Updated: September 11th, 2013.
"Responsible" borrowing is a regrettable but necessary tool for big cities.
Since I began door-knocking in April many voters have raised the issue of our city’s debt. Many are worried about "frivolous spending" and our ability to pay it off.
On a personal level, I’ve always been uncomfortable with debt. As soon as I’ve had it, I’ve wanted to get rid of it.
But sometimes it’s necessary. My wife and I have a mortgage and I’ve had student loans. My wife and I both work professionally. This is responsible debt with low interest rates, taken on by people with capacity and a plan to repay it.
Sometimes it’s not necessary. In my first year of college I signed up for a Visa. I used it to buy a stereo. I was working 5 hours a week at the YMCA. This was irresponsible debt with high interest rates.
There is a big difference between responsible and irresponsible debt, on a personal level but also municipally.
Responsible debt has low interest rates, a source by which it will be repaid, along with a plan and timeline to repay. The wise use of debt can actually save taxpayers a great deal of money over the long term.
For example, if city councils had, in previous decades, spent accordingly on infrastructure like LRT and recreation centres, our city could have saved hundreds of millions of dollars (not to mention alleviate a lot of the frustration Edmontonians feel today).
Luckily, Alberta municipalities have the advantage of low interest rates at around 3%. And these low rates remain the same over the entire borrowing term. You can read more about the City of Edmonton Debt Management Fiscal Policy here. (it explains how we pay for debt and the kinds of debt financing that is allowed). The Municipal Government Act also provides debt ceilings for municipalities, which Edmonton is well below, albeit close enough that caution is merited.
However, the current tax structure is set up to unfairly burden municipalities. Over 60% of the infrastructure in the country is paid for by municipalities. However, they only receive 6 cents for every tax dollar! The rest remains in provincial and federal coffers.
Additionally of the $1.6 billion in industrial property tax collected in Alberta, 94% is collected by rural counties- home to only 18% of Alberta’s population. The majority of people living in those counties then use towns and cities for services, entertainment, arts, culture, post-secondary and healthcare services. This creates cost impacts on city infrastructure and emergency services. Like I said, it’s an unfair structure.
So this leaves us to build our growing and more ambitious city with some debt financing.
You can see a list of projects funded by tax supported debt here. I would be interested to know which projects citizens feel were frivolous or unnecessary.
I hope to be part of a council committed to continuing to build Edmonton. We need to build, maintain and repair our basic infrastructure by using tax dollars and debt responsibly, and only when necessary. I am also ready to work hard to organize with other municipalities for more equitable partnerships with our regional, provincