A New Formula for Growth Costs – FAQ’s

Earlier last week, I launched my Five Point Plan for Budget 2018. In it, I stressed the need to show how serious we are about our economic resilience and commitment to keeping taxes reasonable while we deliver core services to Edmontonians. However, as demand for city services increase, and our growth continues up and out, it’s clear to me that the ‘old way’ we pay for most things via general property taxes alone may not be fiscally sustainable. We need to be more creative in thinking about how we cover the costs of growth – including building things like new fire stations and interchanges – in order to keep our city strong.

Yes, we know we have to keep our own house in order at the City and become more efficient in how we deliver services. That’s why we’ve harvested $68 million in efficiencies and savings over the last five years (equivalent to 4% lower taxes). And our work on further efficiencies and savings continues – it’s part of my plan. But I think we need a thorough debate on using a broader mix of tools to pay for growth costs if we’re going to keep our tax rates competitive.

There’s no doubt this is a complex issue that has raised a lot of questions, so I thought I would take some time and answer a few that keep coming up.

Q: Your proposal to help pay for growth feels like it is dividing the city, pitting suburbs against everyone else. How is that fair?

A: That is not my intent and I want to be clear on this point. My job is to be Mayor for the entire city and ensure we are equitably allocating the costs of growth, ensuring that our growth is financially sustainable for all Edmontonians. A new formula for paying for growth still needs to be worked out, with lots of consultation, but it should mean that:

• Developers pay for some growth costs up front via a levy;
• Existing homeowners could pay some based on a benefitting area, like we do with sidewalk replacement in mature neighbourhoods; and
• The broader city tax base would still pay a portion for infrastructure where there is city-wide benefit, as with a destination rec centre.

In other words, new homebuyers alone would not be expected to pay for the full cost of a recreation centre (like Lewis Farms Recreation Centre).

Q: This wouldn’t be necessary if spending was in control…

A: We are not the first city to face this problem of growth (and its subsequent operating and maintenance costs) outpacing city revenue. Part of my Five Point Plan is to follow through on the Program and Service Review that is currently underway which will inevitably result in scaling back some services, closing facilities and getting out of lines of business we shouldn’t be in. But a new formula for growth is fundamental to our long-term financial sustainability.

Q: I’ve paid for all kinds of things through my property taxes that I don’t use – so why are we changing this now?

A: I understand the premise of this question, but just because you don’t “use” something doesn’t mean you are not benefiting from it. For example, you may never take a ride on the LRT, but one peak-hour train takes approximately 600 vehicles off the road, inevitably making your commute in a vehicle an easier one. We have a responsibility to continue to contribute to city-wide infrastructure that benefits our population as a whole, and key roads and rec centres have broader benefit too. This new mix of tools I reference is to pay for NEW infrastructure that is only triggered by growth and directly benefits the residents a specific area – a good example is a new fire hall, each of which is very incremental to a new set of neighbourhoods. Using these cost-allocation tools more fully would allow us to ease the tax burden on the broader tax base and potentially allow us to complete projects in a more timely manner.

Q: Housing affordability is critical to Edmonton’s competitive advantage – aren’t we going to lose this advantage?

A: You’re right — housing affordability is a key part of Edmonton’s value proposition. However, the affordability of houses in the suburbs is the result of many factors – one of which is the amount of infrastructure that is currently paid for by the broader tax base (and heavily skewed to existing business taxpayers) rather than by suburban residents themselves. This ‘subsidy’ hides the true cost of a new suburban house in Edmonton. To keep tax increases reasonable for all Edmontonians, we need to find a new formula that addresses this imbalance.

Q: There is broader economic benefit when growth happens i.e new jobs and businesses. Doesn’t that matter?

A: The way we pay for growth today ‘gambles’ that there is enough non-residential growth (i.e. new business tax revenue) to offset the cost of residential growth. This argument depends on the assumption that business taxpayers are ok with higher taxes to cover the costs of new suburban growth — and I’m not hearing a lot of support from business leaders for higher taxes. We also know from studying our proposed growth areas that the opportunity for new extensive commercial and industrial growth is limited. At least not on the scale we need to balance our books. That’s why we need a new formula today to ensure our city is set up for economic sustainability in the future.

Q: The development industry disputes the +/- $1 billion revenue shortfall figure you used. Who should we believe?

A: The City uses a high level analysis tool called Integrated Infrastructure Management Planning (IIMP) to provide Council with information about the revenue that will be generated and the infrastructure that will be required for development of its three new suburban growth areas – expected to house 195,025 residents when fully built. This analysis shows a revenue shortfall of roughly $1 billion when these areas are complete. Edmonton’s development industry commissioned a report that showed there could be significant variability in these figures depending on things like service levels (like transit). This is true – there is significant variability. Changes in interest rates or running much poorer transit shift the math, but there’s a gap, and however much we fill it means lower taxes for everyone. So while we can debate the size of the revenue gap, It’s a gap that’s worth addressing. And with provincial government infrastructure grants declining, this gap could actually get wider.

I’m pleased with the amount of debate this has raised throughout our city, these are healthy conversations to have as we move forward. Today, I asked Administration to bring a report with the forthcoming city budget identifying which pending infrastructure projects in the four- and 10-year plans could be funded in whole or in part by new cost-allocation tools available to the city in the recently-revised Municipal Government Act and/or City Charter. Stay tuned for updates on this as we endeavour to pass a budget that reflects the priorities of Edmontonians. I’ll chat with Ryan Jesperson and 630 Ched tomorrow morning, Global News over the noon hour and on the evening of October 24th, I’ll take your questions on Facebook live.