Budgets, Doing the Math, Property Taxes

On City Credit Cards and Democratic Vending Machines

Our municipal governments can’t beg, borrow, or steal their way out of the looming financial crisis our cities are facing.

The borrowing capacity of our federal government is quickly being used up in a flurry of COVID-19 relief spending with no end in sight. The borrowing capacity of our provincial government is even more constrained. Premier John Horgan knows that revenue streams in the province are pinched right now. The promised cash for voters in the 2020 election and the big projects list he committed to funding will all need to be paid for with borrowed funds. Provincial revenues are way down due to the economic impact of the pandemic. Meanwhile, the sums the province sends to municipalities has shrunk in comparison with the costs that have been ‘downloaded‘ to municipalities.

Our municipal leaders are required under the province’s Municipal Act to present a balanced budget (aka. make sure revenues equal or are higher than expenses). This imposed requirement has meant that our cities are actually in pretty good shape financially compared with other levels of government. We might conclude, then, that municipal governments in BC are not facing the same financial crisis that our federal and provincial governments are facing.

However, our municipalities are not as healthy as we might like them to be. They will take a hit in 2021 when property tax time comes and the hundreds of COVID-19 stricken businesses will be seeking relief or closing up shop with big bills to pay.

Our municipal leaders have also made spending decisions that have created large backlogs of maintenance and repair work in our sewers, streets, and civic facilities. This “infrastructure gap” is large and growing in cities throughout the Lower Mainland.

Evaluating Five Municipal Strategies to Ease the Pressure

Our leaders have adopted 5 strategies to ease the pressure that comes from passing balanced budgets that are paid for primarily through property tax revenues. These strategies are not all of equal merit and we’ll evaluate them before offering suggestions about things we can do in Delta to afford a better future.

Strategy 1: Finance New Projects with Capital Projects Debt
(“For Everything Else There’s Mastercard”)

BC’s Municipal Finance Authority loans cash to cities to finance new projects. They offer great rates and generous terms to municipalities in BC.

Our neighbours in Surrey have gone this route and they have built a brand new City Hall, City Library, ice rinks, sports fields, and other projects with the roughly $500 million they have borrowed to pay for these projects. As a consequence, every participant in Surrey’s urban experiment owes $1,000 right now. This debt will need to be paid off eventually through a combination of service cuts, tax increases, and, it is hoped, an influx of new people. Historically low interest rates have made this approach seem like a good way to build now and pay later. The catch is that the City of Surrey currently spends somewhere around 14% of its annual revenues on interest payments and that amount will jump considerably if interest rates ever do begin to creep up.

But Diane Kalen-Sukra, author of Save Your City, warns, “Gone are the days when we could budget for existing or new infrastructure without considering the life cycle costs – namely operation, maintenance, renewal, disposal and replacement costs. Given the fact that the average cost of new infrastructure is only 20% of the total life cycle costs, it is incredibly reckless and burdensome to future generations to budget or make any decision without such accounting.”

Most municipalities are ill-prepared to pay the total life cycle costs of their projects. When these costs arise later in the life cycle of the buildings, a groan of despair rises up in the CFO’s office because they are still paying off the original debt from the initial construction of the project: “How can we pay for a new roof when we’re still paying off the one that was first put on this building?”

On this front, the City of Delta has admirably pursued a ‘pay as you go‘ route which has meant that capital projects only go forward when the cash is on hand. Under the leadership of our previous Mayor Lois Jackson and then-CAO George Harvie (now our Mayor), the City of Delta figured that they’d leave Strategy 1 to others. I’m glad!

As always, there are fine folks who advocate for Strategy 1 – some might call them members of the ‘Infrastructure Cult’ – and they might even persuade you with insights like this one offered up by a Professor of Accounting at UBC who explained, “a pay-as-you-go philosophy for capital spending can be unfair to citizens…because it asks today’s taxpayers to pay for something future taxpayers are going to benefit from.”

That’s right, kids – we spent your money for you so that we didn’t have to use our own money for it! You can thank us later!”

Strategy 2: Finance New Projects with Federal, Provincial, and Regional Grants (“Vending Machine Democracy”)

There are three levels of government that are happy to give (some) funding to cities to finance new projects. The feds, the province, and Metro Vancouver & Translink are mostly reliable dough dispensers for things like recreational facilities, social housing projects, highway improvements, bike lanes, sewage treatment, and arterial road projects.

Mayors, City Managers, and savvy insiders known as Directors of Government Affairs or CEOs of the Chamber of Commerce know that their city needs to hold out its hat and insist that you’re going to be very upset if you don’t get your project funding.

“Approve our every request, Minister Qualtrough…”

The application process is labyrinthine and it requires oodles of paperwork to get your project on the 20-30 lists of potential funding out there. But hey, that’s what City staff are for, right? It’s not like they have anything else…. oh wait, they definitely would be doing many other things if it weren’t for the onslaught of deadlines and due diligence required to play this game.

