By Gabriel Maggio, Jr.
By Gabriel Maggio, Jr
(WINDSOR, ON) – When the mayor speaks, the words fall off his tongue with ease. He speaks with confidence and it sounds, to the average listener, like it makes sense. And,perhaps,some of it does and some of it is. When it comes to making decisions on the bigger ticket items, making sense is crucial.
How difficult is it to surround yourself with the right independent, non-influenced advisors before making decisions that will affect Windsor for decades ahead?
Did the mayor and his Administration really think that the pay-as-you-go finance model was appropriate when there are strong recommendations against it.
Francis and Council have been using the “pay as you go” scheme to fund many of their capital projects, and we are paying dearly.
Consider this.
“The Canadian Home Builders’ Association (CHBA) retained Altus Group Economic Consulting (Altus) to provide an analysis of efficient, effective and equitable financing tools for urban infrastructure in Canada…
[Since] the Urban Infrastructure Challenge in Canada in May of 2008, the Canadian economy has experienced a sharp recession and a slow recovery. The pace of residential development slowed considerably in most communities across the country during the recession, and governments directed considerable stimulus funds toward infrastructure during this same period.
Moreover, a heavy reliance on development charges and other “pay-as-you-go” schemes to finance infrastructure have downloaded costs onto new home buyers, placing upward pressure on household debt.”
In reaction, the Bank of Canada stated, “Household debt has risen to worrisome levels.”
What is also worrisome is that if Windsor was given considerable infrastructure stimulus funds, why is it only now that Francis has decided that the city is going to up their commitment and investment into infrastructure?
It should be noted that how we paying for this infrastructure is as important as deciding on the undertaking itself.
It was reported by Altus that, “Pay-as-You-Go” is an illusion.”
“Governments may be attracted to so-called “pay-as-you-go” financing for infrastructure because of an aversion to debt. However, these schemes don’t reduce or eliminate debt, they only transfer debt from the public to the private (household) sector.”
That means you and I are paying exorbitant amounts out of our pockets today for the current multi-million dollar projects when they should be paid off like your home. That is over 15, 20, or 25 years.
Trying to pay off your home early, when you can’t afford to do so, can put you in financial trouble. And this Francis scheme is no different.
The money has to come from somewhere. If the mayor isn’t raiding reserves, increasing taxes, or taking on more debt, as he claims, then from where is it coming? We must then be paying for it out of our pockets. They have had their hands deep into our pockets all along, siphoning cash flows out of circulation, and affecting the natural economic multipliers.
Once again we are being mislead, just like the tax freezes.
Francis did raise tax rates, and they haven’t been frozen like he’s been telling you. They are using duplicity in their approach and fooling the public.
What is peculiar is that these reports are available to our elected leaders and they have decided, instead, to ignore them. If they have even read them, then I would like to know their justification for not using traditional financing and, instead, putting the squeeze on the taxpayer during an unprecedented recessionary period not seen since the Great Depression.
What is concerning is that they have likely tried to finance the pay-as-you-go scheme partially through revenues derived from development charges and the like. In turn, this has likely added to the problem. And as all builders and contractors know well, Windsor’s development charges are not just high; they are “through the roof” high.
Development charges are embedded in the price of new homes and ultimately are financed through personal mortgages. The transfer of debt from the public to the household sector is contributing to underlying risks.
The Bank of Canada has recently raised the alarm that growing household indebtedness in Canada (now close to 150% of income) is making households more vulnerable to macroeconomic shocks.
Public-sector debt is almost always less expensive than household debt, and can be serviced with revenues more closely linked to the utilization of the infrastructure. (CBHA Report)
In simpler words, what should be gathered from these statements is that it is good governance to look out for the financial well being of residents. Government should seek recommended alternatives to the debt burden. Putting it all on the homeowners, in a short period, and raising revenues from the wrong sources comes with socio-economic risks, as we are witnessing here in Windsor.
There are more appropriate debt financing options.
The report reviews three funding categories for “local capital investments, from water utilities, recreational centres, and public transit, to city roadways and other growth-related infrastructure.”
Category 1 (infrastructure with clearly defined individual beneficiaries/users, such as water utilities): capital investment should be financed by debt, and the debt should be serviced solely by individual user fees.
Category 2 (infrastructure with some defined individual users, but also providing community benefits, such as recreational centres and public transit): capital investment should be financed by debt; debt should be serviced through a mix of user fees, general property tax revenues and/or grants from other orders of government where appropriate.
Category 3 (infrastructure mostly providing broad community benefits, such as city roadways and other growth-related, off-site infrastructure): capital investment should be financed by debt, and the debt should be serviced by general property tax revenues.
Debt financing is appropriate for all three categories of capital investment. How a municipality most effectively services the debt depends on the category.
Infrastructure, which has a host of benefits to the community, is an important investment that should always be a priority in every municipality.
In Windsor, not only has our infrastructure been ignored to the tune of $1 Billion, while basements flood, many of the projects, the mayor and Council have agreed to undertake, are being paid off using the pay-as-you-go illusion when they should have been financing these projects, such as the Aquatic Centre, over a long time, thus allowing the residents of Windsor some much needed financial wiggle room.
An impartial team of advisors could have avoided these errors. The mayor is simply wearing too many hats for the city’s good. Decisions such as this have stalled job creation, inflated household debt, and delayed the futures of many students, among many other impacts.
So when Francis boasts that he is paying down debt, now you know that it is a calculated and loaded statement slipping off his tongue, that is being used in an oversimplified manner.
A topic for another day.
To read more about the Pay-As-You-Go scheme read the following source used above.
The Urban Infrastructure Challenge in Canada: Making Greater Use of Municipal Debt Options
Prepared for: Canadian Home Builders’ Association
Prepared by: Altus Group Economic Consulting (January 28, 2011)
A New City 