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March 2004
Newsletter
Budget Fudging to Get Re-Elected
The 2003 budget was adopted last March. It was supposedly balanced, but it is now obvious that it wasn't anywhere close to being balanced.
Today we know that the gross operating deficit for 2003 was about $31 million. That's a major reason why the City is scrambling to make up an $83 million budget shortfall in the 2004 budget.
It is illegal for a municipality to plan to have an operating budget deficit. Did Hamilton City Council break the law last year? The superficial answer is no, since the adopted 2003 budget didn't include a projected deficit. However, the Executive Summary of the 2004 city budget suggests it was planned nonetheless.
Consider the following statement from page 18: "Council and staff must ensure that another "deficit budget" is not passed this year." Isn't this an admission that deficit budgets have been intentionally adopted in the past?
Or consider this quote from page 11 - "during the last two years the underlying program operating deficits have been in the $27 million to $31 million range. This represents one of the reasons why 2004 Budget pressures are so high".
Why would the council intentionally adopt a deficit budget in 2003? The obvious answer is because it was an election year and the councillors wanted to get re-elected.
Last year's budget process started with a $58 million shortfall - equal to a 12% tax increase. By various means, this got pared down to a 3.6% tax increase, followed by the successful re-election of most of the incumbent councillors, including one of them as mayor.
We also got a $31 million deficit. That's equal to a 6.8% tax increase, suggesting that the a competent (or honest?) council should have imposed a 10.4% tax increase (3.6 + 6.8). But then they likely wouldn't have been re-elected.
So after allegedly wrestling a $58 million shortfall to the ground nine months ago, the 2004 council is now facing an $83 million shortfall - equal to an 18.5% tax increase. That shortfall is $25 million worse than last year.
We know that the 2003 gross operating deficit was $31 million. It was $27 million in 2002. So when Council worked out its "balanced" 2003 budget it was aware that it had been out by $27 million in 2002. Nevertheless the decisions it made resulted in an even greater operating deficit in 2003.
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