Dear Winnipeg

Dear Winnipeg,

If you haven’t heard, I’ve got some spectacular news for you: last week, a court decision struck down your attempt at impact fees. Isn’t that just fantastic?

[No, I am not the scarecrow from the Wizard of Oz.]

I can answer that for you: yes, it IS fantastic!

[And no, I’m not just saying that because I’m afraid the developers will send their flying monkeys after me.]

If you’re not entirely convinced, bear with me.

Very briefly, here is what the decision says:

• The City is allowed to charge an impact fee
• What the City is charging is not a fee (which would be allowed), it’s actually an indirect tax (which is not allowed, since the only tax the City can charge is property tax)

So what’s the difference between a tax and a fee? Well, it gets a little murky, but in general:

• It’s a fee if the money can be directly linked to a specific purpose, for example an application fee for rezoning, or admission to the pool
• It’s also a fee if it’s used to try to alter individual behavior, for example a fee for late books at the library (to alter your behavior of returning books late) or a per-tonnage fee at the dump (to discourage your production of waste)
• Otherwise, it’s just a way to raise revenue, which is considered a tax

Now, as we already know, Mayor “Don’t Call Me Brian” Bowman has been a champion of impact fees since his first term, often repeating his mantra that “growth has to pay for growth“.

The underlying assumption, that growth DOESN’T pay for growth, is completely valid. We’ve talked about that before, and doing the math clearly shows that new developments are not productive enough to afford their own infrastructure, much less provide any net financial benefit to the City.

And as Councillor Gillingham has astutely observed: “We cannot continue building the cities our residents desire using the current funding tools”.

Hence, the apparent need for the impact fee.

Where the wheels start to come off on this line of thinking, is that it’s even possible to make growth pay for itself simply by charging a fee. The suburban development pattern is insolvent, so how big would the fee need to be in order to make up for an eternity of losses?

Not surprisingly, the courts ruled that meant there wasn’t a direct enough link between the fee and its use, meaning it wasn’t an impact fee, it was actually an impact tax. Not allowed!

But let’s say the City wanted to modify the impact fee by-law to specify that any fees collected had to go back into the areas they were collected, in order to pay for needed infrastructure like fire halls and rec centres. That’s a direct link. Growth paying for growth, right?

Well, let’s ask that question another way. If the suburban development pattern already can’t support its own infrastructure, should we really be charging a fee so we can build EVEN MORE infrastructure there? That’s just increasing the future hurt.

So if the fee can never be high enough to make up the losses, and using the fee to buy more infrastructure is just going to make things worse in the future, should we just give up on impact fees altogether? Continue our search for those elusive “other funding tools” that will allow us to continue building the city “our residents desire”?

Well, given that we need about an extra $1 Billion PER YEAR to properly fund the city we already have, I’ll go out on a limb and say that those “other funding tools” don’t actually exist. That money is ultimately going to have to come from us. And that will probably change what we “desire”, because no one wants to triple our property taxes.

But just because we’ve been choosing a Ponzi-scheme approach for growth for decades, doesn’t mean it has to continue to be that way.

So how do we convince developers to stop building in a way that bankrupts the City, and start building in a way that is financially productive for us?

Introducing the impact fee as a planning tool.

Now that we’ve accepted that the impact fee is basically useless as a revenue tool, we can examine its power to alter individual (or in this case, developer) behavior.

First, we have to make sure we’re charging the fee on the right thing. The current version of the impact fee charges a fee per sq ft of building. That’s fine if we’re trying to incentivize developers to build smaller buildings, but I don’t know why we’d want to do that.

What we want developers to do is to make more productive use of the land, that is, to use less land (and therefore less infrastructure). Charging an impact fee on the total amount of land in a subdivision scheme, at the time of subdivision, aligns the developer’s business interests with the City’s. It makes it in their best interest to use the land as efficiently as possible, by maximizing what they can sell (and what the City can later tax), such as housing and commercial space, and minimizing what they can’t (and which will later show up as costs for the City), like roads, etc. Their profit margins will now depend on it.

Additionally, we could collect the impact fee from greenfield development on the outskirts of the city, and use it to rebate certain fees for infill development in established areas when the development meets certain criteria. This would help level the playing field between the two, or even tip the scales in favour of infill.

Now the impact fee can’t be expected to do all that heavy lifting on its own, it will need to be paired with some significant simplification of regulations and red tape, especially for the things that the OurWinnipeg plan says we are actively trying to achieve.

We’ll need to remove parking requirements, which doesn’t mean no parking will be provided, just that the market will be free to decide how much is needed.

We’ll also need to remove R1 (single-family) zoning (and maybe even R2 while we’re at it). If you see yourself on the left side of the political spectrum, it should make you happy to eliminate a piece of city code that has its historical roots in racism. If you’re on the right, you should be happy to eliminate government interference in what gets built, and instead letting it be decided by free markets. Like for parking, it’s not that no single-family homes will get built, just that the market will be free to build whatever is needed.

Or better yet, get rid of outdated segregated use-based zoning altogether, and replace it with a form-based code. Regulate what buildings look like in a neighbourhood, rather than what they are used for (excepting maybe a handful of heavier industrial uses).

So you see? I told you we were lucky to have this judgement quash the current impact fee! Now we get a second chance to implement an impact fee that will actually help us build a financially sustainable city, instead of actively making things worse.

[Now let me just Google how to defeat flying monkeys…]

Socially-distant air fives,

Elmwood Guy