Vancouver’s Liabilities: Eyes Wide Shut … But Who Would Know?

Commentary, Municipal Government, Larry Mitchell

By now, everyone from Sidney on Vancouver Island to Sydney, Australia must know about the cost over-runs and associated problems at Vancouver’s Olympic Village, and might soon know about the recent B.C. Auditor General’s report that the actual cost of the 2010 Winter Games will be at least $2.5 billion net, when Games-related costs are included, and not the lower $600-million trumpeted by the provincial government.

The attention on the Olympic costs though should serve as a useful reminder about how government books are kept, including those at the municipal level—which is probably the most overlooked part of government finances in Canada.

Take the case of Vancouver. To start with, the city needs to provide an acceptable set of City financial statements that include all city liabilities. (For the record, the city’s financial instrument and banking obligations are generally well reported.)

If it is any solace, Vancouver’s measurement and disclosure of municipal debt and their exposure to financial risk, is similar to other Canadian municipalities – most are not currently fully reported. There are major omissions all of which have the effect of understating the full extent of municipal liabilities that future taxpayers will be called upon to meet.

No one should rely on existing public city financial reports when making crucial assessments of their city’s level of indebtedness. This will be particularly relevant concerning issues of financial prudence associated with future borrowing proposals.

The most fundamental flaws in the present system of city bookkeeping find their origin in the inadequacies of the provincial legislation which governs municipal financial management -that’s the province’s Vancouver City Charter. The rules governing best practice financial management and disclosures should be contained within much better local government legislation more in line with what other countries have long since adopted.

The list of risk exposures not comprehensively measured and reported across most Canadian municipalities include the following: unfunded pension fund liabilities – many municipalities either partially report these or merely state that they have no way of accurately measuring their size (and with many municipal employees approaching retirement the sums involved will be big); infrastructure maintenance backlog estimates – the size of this total is huge and uncertain particularly given the common failure of cities to adequately manage and account for their public assets properly; landfill aftercare and other environmental clean-up obligations – both existing and future expected expenses that result from more demanding environmental legislation; and emergency contingency funding of uninsured risks arising from natural disasters.

Some will quibble with aspects of my list. For example, on the last point while it is true that contingency provisions can never be big enough if a major disaster strikes, the prospect of such an event must be factored into municipal best practice risk assessments and debt management.

After all, it is principally Vancouver (its taxpayers) that will be required to fund reinstatement and replacement of public assets should they be damaged or destroyed, or taxpayers at large in the province or country if the event is large enough.

This list of omissions from city liabilities may not all apply to Vancouver. However, consideration of the list measured against the specifics of Vancouver’s current financial circumstances may have a sobering effect upon any rosy gloss given to planned borrowings that could prove to be beyond the capacity of the city to manage.

The recent financial mess over the athlete’s village is a good time to pay more attention to what is normally the preserve of the bean counters – the state of finances, including municipal, and how risks and liabilities are presented to the public. To achieve good decision making Vancouver’s financial statements should be redrawn to include assessments of omitted debt and risk exposure items; that would seem to be merely a reasonable act of financial prudence.

Vancouver, other cities across British Columbia and indeed across Canada, need to be governed by better provincial municipal legislation starting with the adoption of the full disclosure of their liabilities–if the usefulness of public municipal reporting is to be improved.