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City of Calgary – Lots of room for improvement

August 23, 2018
City of Calgary – Lots of room for improvement

During the recent recession, countless Calgarians struggled with pay cuts and job losses. It was a very difficult time for many families and businesesses ... in fact, many are still not quite back on their feet.

At city hall, however, we saw a completely different story – pay increases for city employees, generous spending increases and of course tax hikes. 

Yet when one questions city hall's budget and tax hikes, we continue to hear a ridiculous argument – if the city doesn’t increase taxes, it would have to cut services.

In fact, that’s the choice the city routinely presents to Calgarians in its annual citizens satisfaction survey(see page 38).

We know that’s an absurd choice though. There's a third option. The city could do a better job with the money we provide it while still providing important services like road repair, policing, etc.

Below are a few ideas on how the city could reduce costs to avoid recent tax increases:

1) Culture Change: 
The culture at the City of Calgary has to change. Throughout the recent recession, we saw many free-spending decisions at the city – decisions that were completely detached from the struggles that everyday Calgarians and Calgary businesses faced.

In this section, I’ve highlighted a few examples that don’t represent a lot of money in the grand scheme of the city’s $4 billion budget, but they demonstrate that the tone at the top of City of Calgary still needs to change. And if the tone changes at the top, it’ll be easier to expect the bureaucracy to fall in line and also trim spending (and even come forward with money-saving ideas).

Costly Goodbye Gifts: As you can see in this column, after Calgary’s economy was already going into a tailspin, several councillors expensed some rather costly goodbye gifts for their staff. For example, one councillor spent $195 on a knife while another spent $358 on a bag.

Had the councillors taken a staff member out for a modest lunch or bought a cake and gathered colleagues around for a goodbye celebration, no one would complain. But hundreds of dollars in goodbye gifts (on top of goodbye lunches/dinners) is just plain over the top and it sends a signal to the bureaucracy that council isn’t serious about restraint.

Re-elected, Let’s Party: Right after the 2017 fall election, Councillors Jones and Keating put forward a motion to send city councillors to the Grey Cup and Quebec Winter Carnival. Why? Is it crucial to have a council representative at the Grey Cup to down a few beers and “represent Calgary”? Would Quebecers shed a few tears and stare longingly into their hot chocolate if Calgary didn’t send a representative to their Winter Carnival? Hardly.

During tough economic times, many businesses – and even other governments – will cut back on unnecessary travel. Calgary’s city hall should have followed this common practice.

Halifax FCM Trip: Each year the Federation of Canadian Municipalities hosts an annual conference for municipal politicians across the country. At the conference, attendees can discuss different policies, network with other municipal politicians and meet potential suppliers for municipal services.

Presumably, this event is an opportunity for council members to learn new ideas that could help them in their role as city council members. I don’t think most taxpayers would have a problem with council members attending, provided that they demonstrate they’ve learned something of value afterwards and share the “lessons learned” with their colleagues.

However, according to the Calgary Herald, this year the City of Calgary budgeted to send all 15 membersof Calgary’s city council to the conference.

Thankfully, Councillors Farkas and Davison put forward a motion to cut back on the number of council members flying to Halifax for the event. Considering Calgary’s economic woes, this idea should have been a slam-dunk.

Instead, a fierce debate erupted at council. You would have thought someone was suggesting something drastic – such as eliminating the city’s police force or cancelling all bridge repairs in the city. Several councillors were quite entitled to their perceived entitlements.

In my experience, very few organizations will send their entire staff to a conference. It’s a common practice to send a small handful and have them report back on lessons learned.

Ultimately, council did scale back its delegation a bit, but the fierce debate, and the initial budget for this expense, was quite symbolic of an entity that is out of touch with everyday Calgarians.

Council’s Golden Pension: From 2007-2016, the cost of city council’s pension was more than what Ottawa, Vancouver and Edmonton spent combined. Many council members like to quibble with this fact but what can’t be denied is that every year during that period, the City of Calgary spent more than double what the City of Edmonton spent. (See this news release and report)

Councillor Jeromy Farkas has led by example in this area by refusing the city’s golden pension. We don’t expect council members to not have any kind of retirement benefit, but why couldn’t council have at least scaled back their pension to something more reasonable – like what Edmonton offers?

Doing so wouldn’t solve all the city’s woes, but every dollar adds up! Even more importantly, it would have given council the moral authority to begin pushing to reform the pensions provided to city employees – where more significant savings lies.

Transition Allowance: In 2017, the Council Compensation Committee recommended phasing out the golden “transition allowance” that councillors receive when they quit or are defeated. Despite having an independent committee to protect council members from having to decide their own pay and benefits, what did council do? They voted to overrule the volunteer committee and keep the perk.

2) Bigger Ticket Items: 
Here are a few examples of initiatives that could yield significant savings for the City of Calgary. Needless to say, especially when it comes to restraint of city employee compensation, it’s easier for council to move forward if they’ve led by example…

City Salaries: During the recent recession, many people working outside of government received pay cuts and job losses. It was a very difficult situation for many families.

