Same old model, same problem as before

Hey there, time traveller!
This article was published 05/11/2024 (355 days ago), so information in it may no longer be current.

Another week, another speech by Mayor Scott Gillingham (or an editorial by a columnist) expressing the supposed need for a “new revenue model” to save the City of Winnipeg from its financial quagmire.

It’s quite a departure from when Gillingham was campaigning for our vote two years ago, when he told Winnipeggers that “our biggest challenges are short term and especially on the operating (budget) side.”

Today though, there’s finally recognition that our financial problems run much deeper. The city is no longer “talking about trying to get funding for bells and whistles of legacy projects,” he said in a speech to a roomful of lobbyists last week. “We’re talking about funding for basic services.”

In trying to explain why we’re in this mess, Gillingham then went on to say that “the City of Winnipeg has to wait until the pipe’s in the ground, someone comes in to build a widget-making factory, builds their building, and the assessed value of that property goes up and they start paying property taxes.”

“Our return of investment on an economic investment takes years and years to begin to recoup.”

It’s crucial to understand that what the mayor is describing is actually a cashflow problem, not a revenue shortfall. It’s not something that requires any new revenues at all, much less a whole new “model.” It just requires debt. And the judicious use of debt to smooth out delayed cashflows from capital investment is precisely what debt should be used for.

Gillingham has already said as much himself. “On the capital side, it’s responsible to use debt for major, long-term, intergenerational capital projects, especially if they increase our city’s economic strength and competitiveness,” he said on the campaign trail in 2022.

Making investments that take many years before they pay off is common in the business world. Take True North’s proposed redevelopment of Portage Place, for example. They were spending money on due diligence even before committing to the project. And they’ll spend hundreds of millions more over several years, most of it borrowed, before their first tenant ever pays them even a single dollar in rent.

In the words of the mayor, their return on investment will take years and years to begin to recoup.

And yet Mark Chipman’s company could keep doing this forever, getting wealthier and wealthier every step of the way.

So why is it different for the city? Why is it getting poorer with each passing year?

The difference is that Chipman makes sure his investments are profitable. That means the financial returns will be high enough to cover not only the interest and principal on the debt used to finance it, but also future costs like maintenance, wages, eventual replacement, with some left over for profit.

Gillingham, on the other hand, is proposing the city borrow money to invest in the widening of Kenaston, which a cost-benefit analysis showed would provide a return of 1.4 per cent. Meanwhile, the city’s latest bond issue has it paying 4.65 per cent interest on its borrowed money.

That’s the actual issue. Not that our infrastructure investments provide “delayed” returns, but that the returns they provide don’t even cover the interest on the debt, much less any principal, maintenance, wages, eventual replacement and any left over to fund “bells and whistles” elsewhere in the city.

In other words, it’s not a cashflow problem, it’s an insolvency problem. And mixing up those two –— deferred returns and negative returns — is a fatal mistake.

But it would be short-sighted to blame this all on our current mayor. He’s just the latest one left holding the bag.

For nearly eight decades, we’ve been investing in a development pattern that costs more to maintain and service than it returns in taxable economic value. And when the chickens came home to roost along the way, we just doubled-down on another round of outward expansion using the same unproductive infrastructure patterns, hoping the new growth would pay for the old growth. And again, and again. You know, the same way a Ponzi scheme works.

Instead of investing in infrastructure that enables more car-centric, segregated-use, all-at-once-to-a-finished state greenfield growth, we need to invest in infrastructure that enables walkable, bikeable, transit-friendly neighbourhoods that allow gradual intensification through mixed-use infill.

Not because we prefer them, but because those are the profitable investments for a city. Just ask any city that’s bothered to do the math on it.

Here in Winnipeg, our net financial position, a type of liquidity-solvency measure for cities, currently sits at negative $1.2 billion. It’s been steadily worsening for decades.

Unsurprisingly, the eight years Gillingham has been mayor or finance chair have had no impact whatsoever on its trajectory. Because actually reversing that trend to improve our financial position would require us to change how we grow, by changing what types of infrastructure we invest in.

Those asking for a new revenue model are simply trying to find more money to invest in an old Ponzi scheme. Things will never get better that way.

Michel Durand-Wood lives in Elmwood and has been writing about municipal issues at DearWinnipeg.com since 2018.