Winnipeg Free Press - PRINT EDITION

City selling off its future financial health

TIFs may be a great funding mechanism, but not the way the city is using them

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PHIL HOSSACK / WINNIPEG FREE PRESS archives
There's not much tax revenue coming in from this vacant piece of land (the former Fort Rouge Rail Yards) adjacent to the city's rapid-transit corridor in south Winnipeg.

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PHIL HOSSACK / WINNIPEG FREE PRESS archives There's not much tax revenue coming in from this vacant piece of land (the former Fort Rouge Rail Yards) adjacent to the city's rapid-transit corridor in south Winnipeg.

Hello, Winnipeg. Hope you're enjoying the summer. Now please put down that pint of lager, lift your eyes from your iPad and take a bloody look around at the mess around you.

For all the wonderful talk about how far this city has come in recent years, poor decision-making has threatened to boomerang us back into the morass of the mid-1990s.

At the same time Winnipeg is running out of money, it appears insanely desperate to give up future revenues in order to pay for the stuff it has right now.

The city's operating budget — the total amount of money we spend on all municipal services, from policing to plowing snow to killing mosquitoes with malathion — is $922 million. We pay for no less than $483 million of that figure through property taxes, which remain the city's single largest source of revenue.

Like it or not, property taxes are Winnipeg's lifeblood — and not just because they account for 52 per cent of our municipal revenue. As the city grows, which it is doing right now, new properties add to the existing pool of revenue, above and beyond any tax increases legislated by council at budget time.

As most residents are well aware, the cost of delivering services is rising faster than the growth of property taxes and every other revenue stream. Rising salaries and benefits are only part of the problem, as the cost of supplies such as gas are also going up.

At the same time, the city gets less bang for every operating-budget buck it slides over to the capital budget, which is the money spent by the city every year to build new roads, fix bridges, repair buildings and purchase equipment.

Winnipeggers have watched two successive mayors — Glen Murray and Sam Katz — try and largely fail to convince the province and Ottawa to fork over more money for the cash-starved city. Though wildly different in style, Murray and Katz are oddly similar in substance.

But only Katz is presiding over a strange situation where the city keeps mortgaging a portion of its precious future property-tax growth, often with the full co-operation of an equally careless province.

The practice in question is an increasing reliance on unusual versions of tax-increment financing, a financial mechanism that can be extremely beneficial to municipalities who employ it properly and carefully.

A TIF is a tax-incentive plan aimed at sparking development in a blighted area. Generally, owners of vacant or underutilized land or buildings in depressed areas have no incentive to improve their properties if they wind up paying more taxes as the result of increased assessments following the completion of their upgrades.

Under a TIF, property owners who invest in their land, usually by renovating old structures or building up on vacant lots, are not penalized for making improvements. Instead, the additional tax revenue that flows from their developments — the "tax increments" in question — is either reinvested in the same neighbourhood or returned to the developers themselves.

At least that's what's supposed to happen in a pure version of a TIF, which politicians and policy wonks love because the new tax dollars they're spending would not exist if it wasn't for the new developments.

The city and province, unfortunately, have banded together to support a series of TIF-like mechanisms that don't quite conform to the ideal. They may very well deprive the city of future revenue without providing all of the short-term benefits that were advertised.

Chief among them was the pseudo-TIF that helped cover $90 million of the $138-million cost of building the first phase of the Southwest Transitway. The city borrowed all of the cash — $45 million for itself and $45 million on behalf of the province — with the intention of paying back the tab with the help of new tax revenues flowing from the redevelopment of the Fort Rouge Rail Yards, a vacant strip of former industrial land.

The land in question is in the hands of a single developer, Gem Equities, whose owner has a track record of incomplete and unfinished developments. The city has guaranteed a $10-million loan to the company, which has machinery on the Fort Rouge site but has to date missed a series of development deadlines.

In the long term, the city has a plan to reclaim the Fort Rouge Rail Yards should the existing developer fail. But in the meantime, the city is paying interest on the rapid-transit loan and won't be able to realize any new property-tax revenues until new condos and apartments actually materialize along this strip of land.

