Dear Winnipeg

Dear Winnipeg,

I want to talk to you about a report that came before the Public Works Committee today. It’s about funding for road renewal, and, fair warning, I’m going to show you a lot of graphs and numbers pulled straight out of City reports. And it’ll probably make you angry.

If you work in the Mayor’s Office, you might be extra angry.

So here goes.

The report I want to talk to you about is called “Proposed Funding Strategy for Multimodal Roadway and Bridge Infrastructure Renewal“. That’s quite a mouthful, so I’ll just call it the PFSMRBIR report from now on, as if that’s somehow better.

The PFSMRBIR report looks at the next 15 years, and proposes a 2% annual tax increase dedicated to road, bridge, AT and tree renewals, dropping to 1.75% in 2029, then gradually tapering off to end up at 0.5% in 2037, after which, it says “no additional dedicated property tax increases for Street Renewal Reserve purposes are projected for 2038 and the foreseeable future thereafter”.

The PFSMRBIR aims to show how we could fund the maintenance of the city’s roads, bridges, sidewalks and pathways in the “long-term”. That’s a commendable goal to be sure (and I’ll get into why I used those quotes later). Unfortunately, the PFSMRBIR report is so severely flawed that it is next to useless.

So what’s wrong with the PFSMRBIR report?

[Geez, even the abbreviated version is long… I’m gonna shorten it some more. It’ll be the PFS report from now on.]

So what’s wrong with the PFS report? Let’s just list my top 4.

1. Bridge projects over $75 million are not included in the PFS report’s analysis

That means the Louise Bridge replacement ($245.2 million), and the Arlington Bridge replacement ($319 million) are excluded. And even though the projected costs for these projects are probably inflated due to misguided plans to expand them, the replacement of the Disraeli Bridge cost $195 million ten years ago, the Plessis Underpass cost $77 million in 2016, and the Waverley Underpass cost $98 million in 2019.

So it’s fairly safe to say that no major bridge replacement ever is included in these projections. But all bridges eventually need replacement, so where is that money going to come from? I guess that’s a problem for a future council, and a future taxpayer. So much for having a plan…

2. The PFS report’s analysis underestimates construction inflation

Page 4 of the PFS report says the “proposed long-term funding strategy assumes 3% annual construction inflation, consistent with the threshold identified in Appendix 1 of the Supplement to the 2023 Budget“.

Except that source says (on page 279) that $10 million in 1999 works out to about $25 million in 2023, which is actually more like 4% annual inflation.

And this City report estimated construction inflation from 2000 to 2013 at around 80%, which works out to an annual rate of 4.65%.

Plus the City raised its (now-defunct) impact fee by the maximum amount permitted in 2018, implying construction inflation in 2017 was a minimum of 5%.

And finally, the co-author of the PFS report himself is quoted at length in this recent news article covering the fact that the City “estimates average construction costs have jumped 25 to 30% since last year”.

So given all that, doesn’t assuming a 3% rate of construction inflation every year for the next 15 years seem… um, incredibly unrealistic?

[Maybe we should just call it the FFS report, amiright?]

3. The FFS report claims that the overall condition of streets is in a “positive upwards trend”

They back up that claim with this graph found on page 4 of the FFS report’s Appendix A:

Now, I’m not a professional accountant like the other co-author of this report, but I am quite confident in saying that this graph shows that the percentage of streets in “good or better” condition in 2020 went down from where it was in 2019. Because 72% is less than 75%, and 69% is less than 70%. Genius-level stuff, I know.

But understand what that means. Given we have 8,300 lane-km of streets in total, and that the FFS report tells us (on page 2) that 25% of them are regional and 75% of them are local, then we went from 1,556 lane-km of regional streets in “good/very good” condition in 2019 to only 1,494 in 2020. And from 4,358 lane-km of local streets in “good/very good” condition in 2019 to only 4,295 in 2020.

So while we moved 53 lane-km of regional streets and 75 lane-km of local streets from “fair/poor” to “very good” through roadwork in 2020 (according to page 20 of this report), meanwhile 115 lane-km of regional streets and 138 lane-km of local streets went from “good/very good” to “fair/poor” through the normal process of wear-and-tear and aging. Streets went bad faster than we could repair them, and this, in a year where we spent the most on road repair we ever had in the history of the City to date.

So is this a blip or is it the start of a downward trend?

Well, as I’ve written before, since a majority of our roads were built after 1971 — by some estimates nearly 57 per cent — most of them have never needed to be replaced yet, since the lifespan of a road is usually upwards of 50 or 60 years. That means the worst is yet to come. We’re going to need a lot more money.

And that’s supported by this very report. Using the report’s own assumption of 3% construction inflation, plus adding 2% more new roads every year (as per page 1 of the FFS report’s Appendix A), then the $14.289 Billion total replacement cost of all our roads and bridges (from the 2018 State of Infrastructure report) will have grown to over $34 Billion by 2037. So the $276.9 million projected to be spent in that year should be just enough to allow a full replacement once every 124 years, which is about 25% worse than today. If construction inflation is 4%, that number rises to 156 years. At a time when we’ll be facing more road renewals obligations than ever, we’ll be fixing fewer of them.

