Dear Winnipeg

A Fun Blog About Infrastructure and Municipal Finance

Developers are (sales)people too!

Dear Winnipeg,

How were your holidays? Mine were nice… it was time well spent with good food, good drink and good people. It also gave me the time to ponder the pecuniary pickle you have gotten yourself into. [No good? Maybe you like financial fuss better? Or monetary misfortune? How about dollar dilemma? Take your pick, they’re all gold in my opinion.]

How did you get here? What ever possessed you to build so much infrastructure in the first place? I mean, triple the roads per capita as New York City? That’s just… out of control.

Well, every day developers are building you new roads to care for. Seems like a good deal on the surface: they pay the upfront costs, then you take over maintenance from there.

And of course, the developers are providing cost-benefit analyses, beautiful reports with loads of fancy math, to prove that their new developments, chock-full of new roads and infrastructure that you will need to maintain, are actually a great investment for you.

And what an investment they are! Not only are they helping expand your tax base, but apparently these new suburbs will actually MAKE you more money than they cost in extra services and infrastructure!

For example, Waverley West is going to make you $70 million over its first 80 years! And Ridgewood will make you $54 million over its first 80 years! Wow!!

Well, setting aside the fact that for a city with $35 billion in infrastructure and an annual budget of $1.1 billion, $54 million over 80 years kinda seems like chump change. [Or dinky dough. Or meager money. Or feckless funds. Don’t worry, I’ve got a million of ’em.]

I mean let’s be serious, adding the equivalent of 0.06% to your annual income is basically a rounding error.

But setting that aside, if it is indeed the case that these new suburbs are money-making investments for you, you should probably be building as many of them as you can, and as fast as possible! With all the extra net revenue, you could slay that infrastructure deficit in no time! Yay, no more cash conundrum!! [Sorry, that was the last one, I promise.]

Well, not so fast. I hate to have to be the one to break this to you, but these new developments are actually bankrupting you. Every new one you build is making you much poorer, worsening your infrastructure deficit, and leaving your citizens worse off than before.

But what about the cost-benefit analyses showing otherwise? Again, don’t kill the messenger, but developers are salespeople, and the cost-benefit analyses are basically just shiny sales brochures trying to convince you to buy-in, so of course they show a profit.

I mean, a lot of the numbers they use are based on flawed assumptions. Change the assumptions even a little, and all of a sudden a profitable suburb becomes a massive financial drain.

But you don’t even have to dig that deep. The Ridgewood report outright tells us:

“We have not included the costs associated with the extension of the William Clement Parkway south to Wilkes Avenue and the construction of supporting external east-west connector roads”

Deloitte (2012, Sept 18th). Qualico Communities – Cost/Benefit Analysis: Ridgewood Community

Well, I’m not an expert, but it would seem to me that it’s pretty easy to show a profit if you don’t include all the costs. There goes that $54 million!

And the same for Waverley West. Now that the developers are long gone, and the taxpayers are on the hook for all costs, the new residents there are asking for a community centre, which is estimated will cost $30 million. And with all those new residents living and driving in that area, Kenaston apparently will need widening to the tune of $450 million. Not to mention the Sterling Lyon Parkway extension at over $100 million. So much for that $70 million over 80 years… [sad trombone]

I could go on from new development to new development, but I think you’re starting to get the picture. These are bad investments.

Now I know it feels like these new developments are making money. After all, they generate new property tax revenue right away, and meanwhile the maintenance obligations are usually still years away. So in the short term, it seems like you have a bit more cash on hand. Until those future obligations hit, and then you need more cash. So you grow and build another new development. And rinse and repeat.

And that’s how you end up in a pattern where you need an ever-increasing amount of future growth in order to continue to service your present obligations.

I don’t want to alarm you, but that describes a Ponzi scheme. And it’s one you’ve been participating in for decades.

How do you get out of a Ponzi scheme once you discover you’re in one? Same as a Boxing Day breakfast… cold turkey.

If continuing to build new infrastructure is bankrupting you, then stop doing it right now. Don’t build any new roads, and don’t let anyone else build some for you either. I know it will be hard, but has Bob Newhart ever steered us wrong? [The obvious answer is: No, he hasn’t.]

So say it with me, Winnipeg: No New Roads!

Lots of love,

Elmwood Guy