And that’s before we even consider the effects of interest, of actually operating that infrastructure, and of course, of maintaining and eventually replacing it. All of which is also going to come from future years’ operating budgets, ultimately.
Let’s use an actual example of a capital project to illustrate: the South Winnipeg Recreation Campus.
Council has approved a plan that would see this approximately $90-million capital project built using $30 million each from the Feds and the Province, plus $30 million in debt that the City would take on.
If that $30 million is borrowed on a 30-year term, for example, then every year for the next 30 years, we need to come up with an extra $1 million in our operating budget to set aside to repay that money. I say “extra,” because that’s a new $1 million that we didn’t need to have in our budget until now. So we’ll need to find it in future operating budgets, either by raising revenues (taxes) or by cutting services.
And that’s true for any debt the City takes on today. It’s a promise to cut services, or raise additional revenue, in future years.
But we haven’t counted interest yet. At, say, just over 3%, that adds another $1 million per year.
And if we were a prudent City, we’d also start setting aside money every year for the eventual, completely foreseeable repair and replacement of that rec-plex. Another $3 million/year will let us do that in 30 years or so. Sounds about right.
Plus, once built, this new rec-plex will certainly need heating, cooling, lighting, cleaning, programming, and staff so we can actually use it. I don’t know what that will all cost, but I do know that it’s going to come out of future years’ operating budgets. Either through increased taxes or service cuts elsewhere.
So just by building it, we’ve committed ourselves to somewhere between $5 and $10 million in service cuts, or tax increases, in the future. That’s in addition to the cost of construction.
But this isn’t unique to the Waverley Rec-Plex. This is true for EVERY piece of infrastructure we build. Every capital dollar we spend today is related to some other operating dollar in the future, sometimes several of them. (Yes, even roads have operating expenses, like snow clearing.)
The head of both the Manitoba Home Builders’ Association and the Urban Development Institute, two lobby groups for the city’s largest land developers and house builders, recently wrote an op-ed in the Free Press, advocating for the city to develop a detailed infrastructure plan, one that will help determine “what projects will provide the best return-on-investment (ROI) for the City of Winnipeg.”
I’m not going to comment on whether we should be spending time and money on developing yet another plan that we can then proceed to ignore.
What I want to focus on is one of the questions raised in the op-ed:
“Where will the city get the greatest ROI for its limited infrastructure budget?”
— Lanny McInnes (Winnipeg Free Press, October 22nd, 2021)
I don’t want to put words into Mr. McInnes’s mouth, but it’s hard for me to imagine that the city’s land developers are lobbying for anything other than more of the same: continuing to extend roads and pipes outward so they can continue to profit from their current business model. Especially when the lobbyist for the companies that build pipes and roads gives this op-ed a ringing endorsement.
Except that he does bring up an excellent, and important, point. Because even though capital spending today usually means increased operating spending tomorrow, not all capital spending is created equal. Some commit us to more expenses than others. Some rare breeds even produce a net positive return on investment (ROI anyone?), such that one capital dollar spent today creates MORE than one dollar in new revenue or saves us MORE than one dollar in operating expenses (or both), all costs considered.
But inducing outward development with road and sewer extensions isn’t it. The math is in on that already, it doesn’t even pay for itself, nevermind additional services. And it compounds over time leaving us in an ever worsening financial position.
When we ask which capital expenditures will give us the best ROI, we must recognize that isn’t some vague, intangible quality. It’s something we can measure, something we can see: Will spending this capital dollar commit us to service cuts in the future, or will it allow us to increase services?
Looking back over the last decade or so, we’ve experienced RECORD population growth, and not only have we still had to cut services with every single budget, but we’ve also gotten poorer as a city by nearly $1 billion. We are quite literally insolvent.
Hmmm… Could it be that Record Road Investment™ doesn’t quite have the ROI we were sold on?