By Pepper Parr
November 6th, 2023
BURLINGTON, ON
Risk assessment Part 1 of a 6 part series
When a Budget is prepared by Staff the risks involved in spending tax payers money or deciding not to spend tax payers money the risk has to be assessed.
There are within the Finance department people who have been doing this kind of work for a long time. Their approach to measuring the risk is based financial fundamentals and not what the political advantage or disadvantage might be.
The approach tends to be conservative, cautious
The City continues to closely monitor revenue sources and financial strategies to maintain financial sustainability as outlined in the objectives of the city’s long-term financial plan. There are a number of issues that the City will need to be mindful of in 2024 and future years.
These pressures include Economic Considerations which includes inflation, supply chain impacts and labour shortages in Ontario continue to pose an issue for municipalities.
• Inflation – In September, the Consumer Price Index (CPI) rose 3.8% on a year-over-year basis, down from a 4.0% gain in August. While inflation numbers are lower than those experienced in 2022, this reduction (disinflation) does not mean that prices will fall, it simply means that prices are
rising at a slower pace than the previous year.
The City is experiencing significant increasing costs for contracted services, utilities, software license fees and materials that place additional pressures on the budget. For 2024, these higher-than-average inflationary pressures are estimated to be $1,882,924.
• Supply Chain – Many materials and supplies the city uses in construction activities are driven by market conditions and more recently significant price volatility and increased lead times during the COVID-19 pandemic. This results in the construction price index increasing higher than the
rate of inflation. From 2017 to the second quarter of 2023, the construction price of erecting non-residential buildings
was over 41% higher than in 2017, the year when the index base was set. This has had a significant impact on the City’s capital program.
• Foreign Exchange – The City has a number of large purchases that are paid using United States (US) dollars such as fire trucks and software maintenance. The foreign exchange risk can cause large fluctuations in the market value of these goods at any time during the year given changing economic conditions.
Legislation limits the City in its ability to protect itself against this risk as it is restricted in the amount of US dollars it can purchase in advance and prohibited from entering into foreign exchange contracts.