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Money, Taxes and Municipal Performance

Chapter 8The Efficiency Dividend

3,691 words · Mike Seiler · Owen Sound, Ontario

In this chapter

• 8.1 What Counts as an Efficiency
• 8.2 What Does Not Count as an Efficiency
• 8.3 Three Categories of Savings
• 8.4 The Net Savings Rule
• 8.5 Verification
• 8.6 Establishing the Baseline
• 8.7 Protecting Infrastructure
• 8.8 Protecting Employees
• 8.9 The 50/50 Dividend
• 8.10 The Community Improvement Dividend
• 8.11 Protecting the Community Fund
• 8.12 Resident Participation
• 8.13 A Simple Example
• 8.14 Reinvestment Before Distribution
• 8.15 Departmental Incentives
• 8.16 Civic Work Days
• 8.17 Procurement Savings
• 8.18 Energy Savings
• 8.19 Technology Savings
• 8.20 Consultant Savings
• 8.21 Savings From Prevention
• 8.22 Annual Efficiency Report
• 8.23 The Public Savings Ledger
• 8.24 The First-Year Efficiency Review
• 8.25 Efficiency Is Not Austerity

A municipal budget should not reward waste.

If employees, residents, local businesses or Council find a genuinely better way to provide the same or better service for less money, the community should be able to see the benefit.

That is the purpose of the Efficiency Dividend.

The original proposal is simple:

Every verified dollar saved is divided in two. Half is used to reduce pressure on future property taxes. Half is directed to visible improvements in downtown Owen Sound, parks and public spaces.

The initiative was originally described as a 50/50 division between tax restraint and a visible community-improvement fund, with efficiency achieved through better use of people and resources rather than simply eliminating jobs.

The simplicity of the idea is important.

The accounting behind it must be equally disciplined.

A saving should not be called a saving because money was not spent this month.

It should count only when the City can demonstrate that:

• the same or better public result is being achieved;
• the expenditure has genuinely been eliminated or reduced;
• implementation costs have been deducted;
• necessary maintenance has not simply been postponed;
• another department has not quietly inherited the cost;
• the saving is not being created by reducing an essential service without telling residents;
• the calculation can be independently checked.

The goal is not to make municipal government smaller for the sake of being smaller.

The goal is to make it better at using what residents already provide.

8.1What Counts as an Efficiency

An efficiency occurs when the City achieves the same or a better public result using fewer resources.

That may happen in many ways.

Better Scheduling

Examples could include:

• grouping similar maintenance jobs geographically;
• reducing unnecessary travel;
• scheduling equipment more effectively;
• coordinating departments that repeatedly visit the same location;
• planning seasonal work earlier.

Better Purchasing

Examples could include:

• combining compatible purchases;
• negotiating improved pricing;
• using competitive procurement more effectively;
• avoiding emergency purchasing caused by poor planning;
• standardizing commonly used equipment where appropriate.

Better Use of Existing Assets

Examples could include:

• sharing equipment between departments;
• increasing use of facilities during otherwise unused periods;
• extending asset life through proper maintenance;
• identifying surplus equipment before purchasing more.

Reduced Administrative Duplication

Examples could include:

• eliminating repeated data entry;
• simplifying forms;
• consolidating similar processes;
• reducing unnecessary reports;
• creating one intake process instead of several.

Energy and Utility Savings

Examples could include:

• more efficient lighting;
• building controls;
• reducing leaks;
• improved insulation;
• water-efficiency improvements;
• operational changes that lower utility use.

The saving must be measured after the cost of the improvement is included.

Preventive Maintenance

Spending a smaller amount now to avoid a larger repair later can create a legitimate efficiency.

This must be calculated carefully because the saving may occur over several years rather than immediately.

Employee-Led Improvements

The people performing municipal work every day frequently know where unnecessary steps exist.

Employees should be encouraged to identify:

• repeated work;
• unnecessary travel;
• equipment problems;
• paperwork that serves no useful purpose;
• scheduling inefficiencies;
• opportunities to prevent future costs.

Local Delivery

Using qualified local suppliers or trades may sometimes reduce:

• travel;
• shipping;
• response time;
• administrative burden;
• downtime.

Local sourcing should still comply with applicable procurement requirements and should be measured rather than assumed to be less expensive.

Reducing Outside Consulting Where Internal Capacity Exists

Consultants can provide important specialized expertise.

They should not be hired to perform work the City already has the skill and capacity to complete internally.

Where employees can reasonably perform the work, the City should recognize and use that expertise.

8.2What Does Not Count as an Efficiency

This distinction is essential.

A lower expenditure is not automatically an efficiency.

