Mind the Gap

In the spring of 2011, Naheed Nenshi flew off on his first big overseas junket as mayor of Calgary—a trade mission to China. His destination was Beijing, and he arrived after a gruelling flight in the same scuzzy state as any long-haul passenger, exhausted and aching for a shower. Still not used to the jetsetting holder-of-high-office circuit, he’d made the trip in a T-shirt and jeans. He was met at the baggage carousel by a Chinese government escort and whisked into a black SUV with tinted windows, which raced the newly minted VIP toward his first meeting down special traffic-free lanes reserved for senior officials. It took some cajoling, but Nenshi convinced his reluctant minders to stop off at his hotel so he could at least change into a suit.

A few double-time, VIP-lane minutes later, a more presentable Mayor Nenshi was led into the palatial working quarters of the Mayor of Beijing. Bleary but beaming, Nenshi strode into his Chinese counterpart’s office to find it full of sober, dark-suited men awaiting His Calgarian Worship’s arrival.

Out of the corner of his eye, Nenshi spotted a familiar face: Doug Horner, the deputy premier of Alberta. Horner had positioned himself several deferential steps behind Nenshi, in keeping with local custom. In China, the mayor of a major city is a far more powerful and more revered official than some lowly provincial apparatchik. No one was much interested in the vagaries of provincial government; the mayor was the dignitary they’d come to meet.

Back home in Alberta, of course, the power balance is exactly the opposite. Naheed Nenshi’s office—and every other mayoral office at every city hall in the province—exists only by fiat of the provincial government. Under Alberta’s Municipal Government Act, provincial officials tell city governments how they can raise money—and often determine what sorts of things they can spend it on. The province decides where municipal jurisdiction begins and ends, and it sets the agenda and orders the priorities around the development of critical urban infrastructure.

Edmonton and Calgary are getting new ring roads in large part because the provincial government commissioned them and doled out the money. A new $24.5-million pedestrian bridge spans the Bow River in Calgary—designed by celebrated Spanish architect Santiago Calatrava, in a process Nenshi repeatedly criticized in his election campaign—because the province earmarked the money for it in its Municipal Sustainability Initiative. An elaborate metal sculpture sits next to a Whitemud Drive on-ramp in Edmonton because the province obliges the city to spend 1 per cent of the budget for new road construction on an accompanying piece of art. And if it isn’t the province calling the shots, it’s the feds: southeast Calgary won’t be getting three new recreation centres anytime soon and Edmonton’s Royal Alberta Museum revamp is anything but certain since officials in Ottawa have previously bailed on their share of the construction costs.

The short-sighted, arbitrary nature of these federal funding withdrawals proved in 2011 to be some kind of breaking point for the mayors of Alberta’s largest cities, who spat rhetorical vitriol back at Ottawa with uncommon ferocity. “I’m tired of being screwed as an Albertan,” Edmonton Mayor Stephen Mandel told the press. “I’m so disappointed that something that was so important to the city can be snatched away without any consultation. It is an absolutely unconscionable act. It’s not even about the money so much. It’s about the disrespect this shows to the city and the people of Edmonton.” Mayor Nenshi, for his part, was described as “stunned and fuming” as he accused the feds of “wasting two years of our time” on the rejected rec centre development. (The new facilities were to be built under the auspices of P3 Canada, the federal government’s new Crown corporation for public/private partnerships. Nenshi showed the gathered press a section of P3 Canada’s website that explicitly mentioned rec centres as the kind of projects the Crown corporation intended to fund, but that passage vanished from the site soon after the story broke.)

“In Canada the city is a poor cousin, an afterthought, a beggar.”

The majority of Albertans haven’t been rural dwellers since Ernest Manning was in his second term as premier. In 2011, with more than 80 per cent of Albertans living in urban areas—nearly two-thirds of the population living in Edmonton and Calgary alone—our cities still wield all the power and autonomy of whistle stops along the CPR tracks in the final years of the 19th century. This is a power imbalance with profound implications far beyond any given downtown museum or suburban skating rink. The 21st century is the first truly urban century in human history: as of 2009, more than 50 per cent of the world’s population resides in cities, and the UN estimates that by 2050, seven billion people will live in cities (as many as currently inhabit the entire planet).

Cities have always been cradles of civilization (the word civilization shares a common Latin root with the words city and citizen), but they are also now understood as being the essential engines of human prosperity, innovation and progress. The world over, faded industrial burgs and upstart developing-world metropolises alike commission marquee architecture projects and vie to host international spectacles such as the Olympics and FIFA World Cup, all with an eye toward gaining a reputation as world-class cities and thus (so it’s hoped) attracting the knowledge economy’s top talent.