Finding envelopes full of cash for projects in our cities is a tantalizing prospect for our leaders who know that higher levels of government a) have money (even if it’s deficit-financed money) and b) love to announce big figure projects.

The City of Delta has credited this strategy with its successful capture of numerous grants and infrastructure funding agreements from higher levels of government. Our major road projects are undertaken with considerable funding from the province and Translink. Our (few) bike paths are chiefly paid for with funds from Translink. Our sewer and water infrastructure is funded through Metro Vancouver and other levels of government. Our parks facilities are improved through federal grants for active living.

In this competitive world of grant-getting, a chorus of complainers like Vancouver Mayor Kennedy Stewart get to chorus loudly that they are “gobsmacked” when the ratio of manna from the clouds isn’t quite right. Mayor Stewart can grouse that “this is a personal decision by the premier” to shortchange Vancouver when he sees that Premier Horgan is sending proportionately more cash to other municipalities in BC. And Premier Horgan can say, “well, let’s see how sweetly you’ll come asking when the next round of funding requests comes in.”

The grant-getting strategy depends on the largesse and good will of higher levels of government who are frequently running a deficit to ‘fund’ these projects and capture public support along the way. Is this really the way we want to fund our life time costs of projects? If you take a peek at the requirements for grant-getting, are you sure this is the most efficient way to make this system work?

It strikes me as odd that we send more tax dollars to Ottawa and Victoria than we need to so that they can turn around and give our municipal governments money for projects that our cities would otherwise pay for themselves.

It should also be clear that the grant-getting strategy results in weird decision making. Projects that are ‘shovel ready’ but not built are projects that municipalities have decided are not really necessary but fall in the category of ‘nice to have’. Our cities have many shovels-in-ground projects already. The ‘shovel ready’ ones are those where the cost-benefit analysis showed that they weren’t required.

Charles Marohn is also penetrating in his definition of a standard “shovel ready” project. He writes, “It is a project that made its way through the entire bureaucratic process but then, when it came time to fund it, had so little real return that even the politicians balked at borrowing the money for it. Thus, the plans went on a shelf where they could someday be pulled out and dusted off the next time the rising tide of federal money raised all boats.”

In a recent New York Times article “Stop Building More Roads,” two engineering professors put it this way: “projects should be ‘shovel ready’ and “shovel worthy,’ and sufficiently funded so that they don’t linger in aspirational planning documents. In the immediate term, this means emphasizing lots of small projects. They can quickly be planned, discussed and constructed once virus spread conditions allow. This will look different than 1930s New Deal images of heavy construction everywhere.”

This grant-getting strategy juices the decision making so that the wrong projects get built on an accelerated and unaffordable timeline.

This strategy also short-circuits the normal process of setting priorities within the city. This is exemplified by the City of Delta’s recent decision to pursue a grant for the replacement of the clubhouse of the Tsawwassen Lawn Bowling Club even though it was not a project that was slated to go ahead anytime soon. Councillor Lois Jackson was perceptive when she asked if the grant-getting for this project would put it at the front of the queue for recreational upgrades even though there are other more urgently needed upgrades in the City. The response of staff was quite predictable. They said something like, “We just need to get this application in and then we’ll see whether or not we get anything. If we do get the grant, we’ll only have to spend $1 million on this project which we can pay for with other parks and recreation funding.” Do you see what’s happened? The City of Delta pushed a project up its internal queue because a carrot was dangled for them in Ottawa and Victoria. The City staff, under this strategy, wanted to make sure that it got a few projects on the list because “earlier this year, the federal and provincial governments committed up to $100.6 million for a second intake of the [Investing in Canada] program to support cost sharing of infrastructure projects in communities across the province.”

You might say: “So what? We just have to play the game and get paid out one way or another, right?”

Well, I think Diane Kalen-Sukra sums it up quite well: “Given the fact that our infrastructure challenges (whether we call it the infrastructure gap, the infrastructure deficit, deferred maintenance or unfunded infrastructure liability), are all products of this short-termism, the first order of communication is to explain to Council and the public that the chickens have come home to roost on this way of thinking, governing and operating. No more ‘white elephant’ or ‘vanity’ projects, no more single-issue leaders, no more vending machine democracy.” We can’t afford it and it’s twisting our decision making by turning our heads to projects that wouldn’t otherwise go ahead. We need to take steps to slow down the gravy train through a collective boycott of the federal and provincial grant programs. Just because the buffet is open it doesn’t mean that we should keep going back for more!

Strategies 3-5? Stay Tuned for Part 2

I will preview the third strategy of deferring maintenance and cutting corners with this alarming comment by Wally Wells of Asset Management BC who wrote, “We have asked many municipalities and local government a question to public works operations and maintenance staff: ‘How much of your time is spent fixing things that are broken or about to break?’ The answer was frightening, it was 85-95% of their time.”

