Ignorance is no excuse; or is it bliss?

Political scientists and economists, often discuss Agency Theory which is the relationship between a principal and an agent. In this relationship the principal (Council) delegates (the Administration) to perform work. The theory deals with two problems:  the first is that the goals of both the principal and the agent are in conflict, and it can be difficult for the principal to verify the agent’s work. The second is the risk sharing issue, because the principal and the agent have different risk tolerances.

In light of several recent reports from Council dealing with costs overruns, it may be time for Calgarians to take a good look at the Agency Theory to explain the reasons for some if not all the costs overruns of Calgary's capital projects.

The latest of these audit reports address the costs of the West Leg LRT. While the line is in operation we still have additional costs not yet accounted for. In 2007, Council approved $700 for vehicles, construction design and land purchase. In 2008, due to several revisions to the original plan, Council approves and additional $121.4 million. Between 2009 and the 2012 opening of service Council adds an additional $389.7 million, including $142m for land. In 2010 the budget is reduced by $5 million but the cost of landscaping is yet to be included in 2013.

As you can see, it seems that this project never had a full analysis before approval. Council seemed to be eager to move on with the project despite the fact that there were many unknowns. One fact that is not very well known is that the former Mayor owned two properties on the proposed line.  Of course after the audit, Management accepts all the recommendations made to improve the Corporate Project Management Framework. What else could administration do, say No to the recommendations? Unfortunately for the taxpayers , as usual the horse had already bolted.

This is not the first time that projects at City Hall have suffered the same results and audit scolding. We had the debacle of the East Village, the widening of 16^th Avenue, the Crowchild bike path, the problems with the Centre Street Bridge, the lack of a budget for a kitchen in the Telus Convention Centre, and of course the yet to be resolved costs of the Peace Bridge among other projects.

If it is not coincidence it must be a clear pattern of the agency theory problems; one either Council does not have a grasp of what administration is doing, or that the risk taking differences are so large that they cannot be reconciled. Either way, the costs of the consequences of bad management falls directly on the taxpayer who in the end always pays for the mistakes.

It seems that Council has the problem of fulfilling its promises to the electorate without looking clearly at the risks of undertaking such promises. The other issue is that administration is willing to low ball the costs, and minimize the risks to please their masters and get the project going, despite the fact that the full extent of the project costs may not be known at the time of approval. It may be in the interest of administration to do so because it seems that the high ranked executives may have their bonuses attached to performance and the completion of these projects.

More importantly for Ald. Pincott, a Chair of the audit committee, and some of his colleagues to claim ignorance or lack of information is inexcusable. Clearly due diligence and oversight were missing. Given these past problems and the often un-scrutinized bonuses at City Hall, Calgarians should demand that we move away from the current practices of project analysis, budget management and lack of proper accountability. Although P3s may not be the panacea for better management, it seems that it could well be time to consider more private/public partnerships with strong and verifiable contract caveats, including penalties for non-compliance and late delivery.

A departure from current practices is more imperative now than ever due to the amount of reconstruction that will be required as a result of the 2013 Flood. Calgarians cannot afford anymore blunders, or bad budgeting for future projects, notwithstanding whether they are essential or nice to have. The latter of course should be completely discarded and ignored.

Marcel Latouche

Water Management

A recent report issued by the Federation of Canadian Municipalities estimates that to replace Canada’s water, stormwater and wastewater infrastructure will cost approximately $80 billion or more.

In Canada, municipalities and the public at large have taken water for granted, and as a result over the years the management of water may have been left to be desired. Either there was no long term planning or it was lucrative to charge users for water and wastewater treatment and pocket the surpluses instead of re-investing in infrastructure as may have been the case for some cities.

It is reported that all around the country infrastructure is crumbling. That as a result of growth and climate change the burden of water management will increase. There is no doubt that this may be true, but to call it a deficit for some cities without exploring all the facts is disingenuous.

Denise Deveau of the Natonal Post , reported that Paul Fesko, manager, strategic services for water resources with the city of Calgary commented :

“The only way we could grow as a city was to be more efficient in the way we use water,”... “Those rivers aren’t getting any bigger and no extra money is coming in. We just have to keep getting better at reducing per capita demand.” 
In the case of Calgary, there is no doubt that we need better water management, but to have an informed debate, the public must be given the true facts. First and foremost for years Calgary refused to have water meters, because a former Alderman Sue Higgins always opposed it. Over the years the policy has changed and we now have meters in new homes and increasingly older houses. The question is whether it is a deficit or poor management?

Case in point; the City of Calgary  recently had to postponed the opening of a multi residence apartment because it was found that the existing sewer system would not be able to accommodate the increase usage in that area. Furthermore, policies in Calgary have pushed for increased development in the downtown area, which has old infrastructure which needs upgrading. Although there has been an aggressive infrastructure replacement program over the years, one must remember that in the eighties the water utility operations had an estimated deficit of $2 million per year.

