In reviewing last years budget, some members of council pointed out, there is still a significant gap between taxes in Owen Sound and taxes in our nearest neighbours in Georgian Bluffs. The owner of an average detached bungalow in Georgian Bluffs currently pays $1,806 in taxes while an owner of the same property in Owen Sound pays $4,210. This is a huge gap that is stifling Owen Sound’s growth and encouraging residents to move across the city boundary where they can save $2,404 per year in taxes while still enjoying everything that Owen Sound has to offer. Therefore there is much more to do to reduce this disparity.

Changing the Budget Process

If we are to make any significant inroads in achieving property taxes that are competitive with our neighbours then we will have to change the budget preparation process. These changes should include tools such as “Zero-Based Budgeting” that I recommended in my Road to Recovery article. However the real change that’s needed is how the budget is reviewed. That year our part-time council spent a little over six hours reviewing the draft operating budget containing $39 million in spending. Although I’m sure they each devoted much more than this in their preparation for the review, six hours of formal review does not reflect the importance of a $39 million budget. For the most part they had to depend on an overview of the budget presented by the Director of Corporate Services. As the Director correctly pointed out there was no time to go into a lot of detail at the department level - sarcasm intended!

The Solution

What we need Council to do is to devote much more time to the budget process. The review period should be two weeks and the process should include the review of each and every department budget, line-by-line. To enable this each member of council should be paid a full time salary, at the city manager level, during which will likely be an intense two week budget review process. This will cost taxpayers in the order of $60,000 to $70,000. However, the return on this investment to taxpayers can be enormous. This would allow members of council to take a short leave of absence from their full time employment. In this process each budget manager would present their budget and have an opportunity to fully justify each and every line item. Ideally, each budget would start from a zero base as opposed to what was spent the previous year.

Closing the Gap

During the budget review process the Deputy Mayor acknowledged that, although we made good progress in keeping the budget increase to a minimum, we still had quite a way to go to eliminate the gap in taxes between us and our surrounding municipalities. There really is only one way of closing the tax gap and that is to reduce expenses. This year we witnessed a significant reduction in the annual tax increase, however it will take sixty years to completely close the gap with Georgian Bluffs if we just keep tax increases at less than one percent. Closing the gap in our lifetime can only be achieved with annual tax reductions combined with significant one-time expense reductions.

Closing the Gap with Annual Tax Reductions

As shown in the graph above, if we were to have successive annual tax reductions of 2%, and Georgian Bluffs were to increase their taxes on average by 2.5%, it would take 20 years to completely close the gap. So in order to reduce the gap over a reasonable time period, it will also require one-time reductions in expenses, in addition to annual tax reductions.

There are three areas that should be seriously considered for significant expense reductions. They are: the Art Gallery, the Transit System and the Workforce. I will examine each of these for their potential in closing the tax gap.

Examining the Art Gallery

With respect to the Art Gallery, I’ve mentioned in previous papers that we learned in the community survey that the Art Gallery is valued by less than 8% of the community. Their budget is $506,000 and has nearly doubled over the past 5 years. The cost to taxpayers is currently $475,000 year. the survey also showed that 76% of the community either never or rarely use this facility.

Last fall I sat down with the Director of Gallery to discuss the need to improve the Gallery’s profile in the community. I suggested that the Gallery needed to reach out, beyond the art community, by rolling out more community-based art education programs. I also suggested that regular presentations at our schools and college would vastly improve both community engagement and the value of the Gallery in the eyes of taxpayers. I also identified business graduate schools as a cost-free source of expertise to develop a new business plan and a revised community-focused marketing strategy.

I truly believe that implementing these suggestions could greatly improve the value of the Gallery in the eyes of the taxpayer. However, in the absence of a successful community engagement program, along with an education program that is highly valued by the community, the return on our annual $505,000 expenditure is just not justified.

