Raise City Taxes

Commentary, Taxation, Frontier Centre

Hey, here’s a thought: Maybe the city should raise property taxes. Wait. Before you spew your coffee and rip up your newspaper, take a good look at the city’s finances.

There’s no better time than an election campaign to do it – and especially now, as politicians and policy wonks share a growing sentiment that the city is at a fiscal crossroads.

After nearly a decade of cost-cutting, tax freezes and diligent debt repayment, the city has not even dented its $2-billion backlog of road, sewer and bridge repairs.

THE TO-DO LIST IS DAUNTING: Prune the elms more than once every 35 years, repave rutted roads, make sure the Disraeli Bridge doesn’t fall into the Red River, hire a few more beat cops, fix up the sad old zoo, quit dumping raw sewage into the rivers, build a rec centre for poor North End kids….

Except for a share of the federal gas tax, bailouts from the province and Ottawa haven’t materialized despite nearly a decade of badgering, and the city hasn’t raised property taxes in nine years – a frankly amazing feat for which city hall rarely gets credit.

Meanwhile, costs keep rising, especially the hard costs of building new recreation centres and paving roads. And, while citizens complain endlessly about crime and roads and too-slow garbage pickup, the city pleads poverty.

But the city isn’t so poor it can’t scrape together cash for pet projects, like $300,000 this summer for the Cercle Moliere theatre, which enraged the Canadian Taxpayers Federation.

And at the end of every year, the city scrambles to balance its books and always manages to squeeze millions – $18 million last year – out of what councillors claim is a budget tighter than Spandex.

Plus, there’s that $140 million in reserve accounts just sitting there, gathering interest. And the $100 million coming from Ottawa from the federal gas tax over the next five years.

It’s a confusing picture, and it’s time for a reality check.

Maybe we should raise taxes. Just a smidge.

Let’s get one thing straight. Winnipeg’s taxes aren’t that high.

According to Edmonton’s annual survey of residential property taxes, Winnipeg ranked eighth cheapest of 24 cities. When school taxes were factored in, Winnipeg was the 12th cheapest, better than Victoria, Vancouver, Saskatoon, Regina, Montreal and Toronto.

That’s largely because most Canadian cities have raised taxes consistently every year while Winnipeg has frozen or shrunk its mill rate.

Some, including left-leaning councillors such as Coun. Mark Lubosch, say it might be time for the city to rethink that practice instead of whining endlessly about its cash flow. That’s a courageous view to take in an election year.

“We’re doing the politically expedient thing but we’re neglecting the work that needs to be done,” Lubosch said recently. “As politicians, we can’t shy away from discussing the issues.”

Hiking taxes one percentage point puts more than $10 million in city coffers a year. The owner of a small bungalow in Wolseley would pay about $8.50 more a year in city taxes.

On the mayor’s spacious house in Tuxedo, that’s about $60 more a year in city taxes.

But Harry Kitchen, a Trent University economist specializing in city finances, says cities aren’t nearly as poor as they claim to be. They have access to property taxes – a relatively fair form of taxation – and often simply don’t want to dip into them because of the political backlash.

“It’s awfully hard to say you’re broke when cities have taxes and user fees and borrowing capacity to pay for city services,” he said.

Kitchen says it’s time for cities to explore creative ways to raise money instead of relying on handouts from Ottawa. And, in Winnipeg’s case especially, it’s time for a frank discussion about just how onerous property taxes really are.

Maybe we should whip out the credit cards.

If raising taxes will create an armed rebellion at Portage and Main, some councillors say it may be time to dust off the proverbial Visa and fill a few potholes.

Even Coun. Bill Clement – one of the architects of the debt-shrinking, tax-freezing approach to city finances that has dominated for almost a decade – says it may be time for a rethink.

“There have been a number of changes on council and a new council should look at the city’s financial picture, and its infrastructure picture in particular, and we should look at developing a long-term financial plan,” he said.

