Dear Winnipeg

Dear Winnipeg,

Our City’s draft 2025 budget was released on December 11th, but there will still be plenty of discussion before the final version is passed at Council at the end of January. And while there are many ways this budget may feel different than budgets in the past, the reality is this new budget is exactly the same as old budgets, just in a different wrapping.

Like a budget re-gift if you will.

I can tell it’s a re-gift because the annual budget survey is still asking the same types of questions as in the past, like do I think the cause of our budget stress is a revenue problem, or an expense problem?

As if we needed another example of public engagement that is worthless, or even worse than worthless.

But this question tells you everything you need to know about this “new” budget. Our budget issues are neither caused by a revenue challenge, nor are they caused by spending challenge. And I’m not unsure about that.

But I’ll come back to that.

What seems new, and what’s getting the most attention so far, is the planned 5.95% increase to property taxes, which is the highest since 1990, when Council at the time approved an 8.45% increase.

Some may view that as a sign that the City is finally addressing the root causes of its financial decline. After so many years of below inflation tax increases, which included fourteen years from 1998 to 2012 of zero increases, it looks like we’ve finally gotten serious about increasing taxes. After all, that string of tax freezes really made the city fall behind on inflation.

Except for the fact that falling behind on inflation is actually impossible here. Let me explain.

According the City’s Charter, which is provincial legislation, it is illegal for it to have an operating deficit. That’s also the case for every city in Canada, and a lot of them in the U.S. too.

What that means is that, every year, we must ensure that we don’t spend more in our operating budget than we have revenue for. If inflation makes our costs go up, we have to act immediately to rebalance our budget, which we can do in two ways: raise taxes to be able to pay for the same amount of services, or cut services to be able to pay for services with the same amount of money.

For example, say we have $100 of revenue, and we provide $100 of services. If inflation is 2% the next year, then we have $100 of revenue, but our services now cost $102. In order to comply with provincial law, we need to balance that budget. To do that, we can either raise taxes by $2 to collect $102, or we can cut $2 of services so we are only providing $100 worth. We could also take a blended approach, raising taxes to $101 and cutting $1 of services, for example. There is no right or wrong answer, it’s simply a choice we must make based on what we value as a community.

The following year, inflation will either bring our $102 of services to $104, which we have to make up either through another tax increase or service cut (if we had raised taxes the prior year), or it will bring our $100 of services to $102 (if we had cut services the prior year), which we also have to make up, again either through another tax increase or service cut. No matter which route we took to get there, we just have the one year of inflation to pay for, not two.

And if there was no inflation this year, our work would be done, since the budget would still be balanced.

So as you can see, whether we raised taxes or cut services the year before, we already paid for that inflation. Because we are forced to balance our budget every year, there is no “gap” that builds over time.

To date, we’ve generally chosen service cuts over tax increases. But if we had chosen tax increases, we wouldn’t magically have 94% to 154% more revenue to do with as we please. Sure, our revenues might be much higher, but we’d also have that much more in service costs, because no politician is in the business of cutting services while simultaneously raising taxes for those services.

In order to have access to that extra revenue, to pay for infrastructure for example, we’d have to cut services down to… what they are today. You might recall that there used to be a full-time gardener in Elmwood Park. That gardener would still need to be laid off, along with all the other service cuts we’ve given ourselves since then.

Rather than having to “catch up” on tax increases like today, we’d just be catching up on the service cuts we chose instead. We wouldn’t be ahead.

In fact, this year’s tax increase, the largest in a generation, has done nothing to reverse our city’s financial course. It’s simply addressing a symptom, not the disease. Because despite the tax increase, Budget 2025 still includes:

• $84 million in unbudgeted operational “risks” (pg 26). This is a fancy way of saying, we’re pretty sure we’ve under-budgeted in a lot of departments and that costs are going to come in higher than expected during the course of the year, so we’ll be forced to make service cuts on the fly during the year. If this was a sports trade, these would be service cuts “to be named later”.
• $93.7 million in increased debt (pg 22-23), of which up to $16.8 million will be allowed to be borrowed from The City of Winnipeg Sinking Fund Trustees, which is money the City has already set aside for the repayment of other debts. This should speak for itself.
• $64 million in spent reserves (pg 339).

I want to talk about that last one for a bit. The City’s Fiscal Stabilization Reserve (aka the “rainy day fund”) having now reached a balance of zero dollars gets all the airtime, but no one seems to be paying attention to the other reserve funds.

In addition to the “rainy day fund”, the City also keeps several other reserve funds, each with its own purpose. There is the Sewer System Rehabilitation Fund, the Local Street Renewal Fund, the Regional Street Renewal Fund, and the Water Main Renewal Fund, among several others.