Deferred Maintenance Is Not a Saving

If the City does not repair a roof this year and pays twice as much later, nothing was saved.

If road maintenance is postponed until reconstruction becomes necessary, nothing was saved.

If equipment maintenance is skipped and its useful life is shortened, nothing was saved.

That is a future liability.

Vacancies Are Not Automatically Savings

Leaving an essential position vacant can reduce payroll temporarily.

If the result is:

• overtime;
• slower service;
• employee burnout;
• increased contracting;
• growing backlogs;

the apparent saving may not be real.

Moving the Cost Is Not Saving the Cost

A department does not create an efficiency by transferring an expense to another department.

The City is one organization.

The entire municipal cost must be considered.

Using Volunteers to Replace Paid Employees Is Not an Efficiency

Volunteers should increase community capacity.

They should not be used to manufacture a financial saving by transferring recurring municipal work to unpaid residents.

Reducing Service Without Saying So Is Not an Efficiency

Council may sometimes decide that a service should be reduced.

That is a policy decision.

It should be described honestly as a service reduction, not hidden inside an efficiency claim.

Grant Funding Is Not an Efficiency

If Ontario or Canada pays part of a municipal expense, the City's direct cost may decline.

That is funding.

It is not operational efficiency.

One-Time Windfalls Are Not Recurring Savings

Selling an asset or receiving an unexpected rebate may improve the financial position.

It should not be counted as a recurring Efficiency Dividend.

Inflation Avoidance Is Not Automatically a Saving

If a supplier's price was expected to increase by 10 per cent and the City negotiates the increase down to 5 per cent, there may be a legitimate cost avoidance.

That is different from an actual reduction in existing spending.

The two should be reported separately.

8.3Three Categories of Savings

To keep the system honest, efficiencies should be divided into three categories.

Category A: Verified Recurring Saving

A permanent reduction in annual municipal cost while maintaining or improving the intended service.

Examples might include:

• lower annual utility consumption;
• elimination of an unnecessary recurring licence;
• permanent reduction in duplicated administrative work;
• improved procurement creating a lower recurring contract price.

These are the strongest efficiencies.

They may support the full Efficiency Dividend.

Category B: Verified One-Time Saving

A single saving that will not repeat automatically.

Examples might include:

• completing a project below budget;
• selling genuinely surplus equipment;
• negotiating a one-time settlement;
• finding a less expensive implementation method.

These savings should not be used to justify permanent operating commitments.

Category C: Cost Avoidance

A future expense that was reasonably expected but was prevented or reduced.

Examples might include:

• preventive maintenance avoiding premature replacement;
• a negotiated contract reducing a planned increase;
• repairing equipment rather than replacing it;
• redesigning a project before construction begins.

Cost avoidance can be valuable.

It should be reported separately because it is not the same as cash removed from the existing budget.

8.4The Net Savings Rule

The Efficiency Dividend applies to net savings, not gross savings.

If an improvement saves $100,000 but costs $40,000 to implement, the saving is not $100,000.

The first-year net result is $60,000.

If the implementation cost occurs only once and the $100,000 saving repeats annually, the public report should show that clearly.

Example

Previous annual cost: $300,000

New annual cost: $200,000

Gross annual saving: $100,000

One-time implementation cost: $40,000

First-year net saving: $60,000

Expected recurring annual saving after Year One: $100,000

That distinction matters.

The City should not distribute money it has not actually saved.

8.5Verification

The person proposing an efficiency should not be the only person determining whether the saving is real.

Every material Efficiency Dividend should be verified through the City's financial administration.

For larger savings, Council should receive a public report.

The Verification Should Confirm

• previous cost;
• new cost;
• implementation expense;
• whether the saving is recurring;
• whether service levels changed;
• whether maintenance was deferred;
• whether another department absorbed new costs;
• whether staffing consequences were included;
• whether the calculation is reasonable.

Treasurer Verification

The Treasurer, or the appropriate financial authority, should certify the financial calculation before a saving is formally placed into the Efficiency Dividend.

This does not mean the Treasurer decides the policy.

Council decides policy.

Financial administration verifies the arithmetic.

8.6Establishing the Baseline

A savings program cannot work without an honest starting point.

Before calculating an Efficiency Dividend, the City should establish the baseline cost.

The baseline should normally represent the actual cost of providing the service before the improvement.

It may include:

• wages;
• benefits;
• overtime;
• materials;
• equipment;
• fuel;
• utilities;
• contractors;
• licences;
• administration;
• other directly attributable expenses.

Baselines Should Not Be Inflated

The City should never increase a budget simply so the difference can later be described as savings.

