Dear Winnipeg

A Fun Blog About Infrastructure and Municipal Finance

It’s All Downhill From Here

“The slide into municipal insolvency isn’t as fun as they made it sound…”

Dear Winnipeg,

Wow, I can hardly believe it’s been nearly a month since I last wrote you. Sorry about that. I hope you haven’t been waiting by the mailbox all this time.

[Unless your mailbox is also a beer fridge… in which case, um, awesome?]

Lately, and throughout this budget process, there’s been some talk about assessment values, and who’s paying for what in this city, and therefore what should get built and what should get cut. And it’s easy to get a little lost in all the details.

[Especially if you’ve spent a lot of time at the mailbox.]

So, I want to talk about a measurement I’ve used a lot in my letters to you, and why it’s important: value per square foot.

Value per square foot (or square metre, or acre, or hectare, or oxgang, or bovate, or groatland, or barn, or hinny, or whatever unit of area you want to use) is important for two main reasons:

[Yes, surprisingly all of those are real units for measuring area. Well, ok, all but one…]

1. Land is the pretty much the only thing we can tax as a city. It’s our main source of income. So it makes sense to want to know how productive any given parcel of land (or neighbourhood) is.

Just like a farmer tracks their crop yield per acre, applying fertilizer, herbicide and/or pesticide in order to get more income from the same amount of land, thus increasing their profitability, a city also needs to know how well its land is performing from a tax perspective. That way it can make smart decisions, increasing the value per groatland, that will help make it more financially sustainable.

– And –

2. It’s also useful for telling us how costly a parcel of land is for the city. The more land it takes up, the further apart the things on it with value tend to be, which means the more expensive it is to service, and generally, the more infrastructure it will have. And thus the lower it will drag down the value per oxgang.

[I know, you think barn is the fake one, but it’s not. A barn is equal to 10−28 m2. It’s used in physics. Who knew, right?]

So with that in mind, I want to show you a graph of some data pulled from this cost-benefit analysis prepared by City staff at the end of 2004, and its attachment.

This is what the annual cashflows to the City from Waverley West look like, or at least, what the City planning staff projected they would be, before any of it was even approved to be built.

Doesn’t exactly look like the financial panacea we were expecting, but let’s give it a chance.

Now that we’re 13 years into this development experiment, we can actually see if we’re hitting our targets:

  • Projected WW revenues for year 12 (2019): approx $16.6 million (in 2003 dollars)
  • Actual WW revenues for 2019: approx $14 million (in 2003 dollars)

Oops! Our original revenue projections were off by about 15%. Well, no problem, let’s just adjust the revenues down on our graph accordingly:

Adjusted to actual revenues from 2019, but still shown in 2003 dollars.

Cool.

So the really interesting thing to note here is that while it looks mostly profitable in its early years, around year 20-25 the graph turns into a sketch of the toboggan hill my kids built out front.

That’s when all that “free” infrastructure the developers built for us starts needing replacement.

And we realize that we’ve built a neighbourhood that can’t support its own infrastructure.

Not to worry! We can just build another! After all, today’s Waverley West is just tomorrow’s Southdale.

Setting aside the fact that that is the very definition of a Ponzi scheme, let’s just put that on a graph for fun.

[Caveat: my idea of fun may be different than yours. Although, I do enjoy a good mailbox party!]

This is what the annual cashflows to the City would look like if we had built a new Waverley West every ten years since World War II:

After a few decades of thinking we were doing everything right, it would become painfully obvious that we had built more infrastructure than we could reasonably afford. And no amount of new Waverley Wests would help us. In fact, each additional one we built would actually be making things worse.

Now, to be clear, this isn’t a rant against the people of Waverley West. All they’ve done is make the best housing choice for themselves based on the options that have been provided to them. Nothing wrong with that.

This isn’t even a rant against the (wildly unprofitable) suburban development pattern that we, for some reason, continue to provide as an option.

This is about math.

We cannot afford the city we have built.

Now, it does seem odd that we can’t manage to build anything that stays solvent for more than a few generations, when humanity has been building cities for literally millenia.

But while our ancestors might have known how to build cities that created wealth, all we’ve built is a city that destroys it.

And even though we started on the right path, we’ve now been building a wealth-destroying city for over 70 years, since before most of us were born. We’ve forgotten how to do it right.

That means we HAVE TO do the math if we’re going to have any chance at getting out of this mess.

A city doing the math would invest its limited funds in its highest ROI projects, and by keeping an eye on value per land area.

That means focusing on the areas/projects that will add measurable value.

The Bridgwater Forest neighbourhood of Waverley West, currently at the top of its game, is generating $52.28/sq ft of value to the City, just under the city-wide average of $52.67/sq ft. And being at its peak, it has nowhere to go but down. By design.

On the other hand, even after 70+ years of neglect, the Spence neighbourhood is still pumping out $77.16/sq ft. And St. Matthews is providing $71.30/sq ft, and Centennial is at $63.36/sq ft. Plus, they’ve got nowhere to go but up.

So where should we invest our city’s money? These really aren’t “difficult decisions” when we follow the math.

The other thing it means is not dragging down your value per hinny by adding new infrastructure. Just stop already. We have already built more than we can afford, we have to focus on making more profitable use of what we already have.

[Just kidding… a hinny isn’t a measure of area, it’s an animal that’s actually sort of the oppposite of a mule. Yeah, that exists.]

A resident of River Heights/Fort Garry had this to say on the topic of a proposed Waverley West in a January 2005 presentation to EPC:

The initial plan provided the City outlines that significant infrastructure will be required while other areas of Winnipeg are in critical need of repairs to their existing sewers, roads, sidewalks, back lanes, community centers, etc.

Older neighborhoods will become more expensive to maintain as they [are] neglected and will decay. This causes a “donut effect” where people move to areas that are newer. This is not uncommon for Cities however the results have been proven to be devastating to long-term growth.

— John Orlikow, just a regular River Heights/Fort Garry resident (at the time)

Given that we are proposing closing facilities in older neighbourhoods while building a new facility in Waverley West (the opposite of what the math tells us to do), it makes me wonder:

If only we had people like that on Council today…

Lots of love,

Elmwood Guy