What is the process, how does it work and what is new
Growing municipalities like Brampton create a budget each year not only to provide day to day services and programs to citizens and businesses but also to build new facilities and maintain existing public infrastructure. Public infrastructure such as roads, recreation centres, parks and other facilities, as well as transit and fire trucks, are the backbone of any city and contribute greatly to a resident’s quality of life.
Maintenance is critical and municipalities across Canada face an infrastructure deficit of delayed repairs and redevelopment. And, according to the Federation of Canadian Municipalities (FCM), the main reason for this deficit is revenue imbalance.
Municipalities have limited revenue sources and very strict rules on how and where these revenues may be used. Revenue sources include property tax, user fees such as transit fares, development charges, and federal/provincial grants. User fees can only be used for operating expenses that include the day-to-day expenses of running a municipality; development charges can only be used for growth-related capital investment such as new recreation facilities and roads. Property taxes can be used to fund both operating and capital expenses. Typically, Federal and Provincial grants can only be used towards capital infrastructure and come with restrictions on the types of projects they can be applied to.
Property tax and how does it work?
Municipalities own 60 per cent of the country’s infrastructure but collect only a fraction of the taxes. Property tax forms a major source of revenue for a municipality and here’s how every tax dollar is divided in Brampton.
• 17 cents - School Boards (Province of Ontario)
• 38 cents - Region of Peel
• 45 cents - City of Brampton
The City of Brampton has a lot to accomplish with the 45 cents that it collects from every dollar of property tax. Some of it goes into the operating budget and some into the capital budget. As a result, how the budget is planned is crucial to provide services and maintain and build infrastructure.
Budget 2016 - 2018
The City of Brampton has introduced two new things: a multi-year budgeting plan for 2016- 2018 and capital contract budgeting methodology. Earlier this year, the Auditor General Jim McCarter highlighted the need for the City to take meaningful steps to maintain its’ infrastructure assets. Budget proposals being presented this year will include 2016, 2017 and 2018. This will help prepare residents for property tax impacts for the next three years and it will help the City in its long-term budget goals of maintaining assets, investing in the community, investing in the city’s future, and increasing emergency funds.
What is capital contract budgeting?
Simply put, capital projects are initiatives that may take several years to complete and are typically delivered in multiple phases. For example: an infrastructure project such as a recreation facility involves design and construction. The project could start with buying the land, lead to a design being created and then finally the construction, all of which is delivered in phases over multiple years. Capital contract budgeting is allocating money to the individual contracts in different phases of the project, as and when the contracts are expected to be carried out. For example: a major capital project that may have an overall cost of $6 million and take five years to complete all of its’ phases, budget is allocated each year to those to only those contracts that will be awarded in that particular year.
How is it different from what was done before?
In previous years, the City budgeted for and approved the full cost of a given project in the year it was proposed. However, contract commitments for the project were made only as and when the different phases progressed. As a result, the amount budgeted for was not necessarily fully committed in the year it was allocated and remained “unspent” or “uncommitted” (no contract was signed). The move to capital contract budgeting makes this process more efficient.
This type of budgeting provides better use of funding and helps prioritize projects. For example, it better reflects the project timelines and potentially provides the opportunity to free up funds to use for expediting other projects.
As one of the fastest-growing cities in Canada, Brampton faces a challenge keeping up with the demands of a growing population. And, because municipalities typically have to build infrastructure such as roads, and other amenities before the actual complete development of a sub-division, when development charges come in, it is vitally important to budget efficiently to manage the funding gap before and after development charges are collected.