The baseline should be supported by actual historical spending and reasonable forecasts.

Extraordinary Years

Sometimes the previous year is unusual.

Examples include:

• severe winter conditions;
• emergency repairs;
• labour disruptions;
• unusual fuel prices;
• one-time failures.

In those cases, a multi-year average may provide a fairer baseline.

The method should be published.

8.7Protecting Infrastructure

The Efficiency Dividend must never reward the City for neglecting its assets.

Before an efficiency is distributed, financial administration should confirm that the saving has not been created by:

• cancelling required maintenance;
• extending asset replacement beyond a reasonable useful life without evidence;
• allowing a facility to deteriorate;
• reducing inspections below safe standards;
• shifting capital renewal into an unfunded future year.

The Infrastructure Floor

Before recurring efficiencies are divided, the City should maintain the minimum contributions and maintenance requirements established through its approved asset-management and capital planning.

If infrastructure is significantly underfunded, Council should openly consider whether part of a proposed Efficiency Dividend should first address that liability.

The 50/50 principle should reward true efficiency.

It should never force the City to distribute savings while an urgent asset created the saving only because its maintenance was ignored.

8.8Protecting Employees

The Efficiency Dividend should not become a municipal downsizing program.

The original commitment was that efficiency would mean less wasted effort rather than fewer people.

That principle should remain.

A more sustainable operating commitment is:

No employee should be involuntarily displaced merely to manufacture an Efficiency Dividend.

Where technology, improved processes or changing service needs reduce a particular workload, the City should first consider:

• retraining;
• redeployment;
• retirement;
• normal attrition;
• vacancy management;
• reassignment to existing backlogs;
• new community priorities.

There may be circumstances in which staffing levels legitimately change over many years.

That should occur through responsible workforce planning, collective agreements and normal municipal decision-making.

It should not occur because a department receives a financial reward for eliminating someone's job.

Employee Knowledge Has Value

Employees who identify savings should be recognized.

A frontline employee may discover an improvement worth far more than an outside study.

The City should develop a simple internal process through which employees can submit improvement ideas.

The proposal should identify:

• current problem;
• proposed change;
• estimated saving;
• required investment;
• expected service improvement;
• potential risks.

Good ideas should move quickly enough that employees remain willing to offer them.

8.9The 50/50 Dividend

Once a saving has been:

1. measured;
2. verified;
3. adjusted for implementation costs;
4. confirmed not to be deferred maintenance;
5. confirmed not to be a disguised service reduction;
6. confirmed not to create an unfunded liability;

the eligible Efficiency Dividend can be divided.

50 Per Cent: Tax Restraint

Half of the eligible saving should reduce pressure on the municipal tax levy.

This does not necessarily mean residents receive a cheque or that property taxes automatically fall.

Municipal costs can rise for many reasons.

The proper measure is:

What would the tax requirement have been without the efficiency, compared with what it is after the efficiency?

For example, if existing financial pressures would otherwise require a 5 per cent increase and verified efficiencies reduce the required increase to 4.5 per cent, the difference is real tax restraint.

The public dashboard should show that calculation.

No Fictional Tax Savings

The City should not claim:

"We lowered taxes by $1 million"

if total taxes increased and the number is merely based on an unverified hypothetical.

The baseline and calculation must be public.

8.10The Community Improvement Dividend

The other 50 per cent of eligible savings should be directed to a visible community-improvement fund.

The original concept identified downtown Owen Sound and parks as the principal beneficiaries.

That should remain recognizable to residents.

Eligible Uses Could Include

• downtown beautification;
• trees;
• benches;
• public washrooms;
• trail improvements;
• park improvements;
• accessible recreation;
• riverfront improvements;
• playgrounds;
• community equipment;
• public gathering spaces;
• neighbourhood projects;
• small accessibility improvements;
• seasonal recreation infrastructure.

The Visibility Principle

Residents should be able to point to something and say:

That improvement came from money the City stopped wasting somewhere else.

This creates a direct connection between efficiency and community improvement.

Efficiency should not feel like an accounting exercise that disappears into a spreadsheet.

It should become visible in the community.

8.11Protecting the Community Fund

The community portion of the Efficiency Dividend should not become a secondary general operating budget.

Create a dedicated public account or reserve structure consistent with municipal financial requirements.

For each expenditure, publish:

• project;
• cost;
• location;
• source-year of the Efficiency Dividend;
• responsible department;
• completion status.

Do Not Spend It Just Because It Exists

Money in the fund can remain there until a worthwhile project is ready.

There should be no obligation to spend every dollar by December 31.

Unspent money should carry forward for appropriate future improvements.

