How a $10M 'surprise' turned into a political problem

At the start of Wednesday's city council meeting, Mayor Jim Watson asked the city treasurer for "any overview of any material changes you may be aware of and that should be brought to council's attention before we start our budget deliberations."

But Watson already knew the answer.

While at least a third of councillors were stunned to hear the city would be ending 2017 with a $10-million surplus instead of a $5-million deficit, the mayor and his supporters were well aware the treasurer had a financial surprise in store for them.

Immediately following that happy news — a revelation Coun. Rick Chiarelli characterized as "a Christmas miracle" — Watson moved a motion to spend the windfall on fixing up roads and sidewalks and such.

The mayor effectively pulled the rug out from under a motion supported by eight councillors to increase taxes by an additional 0.5 per cent in order to raise $8 million to, well, fix up roads and sidewalks and such.

The uncanny timing of the surprise surplus has stretched the credulity of a number of observers. But there's a big difference between a fortuitous coincidence and a cynical contrivance. There's also a difference between a bureaucratic process and politics.

And the problem with this odd episode, it seems, was pure politics.

Year-end financial luck

Senior city officials state unequivocally they found out about the surplus on Friday afternoon, then spent the weekend with their staff checking the numbers.

They say the additional money came from three places.

The first was the city staff itself. Drafting the budget requires so much lead time the year-end forecasts that go into the document are from August. At that time, the treasurer was forecasting an operating deficit of about $5 million.

To try to close that gap — not so big in a $3-billion budget — city manager Steve Kanellakos told his staff in the fall to try to cut or defer any expenses that didn't directly affect services. Staff was able to improve the books by $5 million through lower spending and some increased revenue.

Another $5 million came from higher-than-expected payments-in-lieu of taxes. That's the money the federal government pays for using city property instead of paying traditional property taxes. 

And finally, the third and most significant amount came from what's called assessment growth. The treasurer's office estimated how many new homes would be added to the city's tax rolls in 2017, but didn't receive the actual amounts until late in the year from the Municipal Property Assessment Corp. (MPAC).

As it turns out, taxable assessment growth in Ontario hit record highs this year. For Ottawa, that meant $10 million more than expected in taxes from new properties.

Convenient timing? Absolutely. But there was hardly a conspiracy to conjure up millions of dollars at the 11th hour. Skeptics can check out MPAC's own press release about this year's assessment here. 

The fact is, as of last week, the city went from expecting a $5 million deficit to a $15-million surplus. Some of that was earmarked for specific reserve funds, but $10 million became available for however council wanted to spend it.

Mayor chose only to tell supporters

The only problem with that outline of what happened is the part about when council was told the money existed.

Coun. Diane Deans seemed furious to only find out about the surplus at the start of the budget meeting. Even worse, she realized some of her colleagues had already been informed.

She wanted to know why staff didn't send councillors all the same memo alerting them. But city officials say that's not their job. Treasurer Marian Simulik reports to her boss, the city manager. The city manager, in turn, told the mayor, who by law is considered the city's chief executive officer.

The council-approved process calls for the mayor's and city manager's offices to put together the budget. As far as he's concerned, Kanellakos said he fulfilled his responsibility.

That leaves Watson.

There's no technical requirement that he tell his council colleagues about a last-minute $10-million windfall. There's an argument, though, he should have anyway. Instead, for a day or two before the budget meeting, the mayor said he told only his "supporters" about the surplus and his plan to move a motion about how to spend it.

On a purely political level, Watson's reasoning is obvious. After all, the eight councillors backing the 0.5 per cent tax increase for infrastructure — a move largely led by Deans — knew their motion would antagonise the mayor, who had run on a promise to keep tax increases to two per cent. And none of those councillors appear to have given the mayor's office a head's up their motion was coming before it was posted on Twitter last Thursday.

So, tit for tat, right? Well, not exactly.

Responsibility for consensus

Firstly, the mayor is responsible for trying to cultivate consensus on council. That goal would have been served by telling them all about the $10-million surplus.

Secondly, the mayor's walked-on motion left zero time for many councillors to think about how they might want to spend that money. Watson and his supporters criticized the Gang of Eight for not consulting with the public about their proposed tax increase.

But at least those councillors gave the public a week's notice and, they argue, had heard from constituents throughout the budget process that the public wanted more done about the state of the roads.

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With Watson's motion, public consultation was impossible. Sure, the surplus meant the spending on infrastructure could be done without additional taxation, but some discussion at council over what to do with an unexpected $10 million just makes sense.

Dozens and dozens of public delegations came to committee meetings over the past weeks to plead for money for everything from freezing transit fares to boosting the council-approved greenhouse-gas reduction plan.

Could the eight councillors have pushed back? Not really. Having been so vocally public about the need for more infrastructure renewal spending, they could hardly rebuff the mayor's motion to do just that. In the end, they all voted with Watson, which is what he had planned all along.

In the moment, it looked like a clear win for the mayor. On reflection, it smacks more of tactics than leadership.