Dear Winnipeg

A Fun Blog About Infrastructure and Municipal Finance

There’s Always Money in the Banana Stand

Dear Winnipeg,

I was re-reading the City’s Multi-Year Budget Context: Structural Deficit Presentation document the other day. [You know, as one does on a Sunday afternoon.]

On the very first page, they describe the financial challenges we faced in the 1990s, and there was one in particular that stood out to me:

  • High reliance on property taxes

I never knew that could be a problem, but apparently it was. [Like Foreign Accent Syndrome. Yes, really!]

And, being the resourceful, problem-solving dynamo we know our dear City to be, it set out to solve its challenges, and on page 34 of that report, we see the difference between where we were in 1998 vs 2017 for this particular point: we can happily report that we are now “less reliant on property tax revenue and business tax” and “more reliant on capital grants from other levels of government”.

So here’s what that looks like in application:

And this is… better?

Forgive me if I’m not convinced.

First off, the very idea that I should pay tax to Justin just so he can give it to Brian Sr, so HE can in turn give it to Brian Jr, so that HE can finally pay to replace the Louise Bridge doesn’t sit well with me. The more hands my tax dollars go through, the more is lost in “administration”. So that’s already one strike against it.

But just as important is that the more levels of government my tax dollars go through before ultimately being spent, the more accountability is lost. If the City is misspending money it got from the Province, who got it from the Federal government, then who’s to blame?

So call me old-fashioned if you will, but I’d rather give my tax dollars directly to the level of government that will be spending it.

But why would the City not want this?

Well, I wrote to you a few weeks ago showing you the annual cashflows to the City of our suburban development pattern since WWII, using the City’s own cost-benefit analysis numbers for Waverley West. To refresh your memory, this is what it looked like:

Apparently, when property taxes are no longer enough to cover your infrastructure costs, instead of coming to the (not unreasonable) conclusion that you have built too much flashy, expensive infrastructure, and that you’re faced with a city that is ultimately unsustainable, the easier thing to do is to blame it on being too reliant on property tax revenue. [“No, I do NOT think I have too many shoes!”]

And that way, you can just cover up your functional insolvency, and keep the party going. [“Oh, these Louboutins would look sooooo cute with my favourite pair of cut-off jean shorts!”]

All while shifting the blame to someone else for any shortcomings. Like the province. Or the feds. [“Dad, if you don’t eTransfer me some money for rent, my life will be ruined. I need new shoes.”]

But of course, that’s how it goes with Ponzi schemes. As long as you can still find someone else to pay, you’ll survive.

And if the taxpayer from Flin Flon can be convinced to pony up to build the Chief Peguis extension, or the South Winnipeg Recreation Campus, then who are we to question it?

And if we can rope in the taxpayer from Lower Sackville NS or Big Beaver SK, then what’s the problem?

[Those are real place names by the way. Also, you should try to visit Balls Falls ON, Crotch Lake ON and Climax SK… Yes, I know, what a magnificent country we live in!]

Well, the problem has to do with moral hazard.

You see, moral hazard is when someone takes more risks because somebody else bears the costs of those risks.

In our case, we’ve built more infrastructure than we can afford to pay for. Or at least, more than we can afford on our own.

But rather than tone down our appetite for infrastructure, we’ve decided to hit up other people to pay “their fair share”:

  • Lower Sackvillians thanks to Federal transfers
  • Flin Floners thanks to Provincial transfers
  • Our children and grand-children thanks to debt

And now we’re talking about levying a commuter tax on people who live outside the city. Which seems like just another way to get someone else to pay for our bad decisions, but is also being pitched as a way of getting others to pay “their fair share”.

But is that share actually fair? [Say that ten times fast!]

I mean, what benefit will Flintabbatey Flonatin get from a new rec centre in Waverley West? And the Waverley Underpass will definitely need to be replaced by the time our grand-children are old enough to drive on it…

And as for exurban commuters, if we hadn’t built so much infrastructure in the first place, they couldn’t use it anyway.

But think about this: if we had to pay, through our property taxes, for the entire cost and eventual replacement, forever, of the infrastructure that we benefit from, would we be so cavalier about building so much?

We didn’t used to be. In the 1940s and 50s, the construction of the Disraeli Bridge was twice defeated by referendum. Only when Mayor Juba convinced the Province to pay for nearly 2/3 of the project did Winnipeg taxpayers finally come around. As long as Winnipeggers were the ones paying the tab, they were willing to go without.

And I suspect that’s still the case.

So now we’ve come to a sort of crossroads. While Grandpa Justin’s wallet seems to still be wide open, Papa Brian Sr has been very clear that the gravy train is over. And that has caused us a lot of grief.

But do we really need the Province’s money? After all, the Province’s money seems to come with a lot of strings attached.

Plus, the Province has already given us the greatest gift of all: the ability to make our own money!

We have been given the power to collect property taxes, an income stream which we have 100% control over, is always there for us, in good economic times and bad, in times of population growth and population decline, and regardless of the political stripe or whim of the provincial and federal governments of the day. We can always rely on it. [Just like the banana stand.]

So why would we want to diversify away from that?

The upshot: our City Council would to have to be a lot more accountable regarding the infrastructure projects we take on, as well as any “free” infrastructure we accept from developers. Because we’d know we’re on the hook for paying to maintain and replace them forever. And if we couldn’t afford it, then we’d just have to go with a cheaper option, or nothing at all. Plus, having to raise property taxes any time something shiny comes along should help keep things honest, prudent and transparent.

That’s good for us taxpayers.

That said, I guess I understand now why Brian Jr would rather just keep shaking his fist at Justin and Brian Sr to give us more money. [Shake harder, boy!]

Lots of love,

Elmwood Guy