At the City of Calgary, however, one would never have known that there was a recession.

Consider the following pay hikes for city employees during the recession:

CUPE: 4% in 2017, 3.5% in 2016 3.2% in 2015 and 1.8% in 2014
* Firefighters: 2.5% in 2017
* Police: 2.5% in 2017

I took a quick look for details on contract increases for firefighters and police in 2015 and 2016, but wasn’t able to find the details. I also wasn’t able to find info on pay increases for other city unions. However, I do recall seeing that pay increases were the norm during the recent recession for all city unions.

Some have argued that government employees had contracts at the time and that’s why they couldn’t be broken.

Well, guess what? Lots of people had contracts during the recent recession and yet those contracts were broken in order for organizations to reduce costs and stay afloat.

At the very least, now that city union contracts are coming up for negotiations, couldn’t city employees pitch in and feel the pinch?

One might think so, but yet council has suggested a “pay freeze” for city employees is the starting point. Must be nice – people outside government receive pay cuts, those in government will receive a freeze or better.

If you look at the City of Calgary’s annual reports, you’ll find details on total “salaries, wages and benefits.” Here are those figures for the past few years: 

2014: $1.752 billion
2015: $1.860 billion
2016: $1.976 billion
2017: $2.013 billion

As you can see, salary and benefit costs were up 14.9% over the three-year period.

Conversely, had council cut wages and benefits, the savings could have been significant.

Imagine if, when 2016 rolled around, council took its total wages and benefits spending ($1.860 billion in 2015) and cut it by 3%. That would result in 2016 wages and benefits of approximately $1.804 billion instead of $1.976 billion – approximately $172 million in savings. Even if council had used half this amount to hire new employees, it still would have resulted in $86 million in annual savings.

But alas, that did not occur during the recent recession … council decided it was easier to just expect taxpayers to pay more.

Pay Cuts Are Justified: There are countless studies and examples that routinely show government employees tend to receive more in pay and benefits than those outside of government who are doing similar work. Thus, expecting government employees to feel the pinch during the recent recession is more than fair – it’s not as though we’re expecting underpaid people to take a hair cut.

This recent Fraser Institute report shows government employees in Alberta earn about 10% more in pay, almost always have costly defined benefit pensions (whereas most people outside government don’t have a workplace pension), they retire earlier and take more sick time.

This CFIB has done great research into this area as well – see their “wage watch” reports.

Goodbye Bonuses: Each year the typical city employee who retires receives an average bonus of $10,814. The bonus isn’t based on an employee’s performance; it’s just an old relic of a benefit that is based on an employee’s annual vacation allowance. (Eg. In your final year of retirement, if you receive six weeks of holidays, you would still get to take those, plus you would receive the equivalent of six weeks additional paid holidays)

It goes without saying that this type of benefit is very rare outside of government. I asked the city back in May for analysis that shows the effectiveness for this benefit. To date, I haven’t received a response.

Eliminating this perk would save $8 million per year. Note: currently the City of Calgary has a $73 million liability for this perk.

Pension Explosion: Back in 2002, the City of Calgary spent approximately $36 million on pensions for city employees. In 2008, the annual bill stood at $78 million. Fast-forward to 2017 and we’re looking at $200.3 million – an increase of about 459% over the 15-year period.

City of Calgary Annual Pension Spending (Million $) 

2002 2008 2017
Local Authorities Pension Plan    $25.198    $59.901    $157.200
Special Forces Pension Plan $8.402 $14.400 $34.400
Firefighters' Supp. Pension Plan $1.615 $2.464 $5.471
Supplementary Pension Plan $0.518 $1.273 $2.881
Elected Officials Pension Plan $0.068 $0.254 $0.308
Total: $35.801 $78.292 $200.260

Sources: 20022008 and 2017 City of Calgary Annual Reports

During that fifteen-year period, under normal conditions, two key factors would drive up those costs – more staff due to an increase in the city’s population and higher salaries (pension costs are based on a percentage of each employee’s pay).

The City’s annual reports indicate that Calgary’s population grew from 904,987 to 1,246,337 during that 15-year period – an increase of 38%.

I don’t have wage growth information handy, but I think it’s safe to saw that if we include wage growth, we’re still a far cry from justifying a 459% increase in pension spending.

I suspect the huge increase can be attributed to the type of pension the city provides – a defined benefit pension. In short, these types of pensions guarantee employees payouts for the rest of their lives.

These guaranteed payouts require bean counters (who manage these types of pensions) to accurately predict how much money will be needed over time. Doing so requires a near-perfect prediction of pension fund performance, how long people will live, inflation, wage growth and other factors.

Routinely, these plans run into trouble and don’t have enough money to pay their bills. To “fix” the situation, governments regularly throw in more and more cash to prop up the pension plans.