Staff Reductions - Right-Sizing the Workforce

As I suggested above we needed a two percent annual budget reduction. To facilitate this we need to increase the time devoted to review the budget to two full weeks instead of just two days. To make this happen I suggested that members of Council should be properly compensated for their time at the city manager’s salary level. (This is a very small, but important, investment that will produce a significant return to taxpayers) This, along with three one-time budget reductions, will be necessary to reduce the gap in taxes between Owen Sound and Georgian Bluffs within a reasonable time period.

I will now discuss the third potential area that Council needs to address – staff reductions at city hall. I first raised the need for this in my article, Comparing Owen Sound Salaries and Benefits last year.

To begin, I reviewed the 2021 audit financial statements for eight similarly sized municipalities. I extracted the total that each municipality paid in Salaries and Benefits. Since some municipalities contract for fire and police services, so I removed all protective services salaries from the data. The graph below shows what each municipality paid in Salaries and Benefits for all areas except for Protective Services in 2021.

Salaries and Benefits Expense for Similarly Sized Municipalities

As you can see there are four municipalities with greater populations than Owen Sound and three with lower populations. The average salary expense for these municipalities, excluding protective services salaries, was just about $9 million. Huntsville, Amherstburg and Owen Sound all have a Salary Expense greater than the average.

Owen Sound spent $13 million on Salaries & Benefits, excluding Protective Services salaries. To reduce Owen Sound’s expense to the average of $9 million, an annual expense reduction of $4 million would be required. This represents a 10.2% tax reduction.

One Part of the Problem

As I mentioned above this data was acquired using each municipality’s audit financial statements. These statements do not provide any visibility into the number of employees in each municipality. However we can get a feeling the portion of each municipality’s salary expense involving management by looking at the numbers of managers with salaries greater than $100,000.

As shown above the average number of managers, in municipalities in the comparative group, on the Ontario Sunshine List is 12.8. Amherstburg, Essex and Owen Sound all have more that the average number of employees earning more than $100,000 with Owen Sound having the greatest number at 19. This seems to confirm that when it comes to managerial salary expense, Owen Sound leads the pack, at least in this group of municipalities.

Most municipalities post either their organization charts or staff directories on their websites. Using this information along with their budget books we can get an estimate of the number of managers employed at the municipality. This information was only available on the above five municipality’s websites. It’s important to note that these sources give us only an estimate of the actual numbers since this information is often updated. The most reliable data was from those municipalities that had their current organization charts on their websites.

As shown above, it is estimated that Owen Sound employs approximately 29 managers based on information gleaned from the city staff directory and confirmed by the 2021 budget book. In contrast, Strathroy, that has a population that is slightly greater than Owen Sound, yet employs only 15 managers to manage its municipality. The fact that it appears that Owen Sound needs 14 more managers suggests that the workforce is top-heavy and that the management ranks needs to be downsized.

The question is; by how much? The average number of managers in this group is 20.2 so this should be the targeted size of the management team. This would require a reduction of 9 managers. This would result in an annual savings in the order of one million dollars or about a 2.7% tax reduction.

Although this is at best an estimate of the number of managers it does correlate with data from more reliable sources such as the Audited Financial Statements and the Ontario Sunshine List. However, all of this data combined gives Council ample justification to begin the process of “right-sizing” the management team and examine the entire workforce for areas that can be downsized to bring Owen Sound’s Salary Expense more in line with similarly sized municipalities.

Summary

1. Annual tax reductions are not sufficient to close the gap in taxes with Georgian Bluffs within a reasonable timeframe. One-time expense reductions will also be required. The two obvious candidates to reduce the burden on taxpayers are the Art Gallery and Transit Services and, like the Airport, should be the subject of significant change or deletion.

2. Owen Sound’s workforce has grown well beyond that employed by other, similarly sized, municipalities and has been excessively high for many years. The workforce in general is much larger than needed. However, the management team is, at a minimum, carrying 8-9 managers more than needed in comparison with other similarly sized municipalities.

3. Although the current Council did not contribute to this problem in the 2023 budget, unlike other Councils over the past 50 years, it is this Council that needs to find the courage to take all steps necessary to bring Owen Sound’s taxes in line with our surrounding municipalities within a reasonable timeframe.

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