The perennial mantra for more money does cut mustard in Calgary. In a report done for then Ald. Ric McIver –The Case for Controlling Utility Rates, It was found  that over the years, through a unique utility model and policies, the City had been siphoning out millions of dollars from the utilities by charging a 10% franchise fee and a 10% dividend payable by both water and wastewater utilities. These charges were in the range of $50 million per year. All the money was diverted to general revenues which were then spent on other services. I termed this policy ‘vicarious taxation’ because unlike some other cities, the price of utility services is not included in property taxes; hence the claim that Calgary has one of the lowest property taxes in Canada.

The policy was changed to cap the yearly payment to $25 million. Had the revenues been placed into a replacement reserve, millions could have been spent on both new infrastructure and maintenance costs, and rates would not have to be  increased to build new facilities.

For years the Institute for Public Sector Accountability has called for a different governance structure for Calgary’s utilities, one more in line with the structure used by Edmonton for Epcor, who serves 50 other communities. The model is not privatization, but an arm’s length operation which forces them to have better long term planning, and as a result produces a more efficient use of resources.

In Calgary, the diversion of revenues generated by the utilities to the general fund is one of the reasons why we may have an infrastructure deficit or a lack of money for maintenance. And a policy to increase density in old areas will definitely acerbate the problem.

Any Canadian City using the same utility model and policies as Calgary could find themselves in the same wanting situation. But is it lack of funds, or is it lack of management foresight? Should we look at privatization as a long term solution?

Marcel Latouche

Dragon's Den produces More Taxes

For a number of years Calgary’s Mayors have been complaining about the lack of funding from the Province. This issue has been the constant mantra of both Mayor Bronconnier and Mayor Nenshi. Their argument stems from the fact that approximately 40% of the property tax collected in the city goes to the provincial education portion.

Their argument, on the face of it, seems to be fairly simple; if the province vacated the education tax, Calgary would be entitled to 100% of the property tax collected in the City. Hence Calgary would be able to provide more services or infrastructure for the benefit of its citizens. Creditable argument, one would agree.

However there is more to this argument than meets the eye. Over the years both the current Mayor and his predecessor have made no attempt at cutting or even controlling rising costs. Instead they have continued to obfuscate the financial issues by implementing bogus budget systems which have no transparency.

First it was the three year budget. This process was nothing more than a business plan with tax increases for three years. The budget, unlike previous years was subject to public participation only in the first year. The following two years’ budgets were summarily discussed by only members of Council. To that effect Calgarians have seen no change in the proposed taxes, despite changes in the economy.

Enter Mayor Nenshi, a former ‘non-profit finance’ lecturer, who promised change. He puts into place another City designed budget system called ‘zero-based-reviews’, which promises to give Calgarians what they ‘want’. Problem is that this system coupled with the ‘Municipal Price Index’ is once again not transparent, and results in no real savings that can be vetted by Calgarians. Instead any ‘savings’ are quickly spent somewhere else.

In addition when the Province decides to return the education portion of the tax collected, the amounts are quickly appropriated and spent. This appropriation causes the true rate of property tax for 2013, to be 13%, another double digit tax just like the previous year.

In the midst of an outcry by both the media and the public, Mayor Nenshi, instead of returning the money to Calgarians in the form of a tax reduction, decides to have a bogus public consultation in the form of a popular TV show’. He invites one of the show’s hosts to chair a discussion among himself and other Aldermen to decide how the $52 million given back by the province should be spent.

Among the proposals are:

Money for transit, reduction of the business tax, revitalization of communities, reduction of the debt, and lastly give it back to Calgarians. Therein lays the management problem. Do we need a gimmick to make an important decision? One would have thought that the great business plan or ‘zero-base- review’ process would have a priority list which Council could use without any organized publicity stunt masquerading as a public consultation.

The Mayor agrees that $52 million while not a large percentage of the City’s budget, ‘it is a lot of money’. Money I might add came from the taxpayers’ pocket and in all fairness should be returned in the form of a tax reduction and not further spending. By the way this money must be used for capital and not operating expenses. What we must consider is that any capital expenditure will generate future operating expenses;  resulting into future tax increases because  Council refuses to look at alternative ways of delivering services.

This so called windfall sheds a new light on the discussions for a new City Charter. When mayors ask for more power, it will result in only one thing – the ability to tax. While Calgarians have been let to believe that more money from the province will reduce their taxes, they must think very carefully before they agree to more powers of taxation. In addition the new four year term for Council may generate a four year budget, which may result in no public consultation for three years.

Since, in recent past, Council has not adjusted proposed tax rates to reflect economic realities, Calgarians will only face tax increases instead of good financial management.

 With more powers there will be no reasons for any cost cutting, but further excuses for ‘investing’ citizens’ money. Calgarians should beware what they wish for.