Hardly seems like a “positive upwards trend”.

Which brings me to my last beef with the FFS report…

4. The FFS report only looks at the next 15 years for assets that have a lifespan of 50+ years

This is why I put quotes around their use of the phrase “long-term”. The City’s 2018 State of Infrastructure report noted (on page 26) that the “average remaining life” of our roads was 25 years at the time, which would bring us to 2043.

So doing an analysis to 2037 and claiming that we should be in the clear “for the foreseeable future thereafter” seems ridiculously overconfident. It’s like installing 40-year shingles on your house, then trying to figure out how much you need to set aside every year for the next time you redo the roof by looking at only the next 35 years. [Gosh, zero dollars per year? Amazing! Sure hope there are no surprises after that…]

Any analysis that claims to be financially sustainable in the “long-term” has to examine at least one full life-cycle of the asset you’re analyzing, and preferably two. In this case, something like 50, 60 or 100 years. Only then can you claim long-term financial sustainability.

Epilogue

So what’s the deal here? These seem like pretty glaring errors for a professional accountant and a professional engineer working together on a report. It doesn’t exactly inspire confidence in our public service.

Except here’s the thing: it might not be their fault.

Did you know the Mayor’s Office gets to review every single report produced by the public service before it becomes public? And that the Mayor’s Office can direct the public service to make changes to their report, even ones contrary to their professional judgement, prior to it being submitted to Council or a committee of Council? And that, through an exemption in the City Charter, any meetings with the public service to discuss/direct such changes are allowed to happen outside the public record?

It’s all laid out in this governance review MNP prepared for the City last year. On page 31, you can read all about how nothing makes it onto a Committee agenda until the Mayor’s Office is “satisfied with the report”.

Unfortunately, because that process is allowed to happen outside the public record, we, the public, will never know whether this report was produced like this originally, or if it was modified to fit the Mayor’s political agenda.

I’ve shown time and time and time and time and time again how the amount of infrastructure the City is obligated to maintain is financially unsustainable in the long-run and beyond our capacity to pay.

But the Mayor remains steadfast that everything is hunky-dory, even going as far as issuing a press release on the topic during the last election, which I debunked here.

If only there were some sort of Financial Sustainability Indicators we could rely upon to show us if things are getting worse, or if they’re getting better…

Oh, there are!

Turns out the City’s Annual Financial Reports are just bursting with all kinds of information, and we used to have an entire section dedicated to discussing the City’s financial indicators, like this:

Financial condition is measured by a City’s sustainability, flexibility and vulnerability. Sustainability is the degree to which the City can maintain its existing service and financial commitments without increasing the relative debt or tax burden on the economy. Sustainability indicators include the City’s assets-to-liabilities ratio, [and] the financial assets-to-liabilities ratio.

— City of Winnipeg 2008 Annual Financial Report, pages 27 and 28

Here’s what those indicators look like over time:

Notice that in 2011, the Financial assets-to-liabilities ratio dipped below 1, indicating “that some future financial resources may be required to meet current obligations.”, as per that year’s financial report.

It fell even further in 2012. And then that section was removed from the reports entirely starting in 2013. Too inconvenient I guess.

But that doesn’t mean you can’t still find the ratios buried in the latest reports anyways… you just have to know they’ve been renamed to “Government-specific indicators”.

In 2022, the Assets-to-Liabilities ratio was 3.68 and the Financial Assets-to-Liabilities ratio was 0.62, the lowest either of them has been since the Public Sector Accounting Standards were changed in 2005 to force municipalities to account for all their assets.

Just because we don’t talk about it doesn’t mean it isn’t there. Our Financial Sustainability Indicators have been on a steady decline for decades. And just so there’s no confusion, that’s a bad thing.

Continuing with business-as-usual will absolutely lead to eventual bankruptcy, yes. But long before we actually default on our debt, we’ll start to experience catastrophic infrastructure failure. Stuff will fail, and we won’t have the money to fix it, so it’ll stay unfixed.

Whether it’ll happen in an orderly fashion, like the abandonment of the Blumberg Softball Complex, or in a disastrous fashion, like the walkway collapse at Fort Gibraltar, only time will tell.

And while both of those examples are city-owned assets that are operated by non-profit groups, groups that have seen their funding from the City cut over the years, there is ample evidence that the same thing is happening in City-owned, City-operated assets.

On page 8 of the FFS report’s Appendix A, we can read that “unplanned/emergency full or partial bridge closures due to imminent safety issues caused by age-related deterioration” happen 36 days per year. That’s an average of once every 10 days.

It’s just a matter of time before we’re forced to close a bridge for emergency repairs, and it just never reopens again.

At least, that’s how it’ll happen if we’re lucky.

It’s not completely hopeless, but like I wrote 4.5 years ago, the First Step Is Admitting You Have a Problem. If the Mayor’s Office is finally ready to take those first steps, I’m always available to chat. You know how to get ahold of me. I hope to hear from you soon.

Oh, and remember, next Friday is Hawaiian Shirt Day. So, you know, if you want to, go ahead and wear a Hawaiian shirt and jeans.

Love,

Elmwood Guy