Calculating the real costs of our growth
Yesterday, city administration released a report that estimates the expected costs and revenues the city’s recently approved ‘greenfields’ (i.e. new suburban developments) will generate over a 50-year term. These are called our ‘Urban Growth Areas’ and they are essentially the outer 3 corners of our city, and they are very large in scale.
It should come as no surprise that the numbers presented in this report are also very large in scale. To service these areas, developers are contributing a significant amount of money – $3.84 billion, in fact. In addition, the City will spend $1.4 billion in capital to build additional infrastructure to support these communities – things like fire stations, parks, roads and interchanges etc. In turn, tax revenues and utility fees generated by these developments help to recover some of these costs.
However, when we consider the full life cycle of this infrastructure and the delivery of city services to these growth areas, the model shows a revenue shortfall of $1.4 billion over the next 50 years.
In the past, we would have relied on the City’s non-residential growth (i.e. new industrial, business and commercial operations) to help absorb these kind of shortfalls. Today 50% of the city’s tax revenue comes from this non-residential base, even though it makes up just 26% of our total assessment pool (i.e. the number of taxpayers). This means that non-residential taxpayers are paying 2.5 to 3 times more per unit of assessment than residential. This raises two flags for me. First, relying on consistent non-residential growth is a bit of a gamble, especially in this economic climate. Plus, administration’s report shows that we would need an additional $8.3 billion in non-residential assessment growth – city-wide – in order to maintain the current ratio. As bullish as I am on Edmonton, this growth is likely not imminent. The second issue is that we are beginning to ask our business community to pay more and more for our residential growth. Is this fair? For businesses that are at the financial breaking point, I’m not sure increasing their burden of taxes is good economic development policy.
There is no question that many Edmontonians choose to live in these new growth areas because of the price point these communities offer. However, this leads us to another fundamental question: if we have to increase property taxes well above inflation to pay for this growth and make up the $1.4 billion shortfall, are we really making things more affordable?
So – how do we start to close this gap? It is easy for this topic to polarize us into pro-developer and anti-developer factions, or into downtown dwellers vs. suburbanites. This is not the debate I want to have.
Instead, I want to spark an open and objective conversation – one that will include industry and the public – to analyze how we pay for this growth. I will make this commitment publicly when Executive Committee meets next week. While we will inevitably talk about new or re-tooled revenue generating options, I also want to ensure we talk about other development costs we ask developers to incur and what we can do to reduce them. Collaboration is the only way we will get at the heart of this issue for the benefit of all Edmontonians.
Calgary has recently made changes to their development cost allocations and this has elevated public expectations for us to look this issue in the Edmonton and regional context.
This is a critical conversation happening in cities all across Canada; I intentionally use the word ‘critical’ because Edmonton is simply not financially sustainable under our current growth model. This is one of the reasons the Big City Mayors’ Caucus advocated so strongly for a new deal on infrastructure funding with federal government. It’s also the reason I am hoping that Edmonton can set a new kind of example (as we’re good at doing) for how thoughtful, evidence-based cooperation can set our cities on a more financially sustainable path.
6 thoughts on “Calculating the real costs of our growth”
Comments are closed.
I’m happy that this is going to be examined by the administration. None of us want to unduly burden future generations with this revenue shortfall, particularly future entrepreneurs. We want to enable thriving businesses in the city.
My question is, has there been any conversation to move revenue generation from a ‘property-tax’ model to an ‘income-based’ model. There are many cities in the US that generate their revenue through payroll and corporate taxes. Perhaps it would make things more equitable for people living and working in the city? Understandably, it may require amending the MGA.
Thanks for this perspective Mayor Iveson. It is encouraging to see the city addressing the question of sprawl and trying to find viable solutions and I really appreciate the hard work you and City Council are doing to address these challenges. These are some comments I left on the Edmonton Journal website that I thought would be of relevance (including one possible solution):
“And they haven’t factored in the school and the hospitals yet! All of the sudden a $20 million investment in an active transportation network near the urban core doesn’t seem so expensive (nor does good transit). The challenge is that the city is limited in what it can do without the support and active involvement of the province. Many provincial initiatives (building extensive freeways and interchanges, closing inner schools, different tax structures for the surrounding municipalities, etc.) run counter to good urban planning principles for Edmonton and need to be addressed at a regional/provincial level as well as by the municipality. I am hopeful that with the increased emphasis on environmental sustainability as well as carbon pricing, more solutions (and funding) will emerge from the provincial and federal partners on these municipal challenges”.