Consider the pension plan most City of Calgary employees belongs to – the Local Authorities Pension Plan – and take a look at the amount of money the city has to contribute for each employee: 

2002: 5.025% up to YMPE and 6.9% for earnings above YMPE
2017: 11.39% up to YMPE and 15.84% for earnings above YMPE

(For those not familiar with pensions, see this description of YMPE)

I’m not going to get into the minutiae of the pension situation here, but it should be clear that if the city used to pay 6.9% of an employee’s earnings (above YMPE), and now pays 15.84%, that’s a huge increase. It may just look like a 9.94% increase, but if you do the math, the cost in dollars terms is at least a 130% increase.

It’s time for the city to pursue pension reform and save taxpayers money. Just think, had the City of Calgary “merely” tripled its pension spending between 2002-17, the city would now have about $95 million in annual savings!

(And note that a tripling in pension costs would still be generous compared to what people outside government receive)

Triple Pension Club: There are 236 City of Calgary employees who are poised to receive three pensions each from the city. Further, city data shows there are 979 employees who are set to receive double pensions from the city. (See this news release)

The aforementioned employees will all receive the Local Authorities Pension Plan (which describes itself as “quite generous”) and one or two top-up pensions depending on where they lie in the city’s pecking order.

Now consider some Statistics Canada data from a recent Fraser Institute report that shows only 24% of those working outside government have a workplace pension.

With that in mind, it’s unreasonable to keep asking those outside government to keep paying higher and higher taxes to fund second and third pensions for city employees.

If those in the city’s double and triple pension club could just “get by” with the main pension plan – the one that describes itself as “quite generous” – this could free up about $5 million in annual savings.

Golf Course Losses: It doesn’t make sense for the City of Calgary to be losing millions of dollars by owning and operating golf courses – especially as there are over 40 golf courses in and around Calgary area.

Yet, data obtained by the CTF shows the City of Calgary lost over $2 million through its golf courses between 2015-2017. And if we exclude Shaganappi Point (the only course that regularly turns a profit), the city lost more than $3 million.

What these figures don’t account for, however, are opportunity costs. What would happen if the city developed some of those courses? This approach could yield millions in property tax revenue to help pay for city services – helping to ease the burden on the rest of us.

See this column for more details – click here.

$100 Million Corporate Welfare Fund: This one is fairly straightforward. The City of Calgary has set aside $100 million for a fund that will give tax dollars to businesses and hope they create some jobs as a result.

On the surface, the intentions are in the right place – the government is trying to “create” jobs.

However, there are countless problems with these types of corporate welfare programs. Many organizations, including the CTF, have issued reports over the years that show these programs inevitably produce poor results for taxpayers.

There’s also the unfair nature of the program – imagine paying your tax bill, struggling, and reading in the paper that the government is taking some of your money to help a competitor start-up.

A better approach would have been to give the $100 million back to taxpayers and help everyone get through the recent recession – including businesses that are struggling.

Olympics: We’ve been pretty vocal for a long time now on this issue – the city should pull the plug on an Olympic bid. Far too many taxpayers can’t afford property tax increases to pay for the big bill that inevitably comes with hosting the Olympics.

The actual savings from this option is hard to nail down but the city has committed $9.5 million just on developing an Olympic bid. And if we “lose” out on that process – poof! There goes $9.5 million.

Subsidizing Union Expenses: This one is a bit smaller on the surface, but it could yield even larger savings. In short, the City of Calgary subsidizes both sides of the proverbial “bargaining table” when it sits down with city unions.

And if the city is footing the bill for those it is negotiating with, guess what? They’ll have more of an incentive to drag out negotiations, grievances, etc. This column describes the issue in more depth. Note that in 2016, the city spent $95,800 on subsidies for union representation.

Public Art: When a household has a loss of income due to a significant pay cut, or a breadwinner loses his or her job, buying artwork tends to take a back seat to more important priorities – mortgage payments, electricity bills, food, etc.

With that in mind, the City of Calgary could have frozen its public art program during the recent recession, saving taxpayers at least a few million. But that didn’t happen … at least not until the new Bowfort Towers exhibit blew up into a public relations nightmare for the city in the summer of 2017.

Instead freezing the public art program, however, an even better idea would be to copy the “See Art Orlando” public art program. I described the 100% private sector funded public art program in this column – click here.

Other options: From outside government, it’s difficult to know where all the savings opportunities exist. It can also be difficult to know where all the pockets of savings lie if you’re at the top of the government’s food chain – i.e. the City Manager’s Office. How would he or she know if there’s a road repair division that is operating with five guys, while it only really needs, say, four guys?

This column describes how governments can change the entire incentive model to unleash millions in savings throughout the system. In short, by subjecting government services to a competitive service model or by giving employees the incentive to come forward with money-saving ideas, council could save millions of dollars – just as other cities have done.

Conclusion: There are lots of things the City of Calgary could do to cut costs without impacting the services that people receive day in and day out. The problem is that council, as a whole, has been too lethargic to go after these ideas in any kind of meaningful way.

Hopefully this blog post helps councillors like Farkas, Chu and others who are trying hard to find ways to reduce costs and avoid tax hikes. I hope this blog post also convinces readers to push back on City Hall and demand better. We certainly know it’s possible.


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