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October
26, 2003
DEBT, DEFICIT, FORMAL WARNINGS AND FLEEING STAFF
The
media has decided that the expressway and amalgamation are
the main election issues. They seem to be forgetting the
state of the City’s finances, even though the situation
has been repeatedly making headlines. Here is a brief summary
of what the current council is passing on to whomever gets
elected on November 10.
Deficit
In the six months since the 2003 budget was adopted, the
City has run up an operating deficit of over $19 million.
This is equivalent to a $150 per home tax hike. It appears
this increase was needed but not imposed because this is
an election year. Indeed, the 2003 budget contains over
$14 million in “unspecified cuts” so it’s
not surprising there is a record deficit. Since running
a deficit is illegal, the tax stabilization reserves have
been drained to cover it.
The
public works department alone has run up a $16.1 million
deficit this year. The department presented a report on
October 14 proposing drastic cuts in services and more increases
in transit fares. The current council decided to ‘table’
the report – putting it off until after the elections.
The
City Treasurer is predicting a $45 million shortfall in
the 2004 budget. This is additional to the deficit from
this year’s budget, so the total “budget problem”
is $64 million. This is equivalent to a tax increase of
$492 per average home. For Hamilton taxpayers this means
some combination of higher taxes, fewer services and more
user fees. The City Manager has gloomily predicted that
budget cutbacks of 20% will likely be required in 2004 and
that there will be “no sacred cows”.
Debt
This year the City is using over $400 from each homeowners’
taxes just to service the existing debt. This is more than
the total spent on libraries, the HSR and DARTS combined!
The 2003 budget calls for the City’s external debt
to triple by 2007 (from $210 million at the beginning of
this year to $643 million in 2007). Even more frightening
is that total debt projections have climbed by over $100
million in each of the last two budgets. In the 2001 budget,
debt was predicted to peak at $426 million (in 2005). In
2002 it was predicted to peak at $536 million (in 2007)
and in the 2003 budget it is predicted to hit $678 million
(in 2007).
Despite
this massive increase in debt (to a level of $1356 per person
in 2007) the City Council still finds it cannot pay for
at least one-third of the things it needs. Early this summer,
city finance staff presented a 10-year capital budget outlook.
It reported demands for $1.55 billion for capital projects
between now and 2012. However, even with the massive borrowing
noted above, the report says that only $1.08 billion of
this can be covered, leaving a shortfall of nearly half
a billion dollars. And these figures do not include setting
aside any money to renovate or re-build City Hall ($70 million),
or anything for the Commonwealth Games ($80 million), or
any money for development near the airport or in existing
City business parks (likely over $100 million). The Red
Hill Creek Expressway is the only "economic development"
expenditure in the $1.55 billion.
Formal
Warnings
The financial situation of Hamilton is so bad, it is generating
formal public warnings from officials and agencies that
normally don’t say much. In mid-August, the city auditors
publicly castigated the financial management of the City.
They reported the city took in $1 billion last year, but
spent $1.1 billion. Reserves went down $82 million, while
unpaid taxes and other liabilities increased by $58 million,
for a total drop of $140 million in taxpayers' equity. The
auditors wrote: "The
above items are indicators that the city does not have the
appropriate oversight, discipline, rigour and planning in
existence with respect to financial matters.” In response
to the audit report, the City Treasurer admitted: "Our
financial position is deteriorating. There is no question
about that part of it." The report was so critical
that Councillor Murray Ferguson publicly admitted: "I
don't think we're qualified to be an audit committee. Most
of us don't understand financial statements."
When
cities slip into financial trouble, their credit rating
is affected. Earlier this year, the Dominion Bond Rating
Service imposed a "negative outlook" on Hamilton's
rating. Their report was issued March 11 and states: "The
rating action reflects a deterioration in the City's next
tax-supported debt outlook resulting from an increase in
the medium-term capital spending plan." The report
specifically cites costs of the Red Hill Valley Expressway
and the new waste management strategy as the key driving
factors in increasing debt levels and warns that: "Any
further increase to the tax-supported debt outlook would
likely warrant further rating action".
Staff
Fleeing the City
Perhaps the most dramatic warning signal comes from the
city’s top bureaucrats. In the first nine months of
this year, three dozen senior supervisory staff have jumped
ship. This includes the heads of several departments including
strategic planning, water and wastewater, heritage planning,
infrastructure and environmental planning, and legal services.The
City Manager was quoted this summer as admitting that “The
word on the street is that Hamilton is not a good place
to work”. Staff morale is at an all-time low as the
City drifts into financial chaos. This flight of top level
bureaucrats shows there are very fundamental problems facing
Hamilton. It also obviously makes it much more difficult
for remaining staff to address these problems because of
the loss of institutional memory, key personnel and staff
morale.
The
most amazing thing is that incumbent councillors, especially
those pursuing more expressways and more sprawl growth,
are not being challenged by the media to explain this mess.
Indeed, the councillor running for mayor, Larry DiIanni,
announced that his objective is to maintain the status quo
and “provide continuity” to the current administration.
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