Budget Padding – or undisclosed contingency funds
In most public institutions, where there is loose or limited financial oversight, budget holders routinely pad their budgets to ensure they have extra funds to address pet projects throughout the year. Budget managers often take advantage of compound line items such as those we see in the city’s department-level budget statements e.g. “Legal and Contracts”.
Typically budget padding leads to a spending blitz, toward the end of the fiscal year, as budget mangers attempt to rid themselves of the extra funds in fear of having next year’s budget reduced. Usually this type of spending results in significant waste since, in their panic to spend their entire budget by the end of the year, products and services of questionable value are purchased. The budget holders’ fear is that if they leave money in their budget at the end of the year that it will be proof that their budget can be reduced. I developed a number of strategies to impede this tendency that I would be happy to share with the city manager if there is interest.
We would be naive if we thought that budget padding does not occur at our city. One of the most flagrant examples happened this year with the Tom Thomson Art Gallery. As shown in their budget below it's deficit from basic operations was $10,482 which shows up on the bottom line as "TAX BURDEN" . This doesn't include salary and benefits, other operating costs or grants and fees which are shown basic operations. Then there is the "CITY CONTRIBUTION" of $495,000 which of course comes from taxation resulting in a total tax burden of $505,482. When we look at their budget, it seems that every dollar is accounted for and will be spent by the end of the fiscal year as identified in the budget.
However, just four weeks after the 2022 budget was approved Council approved a pre-feasibility study to determine the costs and benefits of building a new Art Gallery. The Art Gallery knew four weeks prior that they needed $30,000 for the study yet they didn't put it in their budget. Why was this? It was because they knew they had sufficient built in undisclosed contingency or padding in the budget that they presented. Given this was the second in a series of studies aimed at expanding the Art Gallery they should have entered this expense in their budget as a line item labeled “Feasibility Study Contingency”.
So where is the $30,000 going to come from? Gallery director and chief curator Aidan Ware told Council that she thought she might be able to get a grant to cover half of the cost, but would need to find the other half - $15,000, in her operations. There's clearly no room in the budget since the budget is fully allocated. It very much looks like Budget Padding is alive and well at city hall. It is reasonable to assume that other departments have budget padding at the same order of magnitude. If so, then the $55.5 million in expenses that Council approved for 2022 could have as much as $1.6 million in built in "undisclosed contingency" or budget "padding".