Pssst… You Wanna Buy an Eight?
A new report came before the Finance Committee this week, called Addressing the Financial Challenges of COVID-19. It’s got a lot of stuff in it, but what I found the most interesting was not the report itself, but rather who registered to speak to the committee about the report.
It made me think of the Sesame Street skits where that shady salesman, Lefty, is always trying to sell Ernie on ridiculous stuff he doesn’t need.
Let me back up a bit.
A few weekends ago, the Manitoba Heavy Construction Association (a lobby group for companies that build roads and pipes) published a fancy insert in the Free Press, reminding us that $1 of public investment in their work “returns about $1.30 to Manitoba’s GDP”.
And now the MHCA has come to lobby the City to stimulate the post-COVID economy by spending hundreds of millions of City dollars on, shocker, roads. Here are a few highlights:
… Stay the course; fully flow the core infrastructure investment programs…— Chris Lorenc, Manitoba Heavy Construction Association
… Consider accelerating those programs…
… the City will benefit from robust budgets…
… projects such as completion of Peguis pave the road to prosperity…
… It would be misguided to think of the knock-on impact of Peguis…
… opportunity and momentum are on your side now…
… resist the reflex to retract, look for safe harbour…
… take this time to think big…
Translation: Don’t worry about the future, don’t worry about budgets, just spend every single dollar you can find on road infrastructure, and do it now. Our economic recovery depends on it!
Yeah, we’re gonna do math on this. Just be patient.
But first, we should probably question whether a city should even care so much about a macro-economic measure like Gross Domestic Product.
You see, municipal government is the level of government closest to the people… it therefore needs to care most about the lives of the people, which is by definition the micro level. And GDP tells us nothing useful about that, so why be so concerned about it? Not our circus, not our monkeys.
Let’s look at an example.
Let’s say we took a couple of bulldozers out and spent a few days turning Sage Creek to rubble.
Now that would be amazeballs for GDP… all the construction required to rebuild ALL of those expensive houses would noticeably increase GDP. Success!
And since that worked so well at increasing GDP, we should just repeat that every year, picking a different neighbourhood at random to plow into oblivion!
Aren’t we awesome at city…ing?
Yeah, except we don’t do that.
Because while it would be good for “the economy”, it would be horrible for the people who live here. And it wouldn’t be great for the City itself either, with the disruption to property taxes and the delivery of city services, not to mention the massive cost of replacing all that infrastructure, which we already can’t afford to do in the best of times!
Second, is the assumption that the infrastructure we have is the infrastructure we need, and therefore the infrastructure we should continue to build. [I’m lookin’ at you, Peguis extension….]
I mean, the infrastructure we have is certainly not the infrastructure we are willing to pay for. That would require tripling our property taxes, and we lost our collective minds last year when a 9.4% increase was suggested. In reality, it’s not even the infrastructure we are able to pay for.
So shouldn’t we take this opportunity to re-evaluate all of our infrastructure choices to create a better, more solvent city?
Third, math. [Told you it was coming!]
Even if we ignore all of that, and charge forward based solely on the argument of “GDP growth”, shouldn’t we at least look at what it does to our own bottom line?
Because, of all the levels of government, cities are the ones who recoup the smallest proportion of their investment in economic stimulation.
Winnipeg’s GDP was $40.2 Billion in 2018 (page 4).
In the same year, the City’s total revenue from all non-government sources was $1.54 Billion (page 43).
That makes our income just under 4% of GDP.
To get back to the MHCA’s numbers, that means that on average, every $1 invested will result in $1.30 of increased GDP, of which we, as a City, can expect to reap about 4% as income. That comes out to $0.05.
So, we are losing $0.95 for every loonie we put in.
Let’s say that louder for those in the back. For every dollar the City spends on road infrastructure, it gets a nickel back.
And no, I do not mean the band. [Although that wouldn’t be very good either.]
It only gets mildly better if we cost-share with the Province and the Feds… in that case, we “only” lose $0.84 per dollar invested.
