'Your brain will melt': Calgary gets D+ for clarity in its financial documents - Action News
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'Your brain will melt': Calgary gets D+ for clarity in its financial documents

If you've ever tried to read a City of Calgary financial report and found yourself confused, you're not alone.

C.D. Howe Institute ranks Calgary dead last in annual review of how easy city budgets are to understand

The City of Calgary uses different accounting methods in its annual reports, left, than in its budget documents, right, which is one of several issues the C.D. Howe Institute raised in a report on clarity in financial reporting. (City of Calgary)

If you've ever tried to read a City of Calgary financial report and found yourself confused, you're not alone.

The C.D. Howe Institute, a non-profit research groupthat specializes in economic policy, found the city's recent budget documents the most confusing out of dozens of cities it studied.

It slapped Calgary with a D+ grade for financial clarity tied for dead last with Ontario's Durham Region in an annualreport released Tuesday.

It's a far cry from the A grade that Calgary received in 2016.

Given the documentsthe institute chose to review for its 2017 report, however, Calgary's chief financial officer Eric Sawyer said he's not surprised by the sudden swing in grade.

Multiple documents

Sawyer noted the previous C.D. Howereport gave high marks to Calgary's comprehensive 2015-2018 fiscal plan but then this year's report found the "substantially modified" update to that plan to be wanting in several areas.

In particular, the report noted thecity's budget update"buries key information" and "does not provide updated historical results."

But Sawyer said the more recent document is meant to be read along with the more comprehensive plan.

"That's the way we've designed the process," he said.

"So if they had taken both of those documents they'd probably get a better sense of what's going on and certainly I would envision a better score, based on how they're measuring it."

BenDachis, associate director of research with theC.D. Howe Institute, said the report looks for the most prominent budget document that can be found online, as that is akin to how a typical citizen would consume the information.

Ben Dachis is the associate director of research with the C.D. Howe Institute, a non-profit research group that specializes in economic policy. (CBC)

He said spreading the information across multiple documents is, in itself, confusing.

"The bottom line here is, if there are multiple documents that are equally prominent that's the problem," Dachis said.

Carla Male, the city's director of finance, admitted thatcan be a challenge but said the city takes steps to boil information down through other online presentations, as well.

"We do try on our website to make them relatable, to make them digestible," she said.

"Often what we will do is pull out the key concepts and the key information and then we will provide links to the documents themselves."

Different accounting methods

Another highlighted problem is that the city uses different accounting methods cash accounting andaccrual accounting in different documents, leading to wildly different numbers that are hard to compare.

"For example, in 2016, Calgary approved a budget on a cash basis showing $5.79 billion in spending," the C.D. Howe report reads.

"Its end-of-year financial report on an accrual basis by contrast, showed $3.69 billion in spending."

Dachis said it's extremely difficult for experts to reconcile the different documents, let alone the average citizen.

"Your brain will melt," he said.

"That's the basic problem, because there are so many differences between the budget and the financial accounts at the end of the year that it's effectively impossible for any non-expert to be able to compare the two documents."

City's explanation

Male said there are reasons the city budget uses cash-based accounting, which involves talking in terms of actual money that's coming in and out the door.

Accrual accounting, by contrast, talks in terms of amortization,or spending spread out over the expected life of an asset.

Male said that makes sense when doing year-end reports but can create challenges when the city is setting capital budgets for major purchases that total in the billions of dollars.

If the city used accrual accounting in its budget, Male said, "we would have a real cash-flow issue, potentially."

"Some of our assets are very, very long-lived up to 100 years, in some cases and so you would have intergenerational issues on raising the funds, when we need those funds upfront to be able to pay for those assets," she said.

Net vs. gross spending

Yet another issue raised by the C.D. Howe Institute is the use of "net" expenses in some financial documents versus gross spending in others.

Sawyer said the "net" spending numbers in city budget documents typically refer to how much money needs to come from taxation.

So, if a hypothetical city service costs $100 million to deliver but generates $60 million through user fees, its net expense is reported as$40 million because that's the amount that needs to come from taxes.

Dachis, however, said "that's a very misleading picture of the overall fiscal footprint of a city."

"There's one group of taxpayers and whether they pay for municipal services through their property taxes or user fees or police tickets, they need to know how much expenses are growing every given year," he said.

"And by presenting only the net amount that is supported by property taxes, the city is obfuscating the overall cost of government."

Male said the city does provide gross numbers elsewhere but the budget process is focused on setting a tax rate, which is why it focuses on net expenses.

"We don't want to show a whole bunch of gross numbers because it may overstate the amount of revenue people may think we want," she said.

"We want to allow the other revenues to be netted off so that we can get to the heart of what the tax rate is that we need to set."

So what are the numbers?

To put it in simple terms, CBC News asked Sawyer and Male for the ballpark, bottom-line spending figures in the city's budget for 2018.

They said the total operating budget is about $4 billion (the "gross" spending).

Of that, about $1.74 billion is to be funded by taxation (the "net" spending).

In addition, the capitalbudget is another $1.7 billion (on a cash-based accounting basis).

All of this is subject to change, however, as city council goes through its budget deliberations this week.