Cost sharing must be transparent and predictable

Commentary, Local Government, Peter McCaffrey (historic), Regina, Saskatchewan, Steve Lafleur (historic), Taxation, Transportation, Uncategorized

The City of Regina recently informed a number of property owners about upcoming multi-million dollar renovations that are planned for their streets.

The Council plans to conduct these renovations via ‘cost-sharing local improvement programs’ that will require the owners of properties on the selected streets to contribute a percentage of the funds needed for the construction.

One street caught up in the controversy is Grant Drive, which apparently requires a renovation of about $3 million. Property owners on Grant Drive are being asked to contribute $570,000 towards the work, or $7,500 per household on average – about 20% of the expected total cost.

Residents are understandably upset about these unexpected, and in some cases significant charges that have been sprung upon them by the city.

However, there are some legitimate reasons why at least a portion of the cost of street repairs should be borne by locals, rather than city-wide ratepayers. Having residents pay about 20% of the bill for local improvements that they will disproportionately benefit from is reasonable. Better infrastructure, including roads and sidewalks, means improved mobility, a more attractive neighbourhood, higher property values and a greater quality of life for all those residents.

The problem isn’t that local property owners are expected to pay for a portion of these local improvements – the user-pays principle does have an important role to play in infrastructure funding. Rather, the issue is that the Council is doing this ‘cost-sharing’ on an ad-hoc basis.

The city needs a more predictable and transparent mechanism for ensuring that local residents pay their fair share of infrastructure costs. Selectively ambushing property owners with unexpected charges is not an acceptable method of paying for infrastructure.

Those who benefit should contribute, but the real questions are how and how much to charge property owners, and in this area, more transparency from the city is desperately needed.

Any formula used by the Council to calculate these charges should be freely debated in public, so that all citizens can contribute to this debate. What specific benchmarks are used to determine what percentage residents of one neighbourhood ought to pay compared to residents of another?

These are the types of things residents (and prospective residents) are entitled to know. No one should receive an unexpected bill for $7,500 for something they didn’t ask for. Rather than springing residents with one-time bills, the city could consider hiving-off a portion or even the entirety of funding for local infrastructure, depending on the characteristics of a neighbourhood.

Since Grant Drive is also used by non-residents who drive or walk through, it makes sense that non-residents would foot some of the bill as well.  But consider a cul-de-sac – since only local residents use these roads, they are more comparable to parking lots than to avenues. It makes no sense for city-wide taxpayers to pay for these roads and sidewalks. That’s why developer contributions are used to pay for their construction.

But what about 20 years from now when they need repair? If responsibility for financing were partially invested with adjacent property owners, say, through a yearly levy, there would be a predictable stream of revenue to finance these improvements. In addition, under the current model, cities often avoid conducting routine maintenance, allowing roads and sidewalks to decay to the point where they require even more expensive repairs. A predictable yearly levy could also be used to fund routine maintenance to help keep these long-term costs to a minimum.

Removing all or part of local infrastructure costs and using earmarked levies could be a solution to this problem. Revenue increases from local levies could be off-set by lower property tax rates. That way infrastructure policy would move closer to the user-pays ideal without simply extracting more revenue.

This approach would reduce life-cycle infrastructure costs by removing the incentive to defer maintenance, and would ensure that residents get the quality infrastructure they expect from the city.

Residents shouldn’t expect to have all of the benefits of local improvements paid for by general government revenues. Nor should they be subjected to surprise repair bills.

The city needs to take a fair, predictable, and transparent approach to financing local improvements. Laying out specific criteria for what proportion residents of various neighbourhoods should pay, and implementing an annual levy is a better approach.