Yeah, it’s good for GDP. But no matter how you slice it, that’s a bad investment for the City. It’s what it would be like if Bernie Madoff was the City’s investment advisor.
[Side note: I always found it hilarious that anyone invested any money with that guy…
– Your name is Madoff?
– As in, Madoff with all my money?
– That’s correct.
– Good enough for me, here are my life’s savings!]
Now of course, your investment advisor’s name likely has nothing to do with the quality of their advice. But, whether their financial incentives are aligned with yours certainly does.
And the MHCA giving the City infrastructure advice? Come on!
The City of Winnipeg, which already can’t afford the roads it already owns, is being told that for the good of the economy, it needs to spend as much as possible on roads, despite losing 85 cents on the dollar, by the lobby for an industry that makes its money by building roads. Hardly surprising.
Now, does all that mean that economic return on investment isn’t important for cities? Of course not. Just that by itself, it isn’t enough. City projects need to have positive economic return, but ALSO improve the lives of the people, AND the bottom line of the City, if possible.
[Spoiler alert: It’s possible.]
There’s been some talk lately about what a city’s “core services” are. Some have suggested it’s the 3 Ps: pipes, pavement and police. So I can understand why the reflex is to pour as much money into pavement as possible.
But if we’re going to use GDP growth as a justification for it, then we need to make sure that GDP growth is sufficiently high for us to recoup our investment. Cost-shared three-ways at 4%, that means we’re looking for projects that return at least $8 for every dollar spent.
We’ve already discussed some of those in the past… but one in particular stands out:
- Pedestrian and Cycling Investments: A 2012 study of over 50 U.S. cities reported a return on investment of $11.80 for each $1 spent on walking and cycling projects. And that same study estimated that twice as many jobs are created with active transportation projects as opposed to road projects.
That’s a home-run from an economic perspective. Plus, it helps us meet our climate goals. Not to mention, Active Transportation infrastructure is MUCH cheaper to maintain and replace than car infrastructure, helping us with that pesky insolvency issue.
But there is a major downside: our city is relatively inexperienced when it comes to Active Transportation projects.
On top of that, it’s quite possible that our travel patterns may have been forever changed due to COVID-19. So how can we know what kind of AT infrastructure will best meet our needs? Does the possibility to convert some roadspace to AT space exist?
We don’t have any money, so we can’t afford to make massive mistakes here. And we’ll have even less money once the Province takes away the utility “dividend” we’ve been “balancing” our budgets with.
That’s right… Bill 44 before the Legislature proposes to amend the City of Winnipeg Charter Act with this:
Regulations— Bill 44: The Public Utilities Ratepayer Protection and Regulatory Reform Act (Various Acts Amended)
210.1(7) The Lieutenant Governor in Council may make regulations
(d) permitting, prohibiting or restricting the use of rate revenue for anything other than the operational and capital requirements of the water and wastewater utility;
And the Premier doesn’t exactly seem like the kind of guy to give himself a new power that he doesn’t intend on using… so I guess we’ll be looking to fill a new $35 million/year budget hole pretty soon.
That means it would be extremely irresponsible of us to spend $10s of millions, or even $100s of millions, on a single infrastructure project of this scale, no matter how well-intentioned we are.
That is, unless we test it out first.
We need to get on board with the new 3Ps for our city: Paint, Pylons and Pilot Projects. [Hey, that’s actually four Ps! Look at that, we’re already getting more bang for our buck!]
It’s time to get out there and try out different street configurations, quickly, immediately, and using the materials we already have on hand. Just keep changing things around until they work for everyone.
This is to be our new M.O. for every Public Works project going forward. And I mean EVERY project.
Then, when the Federal stimulus money does start to flow, we’ll be ready with projects that increase GDP, improve Winnipeggers’ lives, and are good for the City’s financial sustainability. The trifecta!
We are in for some very exciting times, provided Council isn’t too cozy in the pocket of the MHCA.
Wait, unless they’re being coerced??
Mayor, if you or Chickaletta are in trouble, blink twice… OK, we’re sending help!
[The Paw Patrol is on a roll!]