Dear Winnipeg

A Fun Blog About Infrastructure and Municipal Finance

Winnipeg’s Next Top Mayor

Fierce!

Dear Winnipeg,

By now you’ve probably heard the news that Mayor Bowman is not planning to run for re-election in 2022, having announced on Friday that he feels there are too many career politicians in Manitoba, and he doesn’t want to become one of them.

Apparently, “elected officials should be more concerned about the needs of our community and next generation than the next election”.

[That much we already know… it’s obvious Degrassi: The Next Election wouldn’t be nearly as good as Degrassi: The Next Generation. Even Drake couldn’t make THAT show watchable.]

[Or for all the potential Star Trek: The Next Election fans, imagine Patrick Stewart as the Captain of the USS City of Winnipeg, boldly going where no one has gone before: against the results of a non-binding plebiscite!]

[Actually, I’d probably watch that one.]

So at first, I got a little excited about the possibilities. If the Mayor no longer cares about getting re-elected, maybe the next 2 years will bring us a load of things that are good for the City, despite being at least mildly unpopular: a complete BRT network using only paint, prefab curbs and existing roadspace. Or a complete active transportation network built the same way. Or survivable vehicle speeds as recommended by the WHO and the UN. Or maybe, just maybe, a Portage & Main that prioritizes economic activity ahead of the free-flow of traffic.

But alas, I fear it is not to be. Because just the day before his latest announcement, Mayor Bowman was quoted as saying this:

The current form of taxation is dumb. We need the province to make a decision to provide a more business-friendly and a more progressive form of revenue collection for municipalities including the city of Winnipeg.

— Mayor Brian Bowman, at a Small Business Summit with the Winnipeg Chamber of Commerce, on how, in his words, the city is obliged to operate in a regressive, antiquated municipal property tax system.

You see, after six years of budgets where he has consistently cut services every year, the Mayor thinks the City has a lack of revenue, and that the lack of revenue is due to our “antiquated municipal property tax system”. Woe is us! If only the Province allowed us to charge some sort of municipal sales tax, or income tax, THEN it would be smooth sailing for the City… we’d finally be able to have nice roads, well-appointed parks, frequent transit, timely garbage pickup, and a beautiful, healthy tree canopy.

But if I may be so bold: that’s total dreckitude.

Besides the fact that plenty of North American cities that have a municipal sales tax are no better off financially than we are, and in times of economic turmoil find themselves in even worse shape, there is a key point he is missing.

Whether it’s property taxes, pool admission fees, building permit fees, or even a shiny new municipal sales tax or municipal income tax, all of it is money coming from the same people: Winnipeggers.

So, why does that matter?

Simply put, no matter the tax mechanism, if you’re going to extract an income source from a group of people, then obviously that money has to exist in the first place.

In other words, are we rich enough to afford the city we’ve built? [Spoiler: we are not.]

The most recent census data tells us that the 543,905 working Winnipeggers earn an average of $44,916 each annually, for a total of $24.4 Billion of total income.

We’ve already done the other part of this calculation: our $35 Billion-worth of infrastructure is going to need replacement eventually, at an average annual rate of about 4%, which means we need $1.4 Billion per year to keep our roads smooth, our pipes flowing, our pools filled and our fire trucks, um, fire fighting.

So out of the $24.4 Billion that we earn together every year, we need to pay the City a collective $1.4 Billion, or about 5.7% of our annual income.

The City bean-counters estimate the proportion of income that flows to the City from the average Winnipeg household is currently 1.9% of their income (page 42).

Call it what you will, but that means a huge tax increase is in order. And whether it’s collected as a property tax, or a sales tax, or an income tax, that extra money is coming out of YOUR wallet.

Can we handle a “small” tax increase? Definitely. Some might even argue a “medium” or a “large” increase would not be the end of the world. But triple? That, to borrow a phrase from the Mayor, is dumb.

And keep in mind, that’s just to keep up with infrastructure replacement. It doesn’t include any services at all. Those are an extra $1.14 Billion of Operating Budget on top.

But you already knew that.

So how did we get here? While it’s true that cities have always expanded outward as they grew in population, over the past 8 decades, our city footprint, and therefore our infrastructure liability, has expanded outwards at a rate that outpaced the local wealth created.

As you can see, each Winnipegger today is responsible for nearly 2.5 times more feet of pipe than Winnipeggers in the 1940s.

