Claim: Zero-based budgeting will save the City of Greater Sudbury money through efficiencies.
Several candidates in this year’s civic election are advocating for the City of Greater Sudbury to adopt a zero-based budgeting approach, which begs a few key questions:
- Will it actually save the city any money?
- Is the city able to undertake this exercise?
- What, exactly, is zero-based budgeting?
Included among the candidates advocating for zero-based budgeting have been mayoral candidates Evelyn Dutrisac, Miranda Rocca-Circelli and Bob Johnston, whose arguments in favour of the exercise have been closely tied to the assertion there’s wasteful spending taking place at Tom Davies Square.
Dutrisac is pushing for zero-based budgeting to be applied to one city department per year.
This, she said, “will allow the citizens and council to see whether there are any savings that could be realized in that department, and equally as important to ensure we are fulfilling needs and not just wants.”
Rocca-Circelli said adopting a zero-based budgeting model would “allocate funds to programs that citizens support and develop new programs and services to enhance the foundation of our community.”
Steve Facey, then the city’s financial planning and budgeting officer, spoke to city council about zero-based budgeting during a finance and administration committee meeting last year, during which a report on the subject was discussed.
The city has traditionally used an incremental budget process, in which each year’s budget starts with the previous year’s actuals and readjusts things to represent current realities.
For the past few years, staff have been developing a “service-based budget process,” Facey said, which continually evaluates whether desired service levels are being achieved. Adjustments are made “that reflect actual prior-period experience and keeps the budget from simply being an incremental change from the prior period,” according to the city report.
The city defines zero-based budgeting as follows:
“Every budget line begins at zero for each new budget period. Each cost and revenue element is assessed to determine if it is still required for delivering the business plan. Services and service levels are reviewed and changes are considered to find a result that achieves desired financial objectives.”
In a 1977 article published in Public Administration Review magazine, Peter A. Pyhrr, the man credited with developing the approach, describes zero-based budgeting as the “evaluation of all programs.”
Although often referred to as “reinventing the wheel,” or the process of “throwing everything out and starting all over again from scratch,” he wrote that in the majority of zero-based budget reviews, programs continue, “incorporating modifications and improvements.”
His four main arguments in favour of zero-based budgeting for government agencies are:
- Low priority programs can be eliminated or reduced
- Program effectiveness can be dramatically improved
- High-impact programs can obtain increased funding by shifting resources within an agency
- Tax increases can be reduced, with agencies doing more effective work using existing revenues
“The zero-base approach is not without its problems,” Pyhrr cautioned. “The major problem is the threat that many bureaucrats feel towards a process which evaluates the effectiveness of their programs. The zero-base process also requires a great deal of effective administration, communications, and training of managers who will be involved in the analysis.
“It should be considered a management and budgetary improvement effort that may require several years to reach full utilization and effectiveness.”
During last year’s report to city council, administrators cautioned a zero-based budget would “increase the amount of administrative time required to produce the budget without incrementally greater benefits.”
They estimated that staff invest approximately 12,000 hours to prepare the city’s annual budget under the current process and that an additional 6,000 hours would be required under a zero-based budget approach.
Although they advised against a zero-based budget for the city’s annual budget as a whole, city CAO Ed Archer suggested an incremental approach might bear fruit.
If the city were to take a gradual approach and cover the city’s 58 service lines with zero-based reviews for three to five service lines per year, he said, “You could have several years of work for one or two people in this type of exercise.”
Following this approach, Archer estimates the city would save $3 to $5 for every dollar invested.
Although efficiencies might be found using a zero-based exercise, it might also find areas in which the city should be spending more money.
This was the case in 2011, when the finance committee received a zero-based budget report on the city’s summer roads maintenance program. It concluded the city should spend $18 million per year on the program, at which time only $13.8 million was budgeted.
The zero-based exercise revealed the city’s method of budgeting at the time did not reflect best practices for the frequency of work required.
On this front, the city was estimated last year to be underfunding its assets by approximately $100 million per year, which is the amount of additional funding required to maintain assets in their current overall state. This figure points to the likelihood that funding shortcomings would be unearthed in future zero-based reviews.
Similar to the approach Archer said might benefit the City of Greater Sudbury, the City of Calgary undertakes incremental zero-based reviews, with each year finding them tackle a new service line.
Some of the results the City of Calgary lists online include $14.1-$15.1 million in efficiency savings with their fire department, $5.3 million in annual operating efficiencies and $25 million in capital cost avoidance over five years for Calgary Transit.
The City of London undertook two zero-based exercises for its Information Technology Services department between 2015 and 2019 as a means of controlling expenditures.
Sudbury.com reached out to the City of London for greater insight on their approach, and received a joint statement from Mat Daley, London’s information technology services director, and Kyle Murray, the financial planning and business support director.
“Through zero-based reviews, we have seen an annual savings of approximately $400,000 in Information Technology Services,” they said, for which more details are available in a municipal report available by clicking here.
“While these reviews can certainly identify budget savings opportunities, it is important to be mindful of the consequences of doing so, particularly for back of house services that may regularly be called upon to identify reductions,” they cautioned, noting staff can be diverted from other tasks to undertake such exercises.
They also clarified zero-based reviews are one of a number of review tools the City of London uses to find efficiencies.
A digital presentation by the City of London cites the following pros for zero-based budgeting:
- Comprehensive review necessary
- Budgets are not connected to prior year spending
- All expenses must be justified, not just increases
- Every function within an area is analyzed for its continued need
They list the following cons:
- Time-consuming process
- Difficulty to analyze all areas from zero
- Not all programs/services start at zero (mandated from other levels of government)
Zero-based budgeting has been bandied about Tom Davies Square for quite some time, and Ward 2 Coun. Michael Vagnini, who requested last year’s report on zero-based budgeting, has been perhaps the most vocal proponent on city council for the exercise.
In last year’s report by City of Greater Sudbury staff, it was clarified they have the ability to implement zero-based budgeting if directed by council, but that they view their current approach to city budgets as a “more strategic and comprehensive process.”
“Incorporating a program of zero-based reviews, like what was undertaken for a review of the Summer Roads Maintenance program, or like what has been done by the City of Calgary, could be introduced outside the budget process with appropriate resources.”
Verdict: A zero-based budgeting process has the potential to save the City of Greater Sudbury money through efficiencies, as well as pinpoint areas of under-expenditure. As the City of Calgary and City of London have demonstrated, and Greater Sudbury staff have confirmed they are capable of doing, zero-based reviews of city service lines can be undertaken, pending city council direction.
Tyler Clarke covers city hall and political affairs for Sudbury.com.