On that bleak note, I will end this post and pick up with the next one on the latter three strategies our municipalities use to ease the pressure on their budgets while still getting to enjoy new and nice things.

I will also turn to a description of a series of ways that we can #DotheMath and find ways to improve outcomes for the City of Delta in 2021 and beyond without having to lean so heavily on the strategies of running up debt or leaning on our overlords for cash to get us out of our predicament. Stay tuned!

If you’re interested in more information on this subject, I’d recommend a whole host of articles on this topic over at Strong Towns along with one from The Tyee and another from the BBC!

Daniel Herriges, “Strong Towns Helps Change the Planning Paradigm in Sacramento” https://www.strongtowns.org/journal/2019/1/17/new-planning-paradigm-sacramento

  1. Financial solvency is a prerequisite for long term prosperity. Cities need to be obsessive about “doing the math” and ensuring that they grow in a way that will generate sufficient wealth to maintain infrastructure and provide essential public services.
  2. Land is the base resource from which community prosperity is built and sustained. The combination of expensive infrastructure serving low-value land uses is a recipe for fiscal disaster.
  3. A transportation system is a means of creating prosperity in a community, not an end unto itself. The purpose of roads and transit should be to connect productive places to each other.

Kea Wilson, “What Kind of Math Do Our Cities Need Now?” https://www.strongtowns.org/journal/2017/5/23/what-kind-of-math-do-our-cities-need-now

  • “The math our cities deserve must pause before we build and ask how future generations will pay to maintain what we’ve left them with–not in imaginary numerical models, but in the real world. The math our cities deserve must calculate beyond the fiscal year, or the election cycle, or even the life cycle of our generation, and identify projects that we simply can’t afford–even if they’d seem to help our short term bottom line. The math our cities deserve needs to be beyond manipulation and pretty Powerpoints that package disastrous liabilities under that seemingly magic word: “growth.” Numbers don’t lie, but people sure use numbers to do it. We need a math that shows us the truth about the world we’re building, and nothing less.”

Charles Marohn, “The Numbers Don’t Lie” https://www.strongtowns.org/journal/2020/10/11/the-numbers-dont-lie

  • “The value per acre analysis that [Urban 3] conduct[s] — literally the amount of wealth produced per acre of land consumed — was a common metric for American cities prior to the Great Depression. And of course it would be; when you don’t have resources to waste — and most American cities of that era didn’t — squeezing a high return out of all your investments was critical.”

Katie Hyslop, “A $5 Billion Mess: BC’s School Maintenance Bills Pile Up” https://thetyee.ca/News/2017/07/18/BC-School-Maintenance-Bills/

  • “Henry Hudson Elementary is hardly the only Vancouver school with deferred maintenance problems: the district has an estimated $700 million in deferred maintenance, part of what the Ministry of Education estimates is $5 billion in overall provincial deferred maintenance issues.”

Strong Towns, “It’s Infrastructure Week Again [in the USA]. Here’s Your Rhetoric vs. Reality Primer” https://www.strongtowns.org/journal/2019/5/13/nbspits-infrastructure-week-again-heres-your-rhetoric-vs-reality-primer

  • “The blanket call for ‘more infrastructure spending’ is dangerous and misguided. America’s local and state governments are drowning in unfunded maintenance liabilities. In most places, we can’t afford to maintain what we’ve already built. Much of this maintenance is important, and the more billions of dollars we throw at new projects—without any serious scrutiny as to whether they will deliver a return on investment—the deeper the financial hole we will find ourselves in.”

Charles Marohn, “An Infrastructure Crisis?” https://www.strongtowns.org/journal/2016/9/5/an-infrastructure-crisis

  • At Strong Towns, we see that our cities, towns and neighborhoods are dripping with opportunity. These opportunities are not of the mega-project variety. They don’t come with ribbon cuttings, press releases and legislative approvals. They are small — seemingly beneath us, perhaps — but they can positively transform everything about how we live our lives. A row of trees here. A bike lane there. A crosswalk. A street light. A sidewalk. Some benches. In the nation we’ve built, the high returning infrastructure investments are now of the details, details, details variety.

“There are trillions of dollars of unproductive infrastructure already in the ground today waiting for us to make better use of.”

  • In a nation that has spent more than seven decades frantically spreading out, there are trillions of dollars of unproductive infrastructure already in the ground today waiting for us to make better use of.

Richard Fisher, “The Perils of Short-Termism: Civilisation’s Greatest Threat” https://www.bbc.com/future/article/20190109-the-perils-of-short-termism-civilisations-greatest-threat

  • “The longevity of civilisation depends on us extending our frame of reference in time – considering the world and our descendants through a much longer lens. What if we could be altruistic enough to care about people we might never live to see? And if so, what will it take to break out of our short-termist ways?”