Dear Winnipeg

A Fun Blog About Infrastructure and Municipal Finance

City of Winnipeg’s New CFO Drops Bombshell

This is big!

Dear Winnipeg,

Today’s the day!

No… not National Cheese Souffle Day. [Although it is that!]

And no… not National No Dirty Dishes Day. [Although it is also that!]

[Side note: not sure how you are supposed to go about making a Cheese Souffle without dirtying any dishes, but I’m sure people smarter than me have that all figured out…]

No, today is the day that the City’s Executive Policy Committee, which doubles as the City’s Audit Committee, discusses the 2020 Year-End Consolidated Financial Statements!

Can I get a “Wooooooo!”?

No?

Ok, I know, I know. You’d rather be washing dirty dishes.

But trust me. This. Is. Huge.

Get this, the report that accompanies the financial statements spells out in black and white that the City is essentially operating a Ponzi scheme!

Check it out for yourself:

The City’s net financial liabilities have increased by $9 million to $851 million, or an increase of 1%. Net financial liabilities are an indicator of how much a government will be relying on future revenues to fund current services and infrastructure.

Administrative Report: Annual Audited Consolidated Financial Statements of The City of Winnipeg for the year ended December 31, 2020 (p.5)

Did you miss it?

Look, I admit it doesn’t say the actual words “Ponzi scheme”, but it does say we are “relying on future revenues to fund current services and infrastructure”. And that, as you know, is the very definition of a Ponzi scheme.

It’s like if someone is regaling you with stories of their four-legged, furry, brown, barking pet named Fido. You don’t need them to tell you what kind of animal they’re talking about. They’ve made it abundantly clear with their description. You already know what it is.

[It’s a dog… No reader left behind!]

And since accountants aren’t exactly known for their flamboyance, this is a HUGE departure from how they described it in the past. Two things stand out:

  1. Instead of the more neutral term “Net Financial Position”, which they’ve used for at least the past decade and which doesn’t specify whether we are in an Asset (positive) or Liability (negative) position, they are now using “Net Financial Liability”. That tells you exactly where we are… in the hole.
  2. Instead of defining that term as an indicator of “the affordability of additional spending”, they are now using the (appropriately) much more alarming wording of how much we are “relying on future revenues to fund current services and infrastructure”. And the “how much” is creeping up to $1 Billion.

But wait, there’s more! [You knew there would be.]

In 2020, the City got poorer by $9 million dollars, yes.

But look, someone will say, it was a freaking P-A-N-D-E-M-I-C. Of course it was bad. Of course the City got poorer. 2020 is not representative of a normal year.

And that person would be right.

2020 was not a normal year. From a financial sustainability perspective, it was actually more than 10 ten times better than a “normal” year.

[Wha!?!]

Yeah, over the last decade, the City’s Net Financial Liability has gotten worse by an average of $100 million per year.

And it goes back even further than that. Except for a brief recovery in the few years after 2002 (when we sold our electric utility, Winnipeg Hydro), it’s been bad for decades.

But selling assets, like Winnipeg Hydro, doesn’t solve the structural issue with our City’s insolvency. It just buys us a bit of time, until we’re forced to consider privatizing other assets to make ends meet.

And that may not happen for a looong ti– [What? It happened this week? FFS.]

Turns out the Province is now forcing the City to explore a Public-Private Partnership (also known as a P3) in order to help finance the much needed upgrades to our sewer system. “Much needed” because we keep dumping raw sewage into the river, and don’t have enough capacity to grow beyond an extra 90,000 or so more people. And “help finance” because, well, we are currently on track to complete it by 2095 even though our provincial environmental license requires us to complete it by 2019. [Oopsies!]

The main problem, according to the Director of Water and Waste, is this:

This type of P3 would essentially be privatization of the entire sewage treatment system in the City of Winnipeg

Moira Geer, Director of Water & Waste Department, in a May 13, 2021 administrative report (p.5)

Yikes, this is bad. Not only because, like we’ve talked about before, if something is critical to the operation of the City, then it should really be owned and controlled by the City. But also, from a financial perspective, as we’ve already seen with Winnipeg Hydro, it doesn’t actually solve anything. It just kicks the can down the road a little.

It’s time to be honest with ourselves. We’re in a bad place financially.

And to be clear, I’m not looking to place any blame on any members of Council, of the public service, or any of us citizens either. This has been going on since before most of us were born. Nevertheless, we’re here now, and we’re all in this together.

So when we see that in the past decade, where we experienced nearly RECORD population growth, we still got poorer by $100 million/year, we should be worried, alarmed even. Because those were “normal” years.

At the very least, it should make us think twice about “relying on future revenues to fund current services and infrastructure”.

Ideally though, it should make us review everything about how we’ve been building our City for the past 70+ years. Decline isn’t normal. We’ve been operating a Ponzi scheme and the way out of this mess isn’t “more Ponzi”.

This requires a completely new way to look at things, a completely new way to act as a city. And we need to start today.

Not to belabour the point, but consider this: in a year where we cut service levels to pandemic depths, where we reduced our capital spending by more than the entire roads budget ($138 million reduction), AND where we received a $74.5 million federal COVID grant, we still didn’t manage to make it all the way to a solvent and sustainable financial year.

So, as we head into a municipal election over the next 18 months or so, be wary of the next politician who promises they can “right the City’s finances” simply by “cutting the waste”, or by a “better prioritization of spending”. You can remind them that even with deep service cuts, like pandemic-level deep, along with the complete elimination of the capital roads budget, AND a massive gift from the feds, we’d still be about $10 million short of financial sustainability. And oh yeah, there’d still be that pesky matter of the crumbling infrastructure to deal with.

We can’t keep doing things the same way and expecting different results. We’re broke, we have to start doing things differently.

Tell your friends.

And enjoy the remainder of International Museum Day!

Smooches,

Elmwood Guy