8.12Resident Participation

The community portion of the Dividend provides an ideal opportunity for resident participation.

Residents could help identify small improvements through:

• Resident Pulse;
• neighbourhood meetings;
• youth consultation;
• accessibility audits;
• park-user feedback;
• downtown business consultation.

A portion of the annual fund could be allocated through participatory budgeting.

For example, residents may be asked to select among several qualified projects that:

• are within municipal authority;
• have been costed;
• can be maintained;
• meet accessibility and safety requirements.

This allows residents to see the relationship between savings and choices.

8.13A Simple Example

Suppose the City identifies a recurring operational improvement.

Before

Annual cost: $500,000

After

Annual cost: $420,000

Gross Saving

$80,000

Implementation Cost

One-time cost: $20,000

Year One Net Saving

$60,000

Year One Dividend

$30,000 toward tax restraint

$30,000 toward the Community Improvement Dividend

Year Two

Assuming the lower cost continues and no additional implementation expense exists:

Recurring saving: $80,000

$40,000 toward tax restraint

$40,000 toward community improvements

The public should be able to follow the calculation this easily.

8.14Reinvestment Before Distribution

There will be circumstances where part of a saving must remain inside the service that created it.

For example, a department may find a way to save $100,000 annually but require $25,000 of new preventive maintenance to sustain the improvement.

The actual eligible saving is therefore $75,000.

The system should never punish departments for identifying necessary reinvestment.

The purpose is sustainable improvement.

Correct Sequence

1. Calculate gross saving.
2. Deduct implementation costs.
3. Deduct necessary sustaining costs.
4. Confirm service standard.
5. Confirm infrastructure obligations.
6. Determine verified net saving.
7. Apply the 50/50 Dividend.

8.15Departmental Incentives

One reason organizations sometimes hide efficiencies is fear.

A department may believe:

"If we save money this year, our budget will simply be cut next year."

That can create the wrong behaviour.

Departments should have an incentive to find improvements.

One option would be to allow a small portion of verified operational savings to support approved departmental improvements before the remaining amount enters the Dividend.

Any such mechanism should be tightly controlled and publicly reported.

The principle is that employees and departments should not be penalized for becoming more efficient.

8.16Civic Work Days

The Efficiency Dividend should connect directly to the proposed seasonal Civic Work Days.

The existing plan proposes City crews, residents and local businesses working together on practical community projects, with the costs and savings published.

Each Civic Work Day should therefore publish a simple account.

Example

Project

Trail cleanup and minor park improvements.

City employee hours

Published.

Volunteer hours

Published separately.

Business contributions

Published.

Materials

Published.

Normal estimated delivery cost

Published where a meaningful comparison exists.

Actual municipal cost

Published.

Verified saving

Published only where the comparison is legitimate.

Community Contribution Is Not Automatically a Municipal Saving

If residents volunteer for an activity the City would never otherwise have paid someone to perform, the value of that volunteer contribution can be celebrated.

It should not be falsely booked as cash savings.

Both numbers can be reported.

Municipal saving: $4,000

Estimated community contribution: $12,000

Those are different things.

8.17Procurement Savings

Procurement offers significant potential for efficiencies.

But savings should be measured against a real baseline.

Examples may include:

• consolidating compatible purchases;
• using longer-term contracts where advantageous;
• splitting contracts where doing so increases competition;
• improving supplier participation;
• reducing emergency procurement;
• standardizing common items;
• using cooperative purchasing where appropriate.

Local Businesses

The City should actively remove unnecessary barriers that prevent qualified local companies from competing.

That may include:

• simpler vendor registration;
• smaller bid packages;
• advance notice of upcoming work;
• clear insurance requirements;
• prompt payment;
• standing quick-quote lists.

The result should still be measured according to value, quality and lawful procurement standards.

"Local" should be an opportunity strategy, not permission to abandon accountability.

8.18Energy Savings

Energy improvements are particularly suited to the Efficiency Dividend because consumption can often be measured.

For an energy project, report:

• previous consumption;
• previous annual cost;
• project cost;
• new consumption;
• new annual cost;
• maintenance differences;
• payback period;
• verified annual saving.

After the original investment has been recovered, continuing savings may become recurring Efficiency Dividend candidates.

8.19Technology Savings

New systems are often marketed as cost-saving tools.

Sometimes they are.

Sometimes they simply move costs from salaries into licences, contractors and subscriptions.

No technology project should claim an efficiency until the complete cost is compared.

Include:

• acquisition;
• implementation;
• training;
• licensing;
• subscriptions;
• support;
• cyber security;
• hardware;
• data migration;
• staff time;
• vendor exit;
• replacement.