The city is carrying about $265 million in debt, down dramatically from nearly $1 billion a decade ago. At this rate, the city will be debt-free in another decade.

A few years ago, Calgary passed a policy allowing city council to borrow up to $70 million a year as long as the payments don’t exceed 10 per cent of the city’s tax-supported expenditures. Following that rule, Winnipeg has room to borrow. Winnipeg will spend only about 7.4 per cent of its tax revenue this year paying off the debt, about $53 million, according to city finance staff.

Provincial officials, often behind closed doors during meetings where the city is begging for money, routinely hint that there’s room to raise property taxes and borrow cash.

It’s unlikely the province will give the city a share of the provincial sales tax or some other revenue-generator proposed in the new deal until the city maxes out its debt and its property tax revenue.

But others warn of what would happen to the city’s rosy credit rating if we were to raid the reserves and boost the debt.

What’s needed is a real analysis of how much new debt Winnipeg can afford to repay – $10 million? $50 million? $75 million? – without denting the city’s credit rating and thus harming the city’s ability to borrow cheaply in the future.

Interest rates are sure to rise over the next 20 years, meaning new debt gets more expensive. On the other hand, the longer the city waits to build much-needed infrastructure – rapid transit, anyone? – the more rampant inflation in labour and materials boosts costs.

Witness the water plant, which began as a $214-million project and a few years later is now costing $300 million.

Maybe we should reinvent city government.

It’s not clear how much value Winnipeggers get for their property taxes.

There are virtually no studies comparing how much it costs each city to deliver roughly the same recreation programs or build the same road.

And Winnipeg offers different services than other cities – obsessive snow plowing, grants to housing and social service agencies, cash for an armada of community clubs.

Peter Holle, president of the Winnipeg-based Frontier Centre for Public Policy, says the city needs to rethink how it does things before it asks taxpayers to pony up.

“Our experience is there is lots of room to be more innovative in delivering services,” said Holle. “Instead of searching for sources of revenue, the city needs real structural reform.”

Holle cites a municipal finance rule of thumb that says about 30 per cent of city services can be done privately or on a competitive bid process where even unionized city staff compete with the private sector to deliver services. Holle also looks to British models where an engineering firm with access to global experts and the best technology is hired to design, build and operate water treatment plants or other big pieces of city gear.

Those techniques, he said, could shave tens of millions off the city’s operating budget, but it would take a minor revolution at city hall.

It’s no secret Mayor Sam Katz is interested in streamlining city services as a way to save money. He’s already contracted out garbage collection and cut some middle-management jobs, and he is widely expected to rid the city of its struggling sand and gravel pit.

Whether that marks the beginning of a broader discussion of what services the city should legitimately provide remains to be seen, especially since it took months of number crunching, negotiations with administrators and a medium-sized battle on the floor of city council to push those initiatives through.

Maybe the city should keep begging for more cash from Broadway.

Yeah, like that’s worked so far.

What do you owe?

You are the pround owner of a 25-year-old, three-bedroom bungalow with a main-floor area of 1,200 square feet, a finished basement and a two-car garage. Here’s what you owe the city in property taxes, not including the portion you pay to local school boards, which in Winnipeg accounts for roughly half your total bill.

Calgary: $780

Medicine Hat: $868

Red Deer: $990

Edmonton: $1,095

Lethbridge: $1,171

Saskatoon: $1,197

Surrey: $1,210

WINNIPEG: $1,240

Regina: $1,302

Halifax: $1,305

Grande Prairie: $1,371

Burnaby: $1,425

Vancouver: $1,786

Victoria: $1,859

Fredericton: $1,907

St. John: $1,924

Toronto: $1,961

Laval: $1,990

St. John’s: $2,196

London: $2,205

Ottawa: $2,296

Montreal: $2,326

Brampton: $2,360

Hamilton: $2,476

— Source: City of Edmonton 2005 Residential

Property Taxes and Utilities Charge Survey