How not to be the victims of our own success: Refining the projections that underpin Calgary's budgetary process

Today City Council begins deliberating what stays and what goes in the combined capital and operating budget: Action Plan 2015-2018. The Action Plan, currently in draft form, provides a road map outlining expenditure and revenue estimates over the multi-year capital plan (2015-2019) and operating budget (2015-2018). The capital plan, at $7.6 billion over five years, includes estimated expenditures for the complete cost of long-term capital projects in the 2015-2018 cycle, plus funded and unfunded projects forecast to commence in 2019. The operating budget, at $15.4 billion over four years, includes revenues and expenditures that pertain to ongoing operations within The City’s 30 business units. Both budgets have been developed to accommodate a growing population, with the operating budget projected to enter new territory with gross expenditures (net of recoveries) expected to exceed $4 billion by 2018 – an increase of almost $895 million from 2014. This growth is very real, in the past ten years Calgary has grown by 261,699 new residents according to the 2014 Civic Census; however, the population projection underpinning the development of the Action Plan – which calls for a population growth forecast of 100,000 over the next four years, an average of 25,000 people per year – does not reflect Calgary’s established growth pattern.

A linear growth rate of 25,000, over four years represents a growth rate of 2 percent over the budgetary cycle; the normalized growth rate in Calgary over the past ten years is 2.5 percent. And while this difference of half a percent may seem negligible, the difference between the two projections over the four year budgetary cycle is 24,077 residents (see the table below). Put another way, a difference of almost the entire town of Okotoks! The population projection used for the Action Plan, stands in contrast to two projections developed more recently by The City’s Corporate Economics group in the Calgary & Region Economic Outlook: 2014-2019. The first projection, based on a cohort-survival model, indicates growth over the budgetary cycle to be 1,315,700, a difference of 20,506 with the Action Plan. The second projection within the document is a linear projection of 40,000 residents per year, resulting in a population of 1,355,200 by 2018, a difference of over 60,000 residents. In fact, Council is aware that population growth of 40,000 new residents is a very real possibility.

Growth in Calgary: Variance between Population Projections 

The effects of such a large discrepancy between the projected population growth in the Action Plan and what may happen over the coming years will be central to Council’s debate over the contents of the Action Plan in the next two weeks. As the Action Plan is program-based, with capital and operating budget programs aligned with the organizational structure of The City, the use of a 25,000 per year population projection means that individual business unit budgets may not reflect immediate needs should population growth be substantially above 25,000 persons per year. Importantly, the suggested tax rate increase of 4.7 per cent per year over the budgetary cycle, and related utility rate and user fee increases, established by The City on May 05, 2014, may not be sufficient in the short-term. The actual rates adopted in the coming days may be very different than those used to develop budgetary priorities.  

The variance between population projections over time (illustrated in the figure below) suggests that the Action Plan process should adopt variable population growth rates for setting tax and utility rates, and capital and operating budgets. This is especially important with regards to establishing priorities within front-end business units such as the Calgary Police Service and Community Services & Protective Services Department, as well as Council’s priorities on capital expenditures. When the difference between low (25,000 per year) and high (40,000 per year) population projections may be as much 150,000 residents in ten years, Council should establish its priorities based on accommodating different potential populations. Within the budgetary cycle, capital planning for 1,355,200 residents as opposed to 1,129,194 (regardless of the composition of the population) will affect infrastructure priorities and the operating costs of business units as they provide services to a growing population.

Projected Population Growth in Calgary

If the priorities of both Council and individual business units were developed to reflect a range of potential population growth rates (e.g. an established low, medium and high rate of growth), business plan and budget adjustments could be triggered by actual growth patterns. It’s safe to say that 25,000 new residents per year is likely low and 40,000 per year is probably at the high-end for the foreseeable future. Using the Corporate Economics group’s cohort-survival model as a medium growth rate is a good start. Discussion over the next two weeks should be influenced by these different possibilities, and a range of population projections in future budgetary cycles would result in a more responsive planning process.

Calgary’s growth is a generational success story. In order to not become victims of this success, the population projection used to plan for growth needs to reflect established patterns of growth. Developing low, medium and high growth priorities will result in more work for Council and individual business units at the outset of the budgetary cycle, but will engender more informed discussion around budgetary priorities and offer more flexibility in targeting policy to actual growth.