The First Step Is Admitting You Have a Problem
These days, it seems I never hear the word “infrastructure” without it being preceded by the word “crumbling”. Why is that? Seems fairly straightforward… your most basic role as a City is to provide infrastructure for me and my fellow citizens to use, and then to maintain that infrastructure. And yet, here we are in 2018, with a city full of infrastructure that is, well, crumbling.
You can say it’s not your fault. It’s that darn wasteful spending by those fat cats at City Hall. Or it’s a lack of priorities by Council, or it’s even them just having the wrong priorities.
But let’s talk about priorities. When we set priorities, what that means is that we have enough money for the things we need, and even some extra for the things we want. Now I know you don’t have unlimited amounts of money, so we obviously can’t get EVERYTHING we want. We have to prioritize to decide which of those things you will actually get for us.
I get that. It’s like my own personal finances. Once I have paid for a roof over my head, basic transportation, clothing and groceries, what I do with the cash that’s left over is up to me. Do I go to a Jets game? Do I take a Yoga class? Get a new iPhone? Give some money to charity? I can’t do all of them, so I have to make some hard choices (sorry Gym Membership, maybe next year!). There is no wrong answer. Everyone will have different choices, because everyone sets their own priorities. In the personal finance world, it’s called disposable income.
Where things will get scary and out of control is if I start using some of the cash dedicated to basic needs as if it were disposable income. For example, buying a rock that looks like meat instead of making my mortgage payment.
So does that explain it? Is that what your successive City Councils have been doing all these years? Using your road renewal money on non-essentials, basically spending your rent money on the surfboard that Keanu Reeves might have used in Point Break?
It seems logical, and that’s certainly what we’re hearing out there, both around the water cooler, and in the Council chambers. But there’s only one problem with that explanation: it doesn’t even come close to reflecting reality. Here’s why.
[Warning: basic math coming up.]
Your entire tax base is approximately $85 Billion. That’s the total value of all the private property in the City, such as houses, stores and office buildings. It’s what you can collect property taxes on, and property tax is your main source of revenue as a City. On that value, you collected about $585 million in property taxes last year. Not too shabby.
But here’s where the problem comes in. The total replacement cost of your infrastructure sits at $35 BILLION.
And over 80% of that $35 Billion is just the most basic core infrastructure: roads and pipes. That is to say, we, the citizens of Winnipeg, collectively own about $29 Billion of roads and pipes, which we need to maintain and replace, well, forever.
What do all these numbers actually mean? Well, what that works out to is a ratio of about 3:1 of private wealth ($85B) to public infrastructure ($29B). And remember – that’s just the roads and pipes, not libraries, community clubs, city buildings, etc.
Here’s an example to illustrate this 3:1 ratio.
For every $300,000 house (or office building, or retail store, etc.) that a private citizen (or corporation) owns in Winnipeg, you will need to collect $100,000 from that citizen to pay for the replacement of roads and pipes, at the end of their useful life cycle (a 3:1 ratio).
Here’s another way of looking at it.
If I own a $300,000 house, I will be expected to pony up $100,000 as my “share” of replacement of roads and pipes from time to time. Every time. Forever.
So what does “from time to time” actually mean? How often will the tax man cometh? That depends on a lot of factors, such as the specific type of infrastructure, how much use it gets, how well it is maintained over its lifespan, etc.
But for our purposes here, we can safely say it’ll happen, on average, about every 50 years. Every 50 years, you will need to send me a bill for $100,000.
Now, not many of us Winnipeggers have $100,000 burning a hole in our pocket (otherwise, we’d be seeing a lot more pants-less people around town). And all of your infrastructure is at different stages in approaching replacement, which means that you’re always replacing SOME of the infrastructure. So you need to be putting that money aside in smaller chunks over the next 50 years, meaning a bill to me of $2,000 per year ($100,000 divided by 50 years). How does $2,000/year for property tax sound? Probably not awful. If I owned a house assessed at $300,000 like in our example, I’d already be paying about $1,750 in property tax (of course, the actual bill would be higher than that, because it would also include school tax, etc.)
But here’s the thing: that $2,000 a year is just for capital replacement – not maintenance, not anything else.
Just as when you own a car, there are ongoing operating costs such as fuel, insurance, oil changes, tune ups, tire replacements. No matter how well you maintain it, though, eventually you just need to get a new car. That cost is over-and-above all that regular maintenance, and that’s the cost we’re talking about here.
The exact same thing applies to infrastructure replacement – this doesn’t include any of the regular maintenance that will be required every year, like snow clearing, street cleaning, line (re)painting and pothole filling. And it most certainly doesn’t include any other City services such as garbage pickup, libraries, police, fire and ambulance. Not to mention, ever driven on an un-maintained 49 year-old road?
Ouch. Starting to sink in? That means forget a 2% increase to my property tax bill… you’re staring down the barrel of a 200% increase, just to keep up with what you already own, Winnipeg.
But surely that just proves the fat cats are wasting your money, you say? What about that latest boondoggle, (insert whichever you want here)?
Well, let’s put it yet another way. Let’s say we took all the property tax money you collect each year, all of it, every single red cent, and put it aside to use for replacing our infrastructure at the end of its life cycle. And let’s say we did this for 50 years. Sadly, you still wouldn’t have enough money come reckoning:
$585 million x 50 years = $29.25 Billion. To replace $35 Billion of infrastructure. Setting aside ALL property tax revenue for the next half-century.
[At this point, you’re probably racking your brain to find the appropriate curse word to use. That’s ok, go ahead. I can wait…]
So saying “there are other priorities” is just a smokescreen. It’s hiding from your real problems, and burying your head in the sand. Because you don’t have enough money to even be able to start talking about “priorities”. It’s not even close. Well, unless you are thinking of tripling our property taxes… [sounds of crickets]. Yeah, that’s what I thought.
They say the first step is admitting you have a problem, and the problem is this: you have built WAY more infrastructure than you can reasonably afford to maintain.
And as a City, you’ve committed us to maintaining and replacing it forever. Yeah. You’re in this real deep, Winnipeg…
Better call Saul.
Lots of love,