The $10 Billion Gap

Over the past few weeks, I've been talking about money and how we actually pay for the services and projects Calgarians want and need. Recently, Dr. Jack Mintz, Palmer Chair in Public Policy and professor in the Faculty of Law at the University of Calgary, and I had a public debate in the National Post about the need to fund our cities. You can read the full discussion here.

And here is my response to Dr. Mintz' original argument to not fund cities:

I was thrilled when Jack Mintz moved to Calgary, and I am looking forward to outstanding things from the new School of Public Policy at the University of Calgary. It’s clear that Dr. Mintz is really enjoying himself in our great city, with all its amazing services and endless vistas under a big Prairie sky, not to mention the incredible cultural scene. What else but urban distraction could explain how he manages to get nearly every number wrong in his muddled and messy piece published last Wednesday?

Let’s start with the facts:

Mintz suggests that between 2005 and 2010 Calgary increased its property tax an average of 8.3% annually. False. The city’s share of the property tax rose an average 6.5% during this period. Since these figures include one extraordinary year when the province ceded (and the city accepted) some tax room, it may be fair to look at the combined provincial and municipal property tax rate. That rose by an average of less than 5% annually — all while Calgary’s population increased by 115,000 people. Five per cent annually is, in fact, quite close to the rate of municipal inflation plus population growth.

Mintz states that local government spending increased 55% between 2000 and 2009, which is higher than the total of all governments. I can’t speak to all governments, but I can speak to Calgary. It’s true that our operating expenditures increased significantly over this time period — as did our population and inflation during the boom. However, so did the spending of the government of Alberta; indeed, we were almost in lockstep. It seems that his characterization of “bloated municipal governments” needs a bit more nuance.

Mintz further states that Calgary has “warned it will need to raise property taxes by almost 25% in the next three years.” Also false. The closest I can come to figuring out what he’s talking about is a PowerPoint slide that highlights various scenarios for Calgary’s operating budget, ranging from a three-year tax freeze to a very large increase that no one wants. Nothing has been advocated or warned of.

Although Mintz glosses over the difference between capital and operating expenses, this is the heart of the argument cities are making. We’ll handle our operating costs and service delivery, even with the horrible, regressive, inelastic property tax as our main source of revenue.

Capital, though, is a whole other matter. In Calgary, we have somewhere between $6-billion and $10-billion in infrastructure needs — from fixing roofs to building new roads and LRT lines. Mintz criticizes our council for “splurging” on building a $25-million bridge. Fine. I agree. The prior council should not have done that. That leaves us with $9.975-billion to go. Next?

The numbers are this: Calgary’s total operating budget for 2010 was $2.5-billion. Of that, our total property tax take was about $1.2-billion. A single new LRT line costs between $1-billion and $3-billion. So, no matter how much waste is cut (and we are cutting waste, believe me), it’s impossible to fund these kinds of investments with only the property tax.

He also argues that taxpayers in smaller cities and rural areas should not fund infrastructure in larger cities. One could argue that, in fact, they should. Cities do form the economic heart of the country and are where growth happens. People in smaller centres use services in big cities far more than the reverse. But this is the reddest of red herrings.

In fact, Calgary taxpayers send over $10-billion a year more to Ottawa than we get back in the sum total of all federal services. This is the true fiscal imbalance in the country. So, to turn Mintz’s question on its head, why should the people of Calgary pay for services in Belleville or Halifax?

What mayors are asking for is not a tax grab but a rebalancing. The services that cities provide — police, fire, clean water, roads, transit, recreation, parks — are the ones that Canadians use every hour of every day. Yet they are provided by the level of government with the least ability to pay for the infrastructure needed to provide them. Worse, we can engage in a never-ending game of buck-passing, since we have divorced the responsibility for services from the authority to pay for them.

I’m asking that we fix the system so that I can take full credit, or blame, for providing the infrastructure and paying for it. On that, I think Dr. Mintz and I agree.

- Mayor Nenshi