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Show Us the Numbers: Grading the Financial Reports of Canada’s Municipalities

This excerpt from a D.C. Howe Institute report recommends updating municipal financial reporting to allow for more transparency


Municipal governments provide services such as policing, firefighting, sanitation and recreation that are vital to quality of life. They raise and spend large amounts of money, and their taxes affect Canadians’ decisions about where to live and invest.

But the quality of their financial management is nowhere near a standard appropriate to their importance. Poor financial reporting is not just a problem for accountants. Financial statements are a key tool with which people can determine if organizations that claim to act on their behalf are actually doing so.

Information such as how much the local government plans to spend this year, how this year’s plan compares with the previous year’s results or how actual spending the previous year compares with what was planned is all but impossible for city councillors, taxpayers and local media to obtain.

In the case of cities, elected representatives, ratepayers and voters need budgets and financial statements that allow them to understand what their municipal governments are doing and to hold them to account. In Canadian cities, however, this tool is needlessly hard to use.

Simple information, such as how much the municipality plans to spend this year or how its spending plan this year compares with the previous year’s, is hard or impossible for a non-expert citizen or councillor to find.

Not only do municipalities make it hard to compare results with intentions, their budgets often understate the size of their operations, obscure key activities, exaggerate the costs of investments, hide the cost of pension obligations and leave unclear the sustainability of their fiscal positions over time.

It used to be the same for higher levels of government. At the beginning of the 2000s, the federal government and all the provincial and territorial governments presented budgets using different accounting and/or aggregation methods than they used in their financial statements. Since then, those differences have been disappearing.

The differences between how the numbers appear in budgets and in financial results have real-world consequences. For example, by presenting net, rather than gross, budget figures, municipalities exclude key services such as water and the fees that fund them, obscuring key activities and understating both their revenue and expense. By using cash, rather than accrual, accounting, they exaggerate infrastructure investment costs, hide the cost of pension obligations, and make it hard to match the costs and benefits of their activities.

This report card grades the financial presentations of major Canadian municipalities in their most recent budgets and financial statements. Of those we assessed, Toronto, Durham Region, Kitchener, Quebec City, Longueuil and Montreal failed, providing little information in reader-friendly form.

More happily, Surrey garners an A+ for clarity and completeness of its financial presentation, York Region is a close second with an A, while Vancouver and Markham are also good performers.

This review of Canadian municipalities’ fiscal reporting shows how local governments can, and should, improve their accountability for the money they raise and spend. A key recommendation is that municipal governments should present their annual budgets on the same accounting basis as their year-end financial statements. They should use accrual accounting, matching revenues and expenses to the relevant activities.

Provincial governments that impede accrual-based budgets at the municipal level by requiring separate operating and capital budgets should stop doing so. Municipalities that face those impediments should publish supplementary information on their own. Municipalities that wish to highlight sources and uses of cash for their councillors could always do so in their financial statements and through reconciliations in their budgets.

In addition, budgets and financial statements should show gross, not net, revenue and expense, aggregated on a consistent basis. Netting in budgets hides revenue and expense that are material to municipal services and to the costs residents must pay – and means that only experts with lots of time on their hands can compare intentions with results.

Budgets, like financial statements, should show city-wide consolidated, gross revenue and spending figures that represent the city’s full claim on its citizens’ resources and the full scope of its activities.

These changes would help raise the financial management of Canada’s municipalities to a level more commensurate with their importance in Canadians’ lives.


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