By Gerry Barker
Posted October 23, 2015
Yesterday, we addressed the need for the city to be put on a financial diet. Here is one of the chief reasons our finances are in such a mess, it’s called fungibile financing.
At the outset we should give you the dictionary definition of the word “fungible.”
According to Mr. Webster, it is an adjective meaning: “Any unit or part of which can replace another unit, as in discharging a debt, capable of being used in place of another.”
Translated it means that after a budget is created by a municipality or any organization, the moving around of money is counter-productive to basic accounting principles.. If a department has an overrun on one project, it is fungible to move money from a reserve or another less important project in the budget. Starting to sound like it’s a method to discharge an internal debt?
It happens all the time in many organizations around the globe. The difference in Guelph is that the public does not know how their money is being moved around in a budget. The city administration has fungible-ized the practice to perfection.
It has been going on in the city of Guelph for more than eight years. The prevailing attitude is what the people don’t know won’t hurt them.
It’s a lullaby for financial disaster
Just look what happened when the city embarked on a foolish exercise to fire the new city hall general contractor. It took seven years of negotiations, mediation and finally, a $19 million wrongful dismissal lawsuit brought by the contractor, Urbacon Building Group.
The city was found to have wrongfully dismissed Urbacon in 2008 and, being that it was a civic election year, the matter was quickly negotiated to cost $8.9 million.
In a second trial shortly following the lawsuit loss, the city attempted to stall the costs portion of the wrongful dismissal trial until after the October 27 civic election. The judge asked the city why they did not settle the lawsuit. The city lawyer replied that because they thought they would win. Just that simple yet arrogant reply was a telling attitude that cost the citizens some $2.3 million in legal costs.
Another fungible exercise was the renovation of the downtown Farmer’s market. City staff told council the cost would be $170,000. Later, it revealed it cost more than $350,000. But not to worry said the staff at the time, we’ll take the overrun money from the new humidifier to be installed in the West Recreation Centre pool area. That’s fungible and stupid because forecasting budget is not a skill set used by many on city staff.
For Finance chairperson Coun. June Hofland, it seemed like a good idea at the time.
So, the Chief Administrative Officer, Ann Pappert, states that the $8.9 million Urbacon settlement will not affect property taxes. They took the money from three unrelated reserve funds to pay off Urbacon. Then they announced that those funds would be replenished by budgeting $900,000 a year for five years.
On the eve approving the 2015 budget, Coun. Karl Wettstein moves that the city spend only $500,000 instead of the previously announced $900,000. and the Farbridge Bloc of Seven agreed. Wettstein added that the staff should come up with an alternative reserve replenishment plan for the 2016 budget. Now engaged in 2016 budget planning, it will be interesting just what the staff will propose to replenish the reserve funds.
Where is our Chief Financial Officer when we need one?
One of the reasons that this practice continues is the absence of a Chief Financial Officer (CFO). We’ve had five in eight years and they’re all gone. Without a trained and experienced CFO, the stage is set for manipulation of finances. And that’s exactly what has happened. Oh, attempts have been made to put the city finances in order by the parade of CFO’s to no avail. One only lasted one week on the job. That’s probably how long it took him to see what was going on. And fungible manipulation of money was happening at the public expense.
Now here is a perfect example of fungible financing. Coun. Mike Salibury, speaking to the 2015 council budget meeting, suggested that instead of spending $300,000 in creating bike lanes on Woodlawn Avenue, increase it to $600,000.
And where did the extra $300,000 come from? He said it was included in the 2014 budget but was not spent.
This is just another example of fungible stupidity. The Municipal Act requires all municipalities to close their books by December 31 and balance them. If Salibury and the rest of that bloc don’t understand that, then they shouldn’t be on council.
This attempt to spend money, that was not part of the current year budget, is the direct result of not adopting zero based budgeting. That means that each year stands alone and unspent money from the previous year’s budget cannot be used.
This practice has been going on for several years. In 2012, GrassRoots Guelph presented documented figures, showing that the annual closing of the books revealed the final balanced accounts. But then a different figure, usually showing a surplus, popped up in the next year’s budget.
Most people were not informed of these differences because the 400-plus page Financial Information Report, filed by the city to the province, was not available to the general public except by request. Few bothered.
This was pure manipulation of the city finances by the city staff, with the complicity of the council.
It is a practice that must stop
Yet, earlier this summer, the President of the Guelph Chamber of Commerce, Keitho Mwanza, asked the city to adopt a budget system that had a true zero starting point. He did not use the expression “zero based budgeting” but that’s what he meant.
What followed was an hour and a half debate by council that resulted in no changes in the way the budget was prepared. There were three votes to accept the zero based system and all were defeated by the Farbridge Bloc of Seven.
In other words, continue the fungible ways of running the city. Increasing costs annually; hiring more staff; paying higher salaries, wages and benefits, is making Guelph staff one of the highest paid in the country of a city of similar population.
If Kitchener and Cambridge can maintain lower per-person costs, why can’t Guelph?
Note: If you missed the first two parts of this series, check our the guelphspeaks archives.