Vancouver and Portland wrestle for the title of the Pacific coast’s greenest oasis. Denver and Shanghai share at least one common civic passion: both are laying commuter-rail track at breakneck speed. New York copied Copenhagen’s exemplary bike lanes and strung them up and down Manhattan, while cities the world over gaze in awe at New York’s wondrous homegrown High Line Park—an urban oasis reclaimed from an abandoned elevated-train track. London, Boston and Minneapolis have imported Montreal’s beloved Bixi bike-sharing system. On the fringes of cities such as Seoul, Dubai, Dallas and Denver (again), elaborate “aerotropolis” business hubs have been built around airports to serve as vital new economic engines. In every case, civic officials and their partners in other levels of government have come to realize that the economic health of their whole region rests on the vibrancy of the urban sphere. Without healthy cities—well-endowed, resilient but adaptable urban centres built on sustainable foundations—there is simply no chance of success in the 21st century.

You’d think it would follow that properly funding cities to equip themselves for this fiercely competitive urban century would be at the top of every government’s agenda. But you’d be wrong. The tale of the contemporary Canadian city is one of underfunded projects and long-neglected infrastructure. For every new ring road, there’s an LRT line waiting decades to receive funding (see Calgary’s long-promised southeast CTrain or the LRT extension to Mill Woods in southeast Edmonton, which was first proposed in the 1970s and which might begin construction in 2014). In Medicine Hat, two-thirds of the entire capital budget for water and sewerage in 2012 has already been committed to emergency upgrades of crumbling sewer lines, some of them 100 years old; Fort McMurray, meanwhile, has been so overwhelmed by its rapid growth that it petitioned the province to freeze new oil sands development at the height of the last boom to try to catch up on building even a first generation of essential municipal services. And so it goes from coast to coast: Toronto is slashing its transit expansion plans and laying off city staff, Montreal continues to be a city of crumbling concrete, and Winnipeg has invited paying sponsors to slap their names and brands on everything from community centres to individual police cars and library books in a desperate bid to cover its costs. In Canada the city is a poor cousin, an afterthought, a beggar.

All told, the Federation of Canadian Municipalities (FCM) estimates that Canadian cities suffer from a $123-billion infrastructure deficit in overdue upgrades alone—unfunded sewer improvements, road repavings, transit expansions and the like—plus another $115-billion in absent funding for the new infrastructure essential to accommodate projected growth. This isn’t just a problem for Canada’s older eastern cities, either: the Canada West Foundation estimates that $63-billion worth of infrastructure is needed in western Canada’s seven biggest cities, particularly Alberta’s, which are growing faster than any in Canada and will have to house most of the 2.5 million new people expected to settle in the province over the next 40 years.

Never has the city been more important to Canada’s—and Alberta’s—health, and never has it been so chronically cash-strapped. An FCM study by McGill University engineering professor Saeed Mirza found that 80 per cent of Canada’s infrastucture was at the end of its life expectancy. “Canada,” Mirza said, “has a serious infrastructure crisis.” And the road Alberta’s overburdened cities are sputtering along is pockmarked with more and deeper financial potholes up ahead.

“When you look at the City of Calgary’s forecasts for what’s going to happen to our revenue and expenses over the course of the next decade or so,” says Mayor Nenshi, “it becomes apparent that this is not a theoretical discussion. This city, and every other city in Canada, is going to hit the wall within the next decade in terms of no longer being able to fund the things that people need, using the sources we have. And we’ve got to figure out how to manage that.” The funding gap between municipal governments and their federal and political masters, Nenshi argues, is “the real fiscal imbalance in Canada.”

Here’s a quick snapshot of the wall Nenshi’s describing. It begins with the fact that municipal governments receive just 8 per cent of the total tax revenues collected from Albertans. Even property-tax revenues—the primary source of municipal government funding—flow almost as abundantly to the province as to City Hall: the Alberta government receives 43.5 cents out of every property-tax dollar. In 2011 property taxes covered just 39 per cent of Calgary’s expenses, with the rest generated by the sale of goods, services and various user and licensing fees. (See the charts on pp 32 and 35 for a fuller accounting of municipal cash flows.)

From the eight cents out of every tax dollar that Alberta’s cities receive, they maintain more than 50 per cent of the infrastructure their residents use every day. The biggest month-to-month operational costs are police and fire departments, public transit services and road maintenance; the major capital expenses are transportation (everything from repaving vital commuter arteries to maintaining sidewalks and bike lanes), drinking water management, wastewater management and public transit.