Marcel Latouche

Entitled to Taxpayers' Money

It seems that politicians are unable to learn any lessons from the past. When the Conservatives got into power, albeit by a slim majority, it was clearly as a result of the Liberals’ bungling of the so-called Adscam scandal. At the time Prime Minister Harper made it quite clear that his government would be more accountable and more transparent.

When Conservatives were the opposition, they made it quite clear that Senate reform was part of their agenda, if not the abolition but some revision as to the  process of appointments to the Upper Chamber. However, once in power many appointments were made by the Prime Minister to garner a majority, under the impression that those appointed would vote for changes to the Senate. Among those appointed were Mike Duffy and Pamela Wallin both from the mainstream media. I for one never thought of these two as true conservatives. However for the sake of moving the conservatives forward they were in the Chamber with all the perks and trappings that the job entails.

Now we find that among those being investigated for abuse of funds and expense claims are the same two Senators. The investigation is about travelling and more importantly where they claimed their principal residence is and what expenses they claimed.

In the case of Senator Duffy, once the investigation found that he may be at fault, he repaid some $90,000. There does not seem to be anything wrong with the repayment, but the investigation was stopped when the expenses were repaid. How they were repaid is a bigger conundrum as it is reported that he got the money from the Prime Minister’s Chief of Staff. The Prime Minister may not know anything about the transaction, but it certainly is too close for comfort. Now the Senate Committee wants the report on Mr. Duffy’s expenses brought back for further examination, and as a result the Senator has resigned from the Conservative caucus, but not from the Seanate..

The whole affair about Senators’ expense is a scandal and we should get to the bottom of it. This is not just a Conservative or Liberal problem this is a problem of accountability. Too many politicians take taxpayers’ money for granted and use it as if it were their own. Once they get in and embrace the culture of entitlement, it seems that there are no bounds to what length and how much they think they can bilk the taxpayer.

In our view, the Prime Minister must get to the bottom of this scandal, charge the culprits and if found guilty expel them from the Senate. This scandal could become the noose around the Conservatives neck at the next election. For the sake of the country the Prime Minister must show leadership and be less supportive of his colleagues when they abuse the public’s trust. He has two years to get rid of the bad apples, not very much time before the next election and Canadians are beginning to have second thoughts about the existence of the Senate. ‘Triple E’ may soon be accepted as ejected, eradicated, and extinct not only for the Senate as an institution but  also for the ruling party.

Marcel Latouche

Hypocritical Outrage

Surprise! Not everybody supports Mayor Nenshi. His Worship is either naive or delusional to think that he has 100% approval. In light of a secretly taped presentation to a private meeting of developers Cal Wenzel of Shane Homes had the audacity to express his opinion and dislike of some current elected officials. How dare he, in a democratic city be able to say that he does not approve of the way that business is conducted at City Hall?

Mr. Wenzel , in the tape is seen and heard saying that he and other developers made donations amounting  to $1.1 million to the Manning Centre for Democracy. This money is apparently is being used to educate prospective candidates in the next municipal election. From the known facts I do not believe that such contributions contravene any municipal electoral laws. There is no difference to donations made to the Pembina Institute, Tides, or the Fraser Institute or any other organization which supports political or activist causes.

So far as we know there is no such thing as a slate for the next municipal election. What we know is that the Mayor and other members of Council belong to Civic Camp, a community activist group. If the developers group broke any laws, shouldn’t we also investigate the involvement of Civic Camp, the Sierra Club and other leftist organizations who supplied volunteers to the Mayor’s, and other Aldermanic campaigns? It is a myth to believe that there is no party politics at city hall. If not we should at least recognize that there exist some form of coalition.

While there have been extensive coverage of the ‘secret tape’, the media has never covered the involvement of any other ‘leftist’ groups in the City. Would the media consider secret tapes of some Aldermen meetings?

While we can sympathize with a media industry in constant search for the next controversial issue, there is one point missing in all the reports. This tape is very reminiscent of a “Mitt Romney- 47% moment’. However the statement made in both these recordings may have been in poor taste or ill timed, but they were both truthful in fact and content. 

There has not been any outrage of the covert recording, by some body that Mr. Wenzel obviously trusted, but that is typical of a leftist reaction. Let us remember that when the Mayor had his fundraiser behind closed doors there was no ‘right wing’ nut making any recording. It seems that taping other people’s conversation is more common on the left than on the right.

If there were any laws broken, it deserves the full attention of the Minister of Municipal Affairs; otherwise it is purely a political issue.  Ironically it is rumoured that the Labour Unions want an investigation, this coming from a group that constantly is involved in electoral campaigns either covertly or openly by funding certain candidates. While the whole saga makes for good copy it may just be another hypocritical outrage by a Mayor who has failed to be transparent as he promised.

Marcel Latouche