Municipal Infrastructure Chickens Return to Roost: Years of accounting neglect are over, and the price is there to pay.

Commentary, David Seymour, Local Government, Taxation, Uncategorized

Too long the cost of infrastructure in Canada has been artificially kept low.

Imagine learning that you had a completely unexpected $1,500 bill for housing repairs this year. Then imagine this same “emergency” coming again every year for the next ten years. After that, you’ll find a permanent hole in your budget as you spend more on house maintenance to prevent further emergencies.
This scenario is not far from the current reality facing Canadian households. Just substitute “municipal infrastructure” for “households” and the previous paragraph describes the situation faced by households across the country. It’s the reason the Federation of Canadian Municipalities is having its first ever National Infrastructure Summit in Regina this week.
How did this happen? The shock has not come from any sudden change in the condition of the nation’s municipal infrastructure, but from accounting changes at city halls across the country. Previously, cities reported the amount spent on new capital assets (mainly infrastructure) in the year that they made the expenditure. Such information said nothing the state of infrastructure, or what future expenditure might be necessary to maintain or improve it. In the private sector such forward planning would be considered irresponsible for short term investments, let alone infrastructure with 50 to 100 year life cycles like roads and sewers. 
Incentives for municipal politicians were as irresistible as they were hazardous. A municipal politician concerned about the future of infrastructure under the old paradigm had a hard road to hoe. Convincing voters to pay higher taxes for something that was most probably hidden, and invisible on their municipality’s books was nearly impossible. Lower taxes or promises of more visible spending were always an easier path to office. Now the chickens of under-maintained infrastructure, sprung by hazardous political dynamics, are coming home to roost.
It is scandalous that Canadian municipalities got away with it for so long, but that’s spilt milk now. New accounting changes, mandated by the Public Sector Accounting Board and in place since 2009, require municipalities yearly to account for the value of their infrastructure and report the level of depreciation (in practical terms the cost of wear and tear) on that infrastructure. Future liabilities for infrastructure repair and maintenance are now on the books. A considerable backlog in infrastructure maintenance has become visible in municipalities across the country.
Regina, the city hosting the National Infrastructure Summit, recently reported that it needs $2.1 billion over ten years to repair and maintain its infrastructure. With 80,000 households, the average Regina home owes $25,000. Claiming that 40 per cent was already budgeted for; $1,500 per year are still required. The Federation of Canadian Municipalities reported in 2007 that Canada has a municipal infrastructure deficit of $123 billion, amounting to around $9,000 per household. It may be that Regina is an outlier, but the Federation’s figure was based on a survey of 166 cities (only half responded). Infrastructure management has progressed quickly since, and Regina’s 2010 budget figure may well be more representative, but whatever the case the basic story is unchanged. Newfound infrastructure liabilities are large.
No doubt this week’s summit will feature the Federation’s signature request that federal and provincial governments pony up more cash for municipalities. If being seen to spend money is a politician’s oxygen then having to raise taxes is the cost of that oxygen. It’s understandable, therefore, that municipal politicians would be eager to plug the infrastructure gap so that politicians at other levels of government raise taxes and they do the spending. However, it would be a mistake from Canadian taxpayers’ point of view.
That there is only one taxpayer is not news, but further to that taxpayers have different levels of control over where they spend their money. Staying with the host city,  citizens of Regina elect all of their city councillors, but only eleven out of 58 Saskatchewan MLA’s, and four out of 308 federal MP’s. There is absolutely no sense in the taxpayers of Regina, or any other municipality sending their money to the great fiscal washing machine in Ottawa, where their control over it is so heavily diluted. The real leadership test for municipal politicians should be in explaining why they need to raise property taxes or reduce spending in other non-infrastructure areas.
The best that municipal taxpayers can do is adjust to the new reality. Infrastructure has been too cheap for too long, and we must now feed the chickens.