A Survey of the Usage of Recurrent Cost Analysis in Capital Budget Decision-Making in Selected Canadian Urban Municipalities
Shifting population patterns, the rate of urbanization and the demands for higher levels of municipal services combined with many financial constraints facing Canadian municipalities, demand an increase in the sophistication of financial planning. Recurrent costs which are those costs recurring annually in the form of operating, maintenance, debt servicing and others costs required for the support of capital facilities require increased analysis if municipalities are to avoid the problems of over-expansion, under-financing and loss of productivity. By analyzing recurrent costs, municipalities will be able to assess the fiscal impact of capital expenditures and as such, meet the financial challenges of the future. All urban municipalities in Canada over the population of 75,000 were surveyed to determine the following: 1) the number of municipalities which analyze recurrent costs 2) the type of recurrent costs analyzed 3) the estimated dollar impact of recurrent costs 4) the type of decision-making groups presented with recurrent cost information; and 5) the difference between those municipalities which analyze recurrent costs and those which do not. The results of the study indicated that the majority of urban municipalities analyze recurrent costs but many of the municipalities ignor very important recurrent costs in their analysis. The average recurrent cost of municipalities was estimated at 10 cents for every dollar of capital expenditure. Although this recurrent cost coefficient is reasonable when compared to other findings, caution should be exercixed with its use. Another study result indicates that although decision-making groups such as council and committees of council are presented with recurrent cost information, many important decision making groups are totally ignored. The final result indicates that small municipalities particularly Ontario counties with small capital budgets do not analyze recurrent costs. Also, regional location, population size, age or type of recurrent cost information analyzed do not affect the recurrent cost coefficient of a municipality.