In the increasingly urbanizing years from 1955 to 1977, infrastructure spending in Canada rose by 4.8 per cent each year. From 1977 to 2000, however—even as the cost, complexity and importance of urban infrastructure grew—infrastructure spending plummeted, growing by just 0.1 per cent annually (far slower than inflation). The majority of Canada’s public infrastructure—fully 59 per cent—is now more than 40 years old. We’ve entered the urbanized digital age riding the infrastructure equivalent of a console TV with rabbit ears on top. In Alberta’s cities, citizens get by (and get around) mostly on a tired network of equipment and services designed and built in the Lougheed years for half the number of users. Small wonder that the chief complaint about everything from transit to hockey rinks is that there simply isn’t enough of the stuff. And our howls of protest are directed at civic politicians lacking the authority needed to improve the situation and upgrade the gear.

Nenshi again: “I’m mayor of a city that has more people than five provinces, yet I have the exact same legislative authority as any village of 30 or 40 people. And that has to change.”

There’s never a single reason for a problem of this depth and complexity, of course, but in the case of Canada’s money-starved cities, there is an original sin: the British North America Act of 1867, the nation’s founding document. Barely any place in Canada could presume to call itself a city when the Act was written, and so the BNA Act enshrined into law a kind of paternalism that pervades intergovernmental affairs to this day. Nineteenth-century Canadian municipalities, far too unsophisticated to handle more complicated taxation, were given the authority only to control property taxes, out of which they were expected to cover the costs of basic services such as garbage collection, sewerage, fire fighting and policing. For more sophisticated infrastructure—highways, hospitals, schools, recreation centres, mass transit and museums—cities were left to wait for the provincial or federal governments, or beseech them to dole out grants.

Property taxes, Mayor Nenshi wrote in a recent Calgary Herald column, are “one of the worst forms of taxation ever designed.” When I asked him why, he provided a more nuanced explanation: “The very good thing about the property tax is that it’s a very stable form of taxation. It doesn’t change much when the economy changes. But that is actually precisely because it’s so unfair. And it doesn’t take into account the ability to pay.” It’s a tax on what you own rather than on what you earn or spend, so it is unmoved by either boom or bust.

The province sets the agenda for urban infrastructure. For every new ring road, there’s an LRT line waiting decades to receive funding.

Maybe the most perverse logic embedded in the funding for Alberta’s cities is that it punishes civic success. As cities grow—which Calgary, Edmonton and Fort McMurray did with reckless abandon for much of the last decade—the droves of new workers attracted by their dynamic local economies fatten provincial and federal coffers with income taxes, GST and user fees. Cities, though, actually pay out more than they bring in, since building new infrastructure costs far more than cities earn back in property tax, and the new growth further burdens their older infrastructure and hastens the need for refurbishments and upgrades. A City of Calgary study estimates that Calgarians pay out $4-billion more in provincial taxes and $10-billion more in federal taxes each year than the city’s residents get back in provincial and federal grants and services. That’s $14-billion in lost local tax dollars—almost five times the city’s $3-billion annual budget.

Alberta’s Municipal Government Act, passed in 1968, was intended to respond to the evolving needs of this province’s rapidly urbanizing population, but it has turned out to be far too blunt and weak an instrument. Among other problems, it’s an imperious, top-down, one-size-fits-all approach to municipal affairs, predicated on the notion that a piece of legislation that is used to address the growing pains of the city of Wetaskiwin (pop. 11,000) could be capable of troubleshooting in the city of Calgary, which absorbed about four Wetaskiwin’s worth of new residents in 2006 alone.

Canada’s great philosopher queen of urban life, Jane Jacobs, attacked the property tax problem in her final book, Dark Age Ahead (2004). In a chapter scathingly titled “Dumbed-Down Taxes,” she described property taxes as a “very minor taxation… responsive neither to ability to pay nor to economic expansion.” Raise property taxes to keep pace with growth, and you wind up forcing established residents to move. (Think here of the proverbial little old lady in the bungalow where she’s lived all her life, watching her property tax skyrocket as her pension stays put.) The other option for cities is to slash services just as they’re most desperately needed, which is a tidy shorthand explanation for why urban Alberta’s homelessness crisis peaked in near-perfect lockstep with its years of most stratospheric economic success.

Jacobs: “Because city sources of public revenue are frequently inadequate to needs, so-called senior governments sporadically come to their aid with grants of public money and programs devised for using the grants. These resources are disbursed into many different localities, currently in many different situations, with unlike needs and dissimilar opportunities.” Edmonton gets a $600,000 roadside sculpture but only a garbled “probably” for the RAM; Calgary is denied new recreation facilities in the southeast. LRT construction lags in both cities, but it’s ring roads all around. Every Albertan gets a $400 cheque from Ralph Klein’s benevolent government one year, and only years later is someone (Nenshi in this case) impertinent enough to point out that the southeast LRT line would probably be up and running in Calgary by now if the $1.1-billion those Ralphbucks evacuated from the province’s budget had been invested in its largest city’s transit infrastructure instead.

