Dear Winnipeg

Dear Winnipeg,

At the risk of being characterized as obsessed with accounting, please indulge me while I show you how municipal budgets work.

When we talk about the City budget, we’ve all heard that it’s made up of two parts: the Operating Budget and the Capital Budget.

I’ve already explained the difference between the two, but Coles’ Notes is this: in general, things that last a year or less (wages, pencils, fuel) go in the Operating Budget, while things that last longer than a year (bridges, pools, fire trucks) go in the Capital Budget. Learn more in Accounting 101 for Councillors, Mayors and Free Press Columnists.

I’ve also already explained that revenue for the Operating Budget comes from things like taxes, user fees and government transfers, while revenue for the Capital Budget just comes from Operating Budgets of other years. Learn more about that in Holy Leaping Dollars, Batman!

Now here’s the next level. When you spend in the Operating Budget, it’s a one-and-done type of transaction. You pay the librarian’s wages and there’s no further commitment (unless you have the librarian work more hours). Similarly, once you have paid to clear the snow, there’s no further commitment, unless you have the snow cleared again. And if you hire or fire a pool attendant this year, you can always reverse your decision next year.

But the Capital Budget is different, because it does commit you to future obligations. Once you build or buy a piece of infrastructure (a road, a pool, a bus) in the Capital Budget, you are now committed to future costs in three ways:

• Operations: every piece of infrastructure will have operating costs in order to use it. Pools will need to be heated, cleaned and staffed. Buses will need fuel and drivers. Even roads require electricity for traffic lights, cleaning and restriping every spring, and snow clearing several times per winter. These will come out of future Operating Budgets.
• Maintenance: depending on the type of maintenance required, these costs may come out of future Operating Budgets or future Capital Budgets.
• Replacement: every piece of infrastructure will eventually come to the end of its life, and will need to be entirely replaced. This cost will come out of a future Capital Budget.

Since Capital Budget dollars are just Operating Budget dollars from another year, every piece of infrastructure we build commits us to finding all those additional dollars in future Operating Budgets, beyond the initial cost of its construction. And since the lifetime of most infrastructure is measured in decades, those impacts will be felt in Operating Budgets for decades as well.

That means the City budget really is made up of two parts, just not the ones we thought: it’s the decisions we make today, in addition to the decisions we’ve made over the past 50+ years.

Now, if the infrastructure investments we made in the past had been productive, that they paid us a real return on investment, then we would have the necessary income to cover those additional costs, with enough left over to fund the services we want. The budget discussions we’d be having would be centered around questions such as “which new services should we spend this extra money on?”, or “how much of a tax break should we give ourselves?”, or “is there a new piece of infrastructure that would serve us well?”.

But those aren’t the questions we’re asking. Instead, we’re faced with discussions around which services to cut, how much of a tax increase (or user fee increase) to implement, and which infrastructure to neglect. Every budget is simply an exercise in determining how much to allocate to each of those categories.

Sometimes, some of the choices are made for us, like the failure of the Arlington Bridge last fall, or when the Mayor pro-actively decides what the tax increase will be, whether that’s 3.5% like this year, or 0% like in the early 2000s. You’re just forced to make up the rest in the other categories.

But none of those decisions address the root cause. These are simply the symptoms of a much greater illness: generations of negative-returning infrastructure investments.

That’s why, after we do this exercise for the budget one year, we just start it all over for the next budget. We haven’t solved anything, we’re just dealing with the fallout from our choices over the past several decades.

And more is coming. It’s baked right into the process, because we can’t change the decisions made in the past. We just have to deal with them as they work their way through the system. And that will continue for as long as we keep making bad decisions.

It’s why the infrastructure deficit has gotten worse despite record spending. It’s why the City’s Net Financial Position keeps getting worse. It’s why debt is going up, taxes are going up, services are going down, and bridges are being abandoned.

So as we get ready for yet another budget season, we must remember that this entire blanket tugging exercise is only a treatment of the symptoms. To actually make progress, we’ll need to change how we grow our city. And that happens as much outside the budget as it does within it.

There are millions of ways to build a city. We, along with most cities in North America, have chosen one that is not financially sustainable. It took decades to get us here, change will not happen overnight. But it still needs to happen.

It’s true that there are some encouraging things on the horizon: the transit network redesign happening next year, the recent funding of Amoowigamig, the motion to allow fourplexes by right city-wide, as well as the Mayor’s idea for “neighbourhood action teams“.

But digging ourselves out of this will take more than doing some of the right things. We’ll also have to stop doing the wrong things, like expanding Kenaston and extending Chief Peguis Trail. Surprisingly, the worst part of these is not their initial billion-dollar price tags, but rather, the fact that they will be committing us to decades more of the same unproductive growth that got us here, impacting our Operating Budgets for generations to come.

We have to change course. Let’s keep that in mind as we start the annual debate on how much to allocate to service cuts, tax increases or neglect.

Love,

Elmwood Guy