A lower head count accompanied by a larger vendor bill is not automatically efficiency.

The entire cost matters.

8.20Consultant Savings

Consultants should be used when the City genuinely requires:

• specialized expertise;
• independent analysis;
• temporary capacity;
• professional certification;
• technical work unavailable internally.

Before hiring a significant consultant, ask:

1. Does City staff already possess the expertise?
2. Could staff complete the work with temporary support?
3. Is an independent opinion required?
4. Will the consultant transfer knowledge to employees?
5. Will the City still depend on the consultant after the contract ends?

Where a consultant identifies efficiencies, the City should independently verify the resulting savings.

The consultant's fee must be included in the calculation.

8.21Savings From Prevention

Some of the most valuable efficiencies come from preventing problems.

Examples could include:

• preventive infrastructure maintenance;
• early workplace intervention;
• community safety programs;
• proactive drainage work;
• tree maintenance;
• winter planning;
• early equipment repair.

These savings are harder to calculate because they involve events that did not occur.

Claims should therefore be conservative.

If the City claims that prevention avoided a cost, the methodology should be published.

Where the saving cannot reasonably be established, report the improvement as a public benefit rather than inventing a dollar figure.

8.22Annual Efficiency Report

Each year, publish a dedicated Owen Sound Efficiency Report.

It should include every approved efficiency.

For Each Item

• department;
• description;
• previous approach;
• new approach;
• implementation cost;
• gross saving;
• net saving;
• recurring or one-time;
• service effect;
• employee effect;
• infrastructure effect;
• verification;
• tax-restraint allocation;
• community allocation.

Also Publish Failed Ideas

Some proposed efficiencies will not work.

Report them.

A short entry could say:

Proposal: Consolidate two service contracts.

Expected saving: $35,000.

Result: Bids demonstrated consolidation would increase cost by approximately $12,000.

Decision: Do not proceed.

That is useful public information.

It also demonstrates that the purpose of the program is not to manufacture savings claims.

8.23The Public Savings Ledger

Create a permanent public ledger.

Every verified Efficiency Dividend receives an identification number.

Residents should be able to follow it from discovery to community result.

Example

Efficiency E-2027-014

Fleet scheduling improvement.

Verified recurring saving: $62,000.

Tax restraint: $31,000.

Community Dividend: $31,000.

Community project funded: accessible trail improvements.

This creates a visible chain:

Problem found. Improvement made. Saving verified. Benefit returned.

That is the system.

8.24The First-Year Efficiency Review

During the first year of the term, every major City department should participate in an operational review.

The objective is not to begin with predetermined cuts.

The review asks:

• What work is repeated unnecessarily?
• Where are delays occurring?
• What complaints repeat most often?
• What tasks consume staff time without producing public value?
• What equipment causes repeated downtime?
• What purchases could be planned better?
• Where are we paying contractors for work we can perform internally?
• Where are employees performing work another organization should be doing?
• Where are we doing work manually that could be simplified?
• Where is preventative maintenance cheaper than repeated repair?
• What outside requirement is creating unnecessary municipal cost?
• What would employees change if they were responsible for the budget?

Employees performing the work should be involved directly.

Residents who use the service should also be heard.

Numbers tell only part of the story.

8.25Efficiency Is Not Austerity

This distinction should be explicit.

Austerity asks:

What can we cut?

Efficiency asks:

Why does this cost what it costs, and can we achieve the result better?

Sometimes the answer may be that the City should spend more.

If an additional $20,000 in preventive maintenance avoids a $200,000 replacement, efficiency may mean increasing today's budget.

If an additional employee eliminates excessive overtime and improves service, efficiency may mean hiring someone.

If better equipment allows a crew to complete more work safely, efficiency may require capital investment.

The target is not the lowest line on the spreadsheet.

The target is the best long-term result for residents.

The Efficiency Dividend Commitment

Owen Sound should become a place where finding a better way produces a visible public benefit.

Employees should know that good ideas matter.

Residents should know that reported waste will be examined.

Businesses should know that practical suggestions are welcome.

Council should know that savings will be measured honestly.

And taxpayers should know where the benefit went.

The formula is simple:

Measure the old cost.

Improve the work.

Measure the new cost.

Subtract every cost required to create the saving.

Protect services, employees and infrastructure.

Verify the result.

Return half to tax restraint.

Return half visibly to the community.

No invented savings.

No deferred maintenance disguised as efficiency.

No workers sacrificed to improve a spreadsheet.

No temporary grant described as permanent savings.

No community contribution claimed as cash that the City never spent.

The principle is not complicated:

Waste less. Maintain more. Return the benefit to the people who paid for it.