Well, Budget 2025 plans to spend $64 million more out of these funds than it will put back into them, which is about the same amount that was budgeted in 2024 (pg 343). It’s projected that will bring the total of all reserves down to $264 million at the end of 2025. So how many more times can we draw those down by $64 million? Yeah, about four more times.

So in four years, then what? More financial pain, obviously.

But back to my original point about the budget survey: that this “new” budget is still the same as the “old” budgets, even though we’ve chosen a different mix of tax increases vs service cuts. That’s because the budget is still focused on the operating side of things. On revenues and expenses and making them balance.

But if that was enough, we wouldn’t be in this mess. After all, we’ve had 150 consecutive years of budgets that spend less than the revenue brought in.

In fact, if you added up all the surpluses from each year, you’d find the City has made $7.3 billion in cumulative profit (pg 52) from its inception in 1873 to the end of 2023. That’s $7.3 billion more revenue than expenses over its whole history.

And yet the City is still broke. And getting more broke with each passing year. According to both the Mayor and the Chair of the Finance Committee, it seems things have never been as bad as they are today, at least in their combined decades-long municipal careers.

So where’s the problem, and what do we have to do to fix it?

Well, the answer lies in the City’s balance sheet, which is a recap of all the money it has, all money it owes, and the value of all the infrastructure it owns.

So where did the money go? It went to infrastructure!

In 2005, we had spent 97 per cent of all surpluses generated since 1873 on infrastructure. By 2023, we had spent more than 115 per cent of those cumulative surpluses. That information is all there on the balance sheet!

And even though we hear all the time that infrastructure is an investment, we can’t forget that, as with all investments, there are good investments and there are bad ones. And tracking the numbers on the balance sheet over time can tell us how well our investments have been doing over time.

And they look like this:

And like this:

And like this:

Yikes.

I didn’t pick these ratios to look at out of nowhere. These are just a few “sustainability indicators” that the Public Sector Accounting Board recommends cities look at for themselves.

It’s easy to see we’re not doing well. And we don’t even know it, because Council isn’t even looking there. They’re still looking at tax increases and service cuts. The symptoms.

But even if Council doesn’t seem to get it yet, I am quite certain that the people of Winnipeg are starting to. That means it’s just a matter of time before Council catches up.

Take for example, Teresa Cwik, president of the South St. Boniface Residents’ Association. She’s also part of the Friends of Happyland Pool, a grassroots group of community heroes who raised over $70,000 to prevent the closure of their neighbourhood pool. The City refused their money, closed the pool anyways, and now is planning to build a large new “regional” aquatic centre.

In an interview with the Free Press, she said, “I’m skeptical that this pool will even happen, because they just don’t have the money.”

That’s why, according to the same interview, she has long advocated for funding being allocated to fix existing pools that are deteriorating over building new.

“We would rather have four smaller pools that serve the residents of the area a lot better than one aquatic pool.” she said in an interview.

— Teresa Cwik, president of the South St. Boniface Residents’ Association in a different interview with CBC News

And then there’s Joanne Seiff’s op-ed this week, where she points out how we are “contradicting ourselves all the way to the future.”

Nowhere is that contradiction more obvious than with respect to the North End Sewage Plant upgrade. According to recent City reports, without completing the planned upgrade, which is set to cost billions of dollars (that we don’t have), we can only accommodate 4 to 6 years of additional population growth.

The Mayor has called this situation “very, very serious”. And a former Provincial MLA has said it would “spell disaster to economic growth, increase pressure on an already overstressed housing market and put people out of work. This stagnation would ultimately hit each and every Winnipegger in the pocketbook in one way or another as we all shouldered the cost of such a dramatic decline to our city.”

And yet, the Mayor also says the City can’t afford the costs of growth.

So growth makes us poorer. But no growth also does.

Winnipeggers are starting to see it. According to a city pollster, “growth is almost becoming a bad word nowadays because when people see growth, when it comes to infrastructure, it puts a significant strain on municipal infrastructure and resources.”

But those of us familiar with the City’s balance sheet know it’s not a problem of growth itself. It’s a problem of how we’ve grown: using a development pattern that costs more than it provides in economic returns.

I think Brent Bellamy said it best in the Free Press last week:

“The solution to the perennial budget woes at city hall requires that we take a step back and re-evaluate our city-building choices. The city is growing quickly, and the only way to become economically viable in the long term is for each of us to welcome more neighbours into our communities, allowing our city to grow inwards and upwards, instead of outwards. More people paying for fewer things.”

— Brent Bellamy, Winnipeg Free Press, December 9th, 2024

I totally agree, Brent, it’s time to switch to a new brand of wine.

Cheers,

Elmwood Guy