And of course, that new revenue will pay for the existing 3.6 kilometres of rapid transit and will not help the city in the future — except indirectly, as new high-density housing in Fort Rouge will be cheaper to service in the long term than a new single-family development on the city's fringes.

Of course, the success of the Fort Rouge Rail Yards also depends on the demand for housing in Winnipeg remaining high enough to support similar new high-density projects on the University of Manitoba's Southwood lands and in downtown Winnipeg.

The latter area is home to another, even weirder version of a TIF: The Downtown Residential Development Grant Program, a city-provincial project started up two years ago to spark the construction of new apartments and condos downtown.

In a pure version of a TIF, new property taxes would be returned to these developers. This program, however, offered grants up front, up to a theoretical limit of $40,000 per unit. The plan for the city and province is to recoup this cash from future property and education taxes.

But since the cash was handed out at the outset as a grant, there is additional borrowing and risk at play. The downtown residential program does not require development to take place before the subsidies flow.

This same mechanism is at work in another downtown grant program that pretends to be a TIF: the SHED program, aimed at improving the streetscape in an 11-block area of downtown dubbed the "sports, hospitality and entertainment district" by the folks at CentreVenture.

In a pure TIF, every new development in the so-called SHED would contribute to the project and benefit from it. But this program is aimed at specific developments.

Instead of simply creating market incentives for downtown, the city and province are picking and choosing which specific developments within that market benefit. And the program also results in the same problem: New property taxes from the downtown residential and SHED programs are spoken for in the future.

The proposed Exchange-Waterfront Neighbourhood Development Program, which includes the controversial plan to write $10,000 cheques to condo buyers, has also been sold to politicians as a TIF. But it involves funnelling cash from all new downtown residential projects and spending it in one area —the northeastern third of downtown.

And that's not the only pseudo-TIF at work in Winnipeg. New property-tax revenues flowing from the redevelopment of the former Canad Inns Stadium site in Polo Park are also spoken for, as the first $75 million in city and provincial taxes will help pay for Investors Group Field, Winnipeg's $200-million new football stadium.

Faced with a shortage of revenue, both the city and province have increasingly turned to TIFs, justifying their decisions on the basis they are only spending revenue that wouldn't exist otherwise.

To some degree this is true. But the future use of the mechanism ought to be restricted to only the purest form, where cash gets spent at the back end - not at the outset.

bartley.kives@freepress.mb.ca

Republished from the Winnipeg Free Press print edition July 28, 2013 A1

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About Bartley Kives

Bartley Kives wants you to know his last name rhymes with Beavis, as in Beavis and Butthead. He aspires to match the wit, grace and intelligence of the 1990s cartoon series.

Bartley joined the Free Press in 1998 as a music critic. He spent the ensuing 7.5 years interviewing the likes of Neil Young and David Bowie and trying to stay out of trouble at the Winnipeg Folk Festival before deciding it was far more exciting to sit through zoning-variance appeals at city hall.

In 2006, Bartley followed Winnipeg Mayor Sam Katz from the music business into civic politics. He spent seven years covering city hall from a windowless basement office.

He is now reporter-at-large for the Free Press and also writes an outdoor-recreation column called Offroad for the Outdoors page.

A canoeist, backpacker and food geek, Bartley is fond of conventional and wilderness travel. He is the author of A Daytripper’s Guide to Manitoba: Exploring Canada’s Undiscovered Province, the only comprehensive travel guidebook for Manitoba – and a Canadian bestseller, to boot. He is also co-author of Stuck In The Middle: Dissenting Views of Winnipeg, a collaboration with photographer Bryan Scott.

Bartley appears every second Wednesday on CityTV’s Breakfast Television. His work has also appeared on CBC Radio and in publications such as National Geographic Traveler, explore magazine and Western Living.

Born in Winnipeg, he has an arts degree from the University of Winnipeg and a master’s degree in journalism from Ottawa’s Carleton University. He is the proud owner of a blender.

On Twitter: @bkives
Email: bartley.kives@freepress.mb.ca

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