How to control taxes by changing the way the City of Ottawa does its budget.
I do not think that the City of Ottawa uses the correct budgeting process, and this is one the main causes of tax increases.
For example, the city's operating budget has increased 38% from 2002 to 2010, but services have NOT gone up 38% in that same time period.
Ottawa's long term debt has also increased to $1.6 Billion dollars. This amounts to a yearly debt charge of $100 million dollars each year. This debt is too high and it shows that costs are out of control at the City of Ottawa.
The City of Ottawa uses a form of budgeting known as Incremental Budgeting.
A brief definition is: Allocation of financial resources is based on previous year’s budget plus or minus an increment (usually plus)
Inflation is easily accommodated through an increment over last year’s budget.
While new spending items can be easily added older items are seldom reviewed.
The problem with the current methods are that it:
- Encourages a use it or lose it mentality for fear of losing money in subsequent years
- Less flexible to changes in priorities or changing economic circumstances
- No incentive to reduce expenditure
- Can lead to continual growth in expenditure not matched to revenue
Incremental budgeting creates continual small increases in taxes and service charges on the taxpayer, and it may not be noticed in the short run. For example, current tax property tax increases amount to an average $2.65 per week, per house hold in Ottawa. While that increase may seem small in the short run, it does create long term tax increases that can be quite large. These tax increases happen in the background (because no one notices), and they are basically uncontrollable when a city uses "Incremental Budgeting".
Zero Base Budgeting
On the other hand, I propose a system called “Zero Base Budgeting".
All expenses must be justified for each new period. Zero Base Budgeting starts from a “zero base” and every function within an organization is analyzed for its needs and costs
No item appears in a new budget because it was in the last year’s budget.
Allows staff and council to question assumptions and allows for review of all or some programs each year.
Every item in the budget must be reviews based on:
- Value of program
- Cost and effectiveness of alternative courses of action and delivery methods
- How to Measure Performance
- Impact of eliminating a program(s)
The main positive features of this system are:
- Questions accepted beliefs and objectives
- Focus on value for money
- Prioritize spending
- Clear link between budgets and city objectives
- Council must focus on the entire budget; not just a small portion as is currently the case.
I feel that a municipal budgeting process that uses the “Zero Base” methodology would get Ottawa’s spiralling operating costs under control and allow us to reduce or remove less important program.
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Last Update: October 5, 2010.