw that this new budget used the word “sustainable” 65 times! And the word “transformative” 20 times!
It even included this quote from our Finance Chair, Councillor Scott Gillingham:
This multi-year balanced budget process provides an opportunity to develop a transformative budget that creates a sustainable financial plan to meet the dynamic needs of a growing city.— Quote from Councillor Scott Gillingham, Chair of Standing Policy Committee of Finance, in the 2020 City of Winnipeg Preliminary Budget Volume 2, page 1-18
Woo! You’re speaking my language, Scotty! In the words of the immortal Jimi Hendrix: Excuse me, while I kiss this guy!
[Or something like that…]
So what’s in this thing??
Well, we’ve heard a LOT of talk about what we’re proposing to cut: Sunday library hours, Transit U-Pass, active transportation, grants to community groups, the list goes on (and on).
But, many of the EPC councillors have been quick to counter that a lot of things are also proposed to get increases: free transit for kids under 12, more money for urban forestry, record road spending, and that list goes on (and on).
So then, it’s all good, right? In a sustainable budget, it’s just a case of needing to be grateful for the increases, because they outweigh the cuts.
Or do they?
[No, they don’t.]
Here’s the first major problem. We’ve only managed to balance this budget by:
- Drawing on the Financial Stabilization Reserve (our “Rainy Day Fund”)
- Increasing our debt by 64% by borrowing nearly $160 million
- Reducing capital spending
[Also, I don’t want to be “that guy”, but can you really call your budget balanced if you’re planning on spending your emergency savings?]
But just like a desperate sweatshop worker might sew an SOS into a T-shirt, the Corporate Finance department included this little Easter egg directly IN the budget:
Reliance on non-recurring one-time revenues and deferral of spending and maintenance costs is non-sustainable— City of Winnipeg 2020 Preliminary Budget Volume 2, page 51
You know, non-recurring one-time revenues, like dipping into your rainy day fund, and using lots of debt. And deferral of maintenance, like is necessary when you plan to reduce your total capital spending by nearly $47 million over 4 years.
This, in a budget that contains the word “sustainable” a total of 65 times.
[Aren’t accountants hilarious?]
And here’s the second major problem. None of the choices are strategic.
Sure, there’s an increase of $2 million/year to urban forestry, but we needed an increase of $7.61 million to properly care for our urban canopy.
And sure, Transit will be free for those under 12, but we’re also losing the U-Pass, and not to mention a 30% cut in capital spending for new buses and the like.
Even the 37% increase to roads, a record level of investment of nearly $145 million/year, isn’t anywhere near the $500 to $600 million we need to be spending annually to replace all $15 Billion of our roads and bridges in a timely manner.
So, imagine you have 10 people in a room, and 3 of them have Ebola. You are in charge, and your current budget allows you to treat 1 person.
Now imagine you just increased your budget for treatment from 1 person to 2 people. [Yay! You doubled the treatment budget! High fives all around!]
Yet you still end up with a room full of dead people. But now at twice the cost.
By spreading the hurt and under-funding ALL line items in the budget, we’re setting ourselves up for failure in EVERYTHING we do. We will meet NONE of our goals.
So what’s to be done when we don’t have enough resources to do everything?
We take a page from the French doctors who were treating the battlefield wounded during WWI. Instead of spreading their medical resources across all wounded, they would triage them into three categories:
- those who were likely to live, regardless of care
- those who were likely to die, regardless of care
- those whose outcome would be improved by immediate care
Then they would focus their resources on the patients in the third category. Rather than spreading themselves thin and saving few, they were strategic in order to maximize the number of people they could save.
It’s similar to the concept of debt stacking, or debt avalanche. Let’s say you’re in a lot of debt. You have multiple credit cards, a few lines of credit, two car loans, a student loan and a mortgage.
You could spread your extra payments across all the debts, but then you’d stay in debt for a loooong time.
The quickest way out of this financial quagmire is to make the minimum payments on each of your debts, then pay all the extra you can afford on the one with the highest interest rate. Once that debt is completely paid off, you start using all the extra payment capacity on the debt with the next highest interest rate. And so on, until you have no debt left.
That’s basically what we have to do with our budget: a sort of budget triage, where we FULLY fund only the things that have the highest Return on Investment, while keeping all the rest to the minimum they can get by on.
The returns from those investments make us richer as a city, which is what will eventually allow us to spend more than the minimum on the low ROI stuff (like roads).
Look, if we can triage actual human lives according to likelihood of survival, surely we can triage budget items according to ROI.
So what are the high ROI investments? Well, we’ve already talked about them before, but it’s the stuff that increases our value per acre (and therefore our revenue) and the stuff that helps us make better use of our existing infrastructure (therefore decreasing our expenses). It’s stuff like being obsessive about basic maintenance. It’s street trees, active transportation, transit, libraries and recreation services.
And if we don’t have enough to do that city-wide, then we start by focusing our efforts on the neighbourhoods that will give us the best bang for our buck, value per acre-wise.
That’s the quickest way to build our budget capacity, and make it so it’s actually sustainable.
The Mayor has said that the priority was keeping the lights on in libraries and pools. That’s almost literally the lowest bar we can set for ourselves, just keeping our places open.
And given our current budget choices, we’re pretty much guaranteeing we won’t even be able to achieve that beyond a few years.
The truth is, not one person in this city should be happy about this budget.
It cuts some services, it under-funds every single other, ensuring that we don’t meet even one of our goals. And it does so by putting off maintenance and replacement of infrastructure, spending our emergency fund, and borrowing massive sums of money. The very opposite of sustainable.
In doing so, we’re making things worse by every possible measure, including financial, simply hoping to kick the can another four years down the road.
We just can’t resist continuing to do the same things, in the same way.
[Fun fact: the budget includes the word “disaster” 22 times. Just sayin’.]
If only we had the 2014 edition of Mayor Bowman and Councillor Gillingham…
Now that’s inconceivable!
Lots of love,