Like every story, there are two sides to every equation. One of the most important equations for the people at City Hall is the financial one relating expenses and revenues. It’s no different for citizens or businesses. If you spend more money than you make, bad things happen.
The staff and Councillors at City Hall have been working hard to find ways to increase revenues. Some want us to sell the naming rights to all kinds of public assets. Others want to sell advertising space along our roads. A new downtown casino, a new football stadium, a greatly expanded employment growth district at the airport could all contribute new revenue. A consultant suggested things like increasing parking fees, increasing recreation fees, selling off a city-owned golf course. It’s even been suggested we raise taxes an additional 1%. Still others judge our problems are the result of the provincial government downloading their responsibilities on to us. They feel lobbying them holds the promise of a huge increase in revenue.
At the Hamilton Civic League, we have created a Finance Committee to review the City’s publicly available financial information. Our purpose is to identify opportunities to balance the financial equation and share the findings with people across the city. Our mission – and our hope – is that by providing insight and understanding into the key issues in our city, more people will become involved – and active – in municipal affairs.
It seems to us the staff and Councillors at City Hall are forgetting about an entire side of the equation – the side of the equation that lists the expenses. If we are not making as much money, we should not be spending as much money.
Here’s where the elephant comes in.
The elephant at City Hall is the amount of money being spent on salaries, wages and benefits – which includes pensions – for the employees who work for the City.
In 2002, the salaries and wages were $354 million. In 2011, the salary and wages were $487 million. That’s an increase of 37.6% or 4.2% per year.
Salaries and wages also determine benefits costs. In 2002, the benefits costs were $33 million. In 2011, the benefits costs were $137 million. That’s an increase of 310.8% or 34.5% per year.
From 2002 to 2011, inflation increased by 20%. If the City’s salaries and wages had only increased at the 2.2% annual rate like inflation, the City would have spent a total of $462 million less from 2002 to 2011. Likewise, the City would have spent $429 million less on benefits. That’s a combined total of $891 million.
These increases much more than the rate of inflation, would have gone a long way towards renewing the city’s infrastructure and improving social services supports for those most vulnerable and in need.
Recently the city manager sounded the alarm about the deteriorating infrastructure in the city estimated to need $200 million a year. He claimed a problem with the “city’s ability to manage ongoing and growing financial challenges.” He suggested the city was getting shortchanged by both Ottawa and the province.
But the provincial government has a fiscal crisis of its own with a record deficit. The federal government too is struggling to balance its budget and reduce its deficit.
City Council recently voted to pay $3.35 million during the first six months of 2013 to cover the costs of social services, emergency services for those most in need, previously paid by the provincial government. Our City’s Treasury Manager stated: “It’s going to be a huge budget pressure.” Assuming twenty business days per month, City Hall spends that amount in less than two business days on salaries and wages.
Rather than suggesting those most vulnerable in our city are a “huge budget pressure”, the city must start to deal with the elephant in the equation.
Historically, governments have relied on growth to solve their problems. More people, new development and new businesses have all generated new tax revenues to offset expenses. Those times are over. Since 2002,Hamilton’s population has grown at an average of 1% per year.
Knowing the problem is halfway to solving it. The Civic League is working hard to understand the City’s financial equation and will work just as hard to propose solutions.
City Hall simply cannot continue to ignore the ballooning employee costs on the expense side of the financial equation.
Please contact us if you would like to join our Finance Committee.
Jim Sweetman
Chair, Hamilton Civic League Finance Committee
Please stop this runaway government elephant…it’s the escalating wages, benefits and entitlements that will sink Hamilton
While the Elephant in the room of your discussion would seem to be getting a little “Porky” and could stand to be put on a bit of a diet, based on the figures quoted, I would caution against the danger of envying our City employees the salaries and benefits they earn.
Benefit envy is not healthy since it tends to promote a “race to the bottom” for everyone. Much better to strive or to argue to improve private sector wages to level up, not down.
The solution to City finances is a comparatively simple one, and does not involve further charges upon the already hard pressed citizens. The solution, which has been and is being used to great benefit in other cities around the world, is the taxation of site values of private property.
The City should switch from basing the property tax assessment on “property” i.e. developments and improvements, to the assessment of site value alone. In other words a Land tax, or the appropriation of “economic rent”.
In addition the cost of infrastructure improvements and civic services and amenities should be paid for out of a levy on the site value improvement, or increase, which these improvements engender.
It is time that idle land,or underutilised land, held out of productive use by land speculators and corporations, was assessed and taxed at the full market value of the site, and not given a reduced assessment as “undeveloped” land.
Site value is created by the development of the community, and should be returned to the community, not allowed to be appropriated by the owner who has done nothing to create the value.
This solution would also unburden developers and those who improve their property and thus encourage maximum use of the site. It would also stop encouraging owners of rental property from allowing their rental units to deteriorate and put an end to slums.
I strongly urge that the benefits of site value taxation be studied for a fuller understanding. This method of Municipal financing is more equitable, more easy to collect and assess and more beneficial to the average home owner.
[...] The Elephant in the Equation [...]