There’s a vital government principle absent here. It’s a feature Jacobs called subsidiarity: “the principle that government works best—most responsibly and responsively—when it is closest to the people it serves and the needs it addresses.” When Jacobs warned of a new Dark Age on the horizon, her chief concern was that pillars of civilization such as subsidiarity—the ability of the money we give government to efficiently provide us with what we actually need—were collapsing, that indeed they may have fallen so fully away that the citizenry can’t even remember how they’re supposed to work. “Culture,” she argued, “resides mainly in people’s heads and the examples that people set, and is subject therefore to natural mortality.”

What might such a Dark Age look like? Might it begin with a public works funding regime so lacking in transparency and subsidiarity, so distant for so long from the people it claims to serve, that those people don’t even know which politicians to shout their enraged epithets at? A great many Calgarians, for example, blow gaskets at the mere mention of the $24.5-million Calatrava bridge. Rarely a discouraging word is heard, however, about the cost of the multicoloured concrete trout leaping sort-of-artfully along the abutments of the new Glenmore Trail underpass, nor how they got there, nor how they might owe their provenance to political choices made not in Calgary but in the provincial legislature.

The trout, for the record, are part of the same obligatory public-art spending that put the metal sculpture next to Whitemud Drive in Edmonton, and they are ultimately the products of the same far-off government that created the funding program that spun Calatrava’s tubular steel web across the Bow.

A Dark Age is not upon Alberta’s cities yet. But the moment is here for us to shake off our collective civic amnesia and demand subsidiarity now. The next boom is, by many reports, inevitable, maybe even imminent. The money will likely be easy again in Alberta, but it won’t make our cities great unless we insist that it do so. And the open question posed by the backward way we fund those cities remains unanswered. Do we intend to treat the 80 per cent of Albertans who live in urban areas as afterthoughts incidental to the province’s overall success, or as the vital primary engines of that success?

There are a great many small, effective ways to begin recalibrating our priorities. The province could give cities a portion of personal income tax revenues. It could give them the taxes it collects on gambling, booze and cigarettes. The federal government could funnel cities some of its gasoline excise tax revenues to build and maintain transportation infrastructure. Municipal hotel taxes—highly responsive to local economic growth—are another option, vehicle registration fees yet another. Albertans, against long-standing habit, could decide to embrace the idea of a “penny tax”—a single-point sales tax atop the GST to fund municipal infrastructure. (If the Conservative federal government hadn’t thrown out those two percentage points on the GST but instead handed the $13-billion per year they represented to Canada’s underfunded cities, we’d have already turned sharply away from that Dark Age ahead.)

There’s real appeal to many of these approaches. Most of them, for example, don’t require new taxes but merely reallocation of the taxes we already pay. During the recent PC leadership campaign, both Alison Redford and Doug Griffiths spoke favourably about creating a new “city charter”; such a deal would potentially free up civic governments to levy hotel and car rental taxes and introduce vehicle registration fees. Griffiths said he wants civic revenues to be more predictable and to remove the conditions that come with Municipal Sustainability Initiative (MSI) funding. “What I have said consistently is MSI… should be with very little strings attached,” he told the Edmonton Journal. “If the City of Edmonton or the City of Calgary or the City of Lethbridge decide they want to use MSI funding for a particular recreational area… they’ll be held accountable by their own taxpayers.”

From the eight cents that cities get out of every tax dollar, they maintain over 50 per cent of the infrastructure their resident use every day.

Now that Redford is premier and Griffiths her Municipal Affairs minister, the prospects for a new urban deal would seem bright. Just before Christmas, though, Redford took a sharp swipe at better municipal funding. “We saw in both the municipal budget process in Calgary and in Edmonton [that] what they’re talking about is an increase in spending and about possible revenue sources,” she told the press. “And their answer is: if we need more revenue we’ll talk to the provincial government. Well, the provincial government is not going to give you more money. You now need to be what you told people you would be… responsible stewards of the resources you have.”

This points back to the core problem. Under the current deal, the province—not the municipalities—calls the shots. The premier, not any mayor, is the final arbiter on the subject of what resources are available to cities. A hotel levy here or there isn’t going to right this imbalance. “This is tinkering at the edges of the structural financial problem we face,” says Nenshi. “At some point we have to face the fact, in every city in Canada, that there’s a need for comprehensive tax reform.”

Penny taxes and municipal improvement programs built on the provincial government’s gambling revenues don’t redress the misalignment of dignitaries in the room embodied by Canada’s original municipal sin. If the mayor’s office in Beijing requires a visiting Canadian mayor to stand several paces in front of his provincial counterparts, the BNA Act would oblige him to wait patiently in another room—sometimes for years on end—while the real VIPs decided the city’s fate. This won’t serve us well as citizens of Alberta’s first wholly urban century.

Chris Turner is the author of The Great Leap: How to Survive and Thrive in the Sustainable Economy (2011). He lives in Calgary.