“I’d also be curious if the city provided a 2-3 year “tax holiday” on the development of any vacant lot in the city what effect that might have on spurring some much needed development within the city limits. Not tear down and rebuilds for duplexes/triplexes, but actual empty lots or ones currently used for parking. The city could put clear parameters on this (eg. the neighborhood must be at least 25 years old; the lot must have sat vacant for at least 5 years; building on the lot must start within a fixed time frame; presenting it as a one-time offer, more of a rebate for more units, etc). I bet it would be enough to bring the city a lot closer to its infill target of 25% and might also provide a much needed boost to the trades right now. There are a ton of empty lots throughout the city in every neighborhood”.
Thanks again for all your excellent work.
1.4 billion over 50 years? That’s $28 million a year. I’m actually surprised it’s not much higher. This makes it basically a rounding error on a 2.5 billion budget. Bring in a new development frontage fee to recoup the cost. This would make infill more competitive without making new development unprofitable.
I know Mayor doesn’t want to go into polarized discussions of increasing the cost for developers or not, but he’s again going to the same point (industry and the public, which is developers and the public). Whichever the terminology the City invents to generate more money from new development, it is going to increase the cost of development and at the end of the day, burden the tax payers.
My question is:
– Who approves the greenfield development, which the City calls sprawl?
– Where is the housing that would instead accommodate ever increasing population of the city?
– Has the City looked at maximizing its own (inefficient) spending to reduce the gap?
– Is there any strategy that the City has in place, or even just prepared, to limit the housing prices – bring them within the affordability limits of a middle class family?
– Developers never pay from their pocket, they download it to the new buyers (us). If you are asking the developers to pay more for growth, be honest and bold enough to tell your tax payers that they will have to pay more.
Inventing new terminology to ask for more money from public in order to cover up the City’s inefficient spending will result in increased housing costs, which are already sky rocketing. Please analyze the ultimate effects of any policies of burdening the tax payers with additional financial requirements on new housing – DO NOT PLAY WITH WORDS. Thanks.
Vikesh raises a very good point about funding options – however due to the structure we inherited* Cities are a creature of the Province, meaning cities only exist as a government because the ‘province’ (another creature of the Federal government) allows them. Seems odd as Edmonton was an urban area well before 1905! But, so it is. With a Charter, of course, Edmonton could then raise its own funds and chart its course independently rather than cap-in-hand to the other tiers. US cities and urban areas are roughly the inverse of us: cities and counties trump states, states trump nation on laws and tax choices – in many instances, except for when it doesn’t.
Michael has some very good points too. I agree with him that we can’t continue ‘planning’ for walkable, low-carbon, knowledge-based economy with local shops in neighbourhoods while only ‘designing’ and budgeting for new car-travel inducing highway infrastructure to support outer-ring growth. They are incompatible. One is easy to say, the other is far too easy to do.
So: Who Pays for The City? In the end, the tax-payer/resident does. There is no fairy-godmother who will magically pay. We pay either directly as taxes (on income or property); or as user-fees (fees for services, levies, TIFs or other configurations); or as a home-owner paying a higher price due to a policy; or as a customer to a 3P consortium building things for us (like the CP Rail line opening the West). We pay – one way or the other – the real question then is, as the customer: Do we like what we have? Do we want more of it? Do we even know the options?
While in Australia I did a compare and contrast paper on Developer Contributions from around the English speaking world. I am willing to share.
*This has something to do with the City of London (The Square Mile) being a unit/country unto itself, something England and the Crown don’t like and advise against replicating. “Far too much Power in the hands of Merchants and Insurers rather than we, the country squires, gentry and Lords!”