Some might call this a sprawl vs. infill argument, but that’s grossly over-simplified. What actually happened is that we shifted our local economy from one of wealth creation to one of wealth extraction.

And we did this by consistently prioritizing BIG over small.

For example, we hear all the time that small local businesses create more local economic activity than big multi-national chains. One study from BC showed that for every $1 spent at a local business, 45% was returned to the local economy, while for big chains, it was only 17%. One from Salt Lake City showed an even greater disparity: 52% for local versus 14% for chains.

All that extra money staying in the city means more local wealth, about 40% of which we store in real estate, which in turn generates the property taxes that help pay for municipal infrastructure and services.

But despite these and other advantages, instead of prioritizing our small local businesses, we fall over ourselves to throw all kinds of tax-breaks, subsidies and incentives at BIG businesses. We mandate development rules that raise the barrier to entry for the little guy. And we focus our economic development policies in favour of B-I-G.

Meanwhile, our small local businesses get treated like they’re hosting Celebrity Jeopardy.

[Suck it Trebek!]

So what does it look like when that bias is applied to land development?

The way we used to develop pre-WWII was through the efforts of thousands of residents and small developers, each adding their contribution to an area, in different sizes, qualities, and at different times.

And as new residents arrived, as businesses thrived, and as local wealth increased, it is these differences that provided the economic incentives to continue improving and investing in the area, sometimes by adding onto an existing building, sometimes by replacing it entirely.

Differences in building age, quality and style created economic incentives for redevelopment, increasing overall value in the neighbourhood.

Smaller buildings made way for bigger ones. Older ones made way for newer ones. And shoddy ones made way for nicer ones. Not all at once, but over time.

And as new buildings went up, previous existing buildings became old, creating even more new opportunities.

Values in the centre would go up to a point where they started creating comparatively cheaper opportunities on the edges, which in turn would then start to develop using the same incremental pattern.

The more time went by, the more the virtuous cycle of investment continued. Rinse. Repeat.

This traditional development pattern was refined over millennia of iterations of human trial-and-error. Whatever didn’t work simply failed and went away, while whatever did work got to stick around and live through another iteration. Successful cities were the result of many, many small(ish) projects happening continuously. It was resilient, and it created wealth. Today, we might call it “mixed use infill”, back then we just called it “how you build cities”.

Compare that to the predominant development pattern we use today.

In our continual deference to BIG over small, we now have relatively few large developers developing acres upon acres of land with similar buildings, of similar quality, and most critically, all at once.

All at once, an entirely new neighbourhood is willed into existence. Since everything is new, there are no further economic opportunities for development. It is “built out”.

But because it was all built at the same time, it all gets old at the same time. And while a crappy, old building surrounded by an otherwise thriving neighbourhood is an opportunity for value-creation, on the other hand, a crappy, old building surrounded by other identical crappy, old buildings is not. And since by this point all the buildings belong to thousands of different owners, it’s nearly impossible to redevelop this on a BIG scale again.

And so it’s abandoned, and the BIG developer starts over in a new location, on the new edge of town. The old neighbourhood nearer the middle has lost value, while the developer creates new value on the edge. But that isn’t actually new value at all. It was just old value moved from the centre to the edge. And it comes with additional infrastructure.

And just to make sure to further tip the scales in favour of BIG, we implement zoning rules that make it next to impossible to build anything in these existing places. Decline by design. Build new again on the edge. Rinse. Repeat.

That is how a city slowly goes bankrupt.

Because of that, this method of development SHOULD have gone the way of the dodo.

But instead, we’ve been propping it up with ever-increasing debt and maintenance deferral. By the end of this 4-year budget cycle, the City will have amassed a total debt of $2,292 per resident. In 1946, it was only half of that, at $1,203 per resident, when adjusted for inflation. Sooner or later, that dodo is coming home to roost.

If you’ve ever wondered why, as our population has grown, as we’ve added MORE taxpayers, we’ve had to keep cutting existing services, and leave more and more of our infrastructure to crumble, this is it.

Like Chuck Marohn is keen on saying, if you lose money on every transaction, you’ll never make it up on volume.

Hopefully, this is something our next Mayor will understand. But what would be even better, is if our current Mayor understood it!

We shouldn’t just sit quietly smizing while a Mayor enjoying absolute political liberty counts down his last 2 years in office. A lot of progress could still be made…

Lots of love,

Elmwood Guy