Report reveals city financial health is a cause for concern

Bruce Walkinshaw - Penticton Western News Published: March 09, 2010 6:00 PM

The City of Penticton is not in a healthy financial position, according to a $70,000 six-month core services review of all city operations. “The facts indicate that there has been an ongoing deterioration in the financial health of Penticton and that there is clear cause for concern,” reads the review, released Friday in a 17-page public version, less-detailed than the one city council has had since Monday. Drafted by Vancouver consulting company Helios Group, the core services review is the keystone document Mayor Dan Ashton has pledged to base his council’s tenure on. It is also the document used to explain the recent firings of (now former) director of corporate services Jack Kler, (former) general manager of the city’s electric utility Terry Andreychuk and (former) director of human resources Dwayne Burdeniuk, although there are no specific references to any of their former positions in the public version. Ashton said the publicly released report provides all of the key conclusions from the larger report that council has, only it does not include details that contain employees’ personal information. The for-council’s-eyes-only copy also includes a total of 61 specific recommendations, of which “21 target cost reduction, 19 focus on improving accountability, 14 are aimed at improving service, and seven pursue shared service opportunities,” he said, promising that council would make decisions regarding the recommendations “as soon as possible.”

According to Helios, the review was generated using a six-pronged approach conducting: a financial review to assess the fiscal health and planning at the city; a document review evaluating performance reports, business processes, service and job descriptions, contracts and the city’s organization chart; a legislation review to help provide a basis for categorizing services as mandatory or discretionary; a city comparison looking at five similar B.C. municipalities; an anonymous survey of staff and managers on a number of topics including finances, operational performance, management processes and working environment; and a series of one-on-one and group interviews with managers, staff groups, city boards, commissions, city partners and organizations. The report begins with a brief review of the city’s strengths — including two unique revenue sources: owning its electric utility and casino revenue and “capable, competent, committed and passionate” staff — before summarizing the challenges the review was initiated to address.

“Much of what the city has accomplished is threatened by its deteriorating financial health,” writes Helios. “Penticton operating costs are 10 per cent to 95 per cent higher than peer municipalities after removing operating costs for utilities. Over the past decade operating costs have consistently risen at 3.5 times the rate of (inflation). Over the same period, long-term debt has also grown by 600 per cent while the population has only grown by 1 to 2 per cent (annually). Even after including Penticton’s unique revenue sources, the ratio of debt-to-revenue is twice as high as peer municipalities.”

The review points to what it identified as a pattern of city increased spending, taxes and debt at rates that “far” exceeded population growth and inflation, creating (according to the latest budget numbers projected for 2010) a $85.3 million-debt, a labor force bill of approximately $22.4 million a year and an operating cost that has “consistently” grown at a rate of 8 per cent annually. “It is our opinion that the growth in operating spending is unsustainable,” asserts Helios, noting that taxes in the municipality are among the highest in its “peer group.” “Penticton is facing an immediate need to control spending. Failure to control spending will directly result in increased taxes, increased costs of city services (water rates, electricity rates and service fees) and likely, increased long-term debt, interest and amortization.”

The review identifies some key strategies for cost reduction, service improvement, increased accountability and optimized efficiency at the city starting with an organizational restructuring. “Based on our review we believe Penticton has three to six more management positions than required,” Helios writes, emphasizing that the comment is not a reflection on the performance of specific managers but rather an observation based off the size of the city. According to Helios, for the approximately 300 staff the City of Penticton employs, it should need about three to four layers of management; however, there are areas in the organization that have up to six layers and many areas have five, while only a few have three or four. As a result, the span of control for some managers, the review found, was too small, with instances of managers with only two or three direct reporting employees who were also managers themselves. Indeed, the review says there is even one instance of a manager with a single direct report of one manager.“With a change in organization structure, it is possible to realize management efficiencies and at the same time increase focus and accountability of the various operating divisions,” Helios concludes.

The review compares the responsibilities and salaries of seven key positions in Penticton’s management chart with other municipalities finding that Penticton’s were not higher. However, for staff salaries negotiated by CUPE local 608, Helios suggests that reductions could be made. The review compares two positions: lifeguards and parks maintenance, and their city salaries with those paid in the private sector, noting that some municipalities have chosen to contract those positions out. “The comparison of wages clearly indicates that there is a significant discrepancy between the cost of delivering these services through the public sector and the private sector,” writes Helios below two graphics indicating city wages for the two positions at $22.80 an hour while private sector wages are both under $14.50 an hour. The review concludes the city should institute systemic changes in manner it provides building development and permit services. “We recommend Penticton undertake a redesign of the service delivery model for planning, regulatory and related engineering services,” says Helios.

Lastly, the review states that it has identified several opportunities for cost reduction, service improvement and increased accountability through reducing: discretionary services, the city’s asset base and costs through methods such as service sharing and outsourcing; as well as a restructuring. “Identifying areas for cost and service decrease is not a simple task,” says Helios. “We have proposed these opportunities based on the clear understanding that Penticton is facing an overriding imperative to reduce and control costs.”