Projected deficit

Two words that strike fear in the hearts of city councillors: Projected deficit.

Hey look, here comes one now!

Yes, this year, the Director of Finance is warning council of a deficit of $3,200,000. Yes, it’s a lot of money, but it should not come as a surprise for anyone who paid attention to this year’s budget back in December, which was full of impending doom.

When the budget was voted on, Dennis O’Keefe himself predicted a deficit for the next two years, and said that we must look to make this money up through economic growth, as well as increased funding from the provincial and federal governments.

And to make it even worse, Gerry Colbert stated ominously, “if you think this years budget is tough, wait until next year.”

But should the city be so scared? I don’t think so. My deepest fear is that the city will allow this projected deficit to blind them from the long-term vision this city desperately needs.

The budget this year was a trying one for council and for the citizens of St. John’s, and I think council did a good job of maintaining levels of services on all fronts. While many wished to see more done, people couldn’t really complain that any vital services had been lost. In an assessment year which saw property values skyrocket in this oil-rich city of ours, council reduced the mil rate to offset what would have been a doubling of assessed value for some homes (which would have meant property tax doubling.)

The city of St. John’s budget is controlled by the province’s appropriately-named City of St. John’s Act. This act forbids the city from operating on a projected deficit. Due to this, the city uses what is called a zero-based budgeting process, which means every year, they wipe the slate clean, and work their way up, item by item, until they have accounted for all of the projected revenues for the coming year. Starting with fixed costs and financial obligations, such as debt payments, they move on up through the programs and expenditures of the city, starting with what they feel is most important, until they run out of money.

So… when projected deficits are talked about in St. John’s, they are predicting that costs will rise above present levels, and that to maintain the very same level of service will require more revenue than we actually have.

But this projected deficit is based on levels of revenue and assumes no growth. This year has looked good so far: There were increases in the number of development permits issued and growth for the current year, in taxes, is almost assured.

While $3.2 million seems like a lot of money now, new developments already in the works should make up at least some of this deficit by the end of the year.

Decisions that make us cut corners to deal with our short-term financial needs could just as easily leave us with bigger, and taller, problems.

2 comments

Slowers

OK, the speeders are bad enough but those of you out there who feel the need to go 20 kmh lower then the posted speed limit are just as bad!!! You get everybody behind you irritated!!! If you don’t feel safe driving walk or take a bus. Yes I am ranting those of you who […]

8 October 2010

  1. Lionel West · October 8, 2010

    Andrew:

    You are being rather generous with your interpretation of things. Just because a service is provided, it does not mean it should continue. As for the zero-base budgetting, how many councillors do you know who have been “out in the field” to observe how things are done? They sit in a boardroom and listen to senior managers defend their departments and listen to justification for expenses.

    Who is analysing work processes? Are there better ways of doing things? Why is the city involved in tourism and economic development when there are other organisations within the city who do similar work? And besides, tourism is a provincial responsibility!

    What about the city getting involved in infrastructure projects then incurring ongoing operational costs? e.g. Riverhead treatment plant. Mayor O’Keefe kindly committed the citizens of St. John’s to maintenance costs of an extended Gushue Highway – a provincial highway!!

    I’m not too sure what you mean when you say “…this projected deficit is based on levels of revenue and assumes no growth.” Surely the city has included growth and/or decline in their revenue forecast. Otherwise the budget is meaningless. The city, afterall, has this information at their fingertips. They process all the building permits and should know when new developments start attracting taxes etc.

    I’m not saying the city wastes money, but it does not mean they are doing everything perfectly. Some councillors make this point but so far there has not been the political willpower to take a critical look at things.

    As for your long term vision for the city, what does it involve and how are you going to fund it?

  2. reality hurts · October 8, 2010

    I guess turning down a 70 million dollar project in the middle of town didn’t help the city’s bottom line either. Imagine all the permits ,taxes ,fees etc … Then think of all the spinoffs from such a project. Think with your heads not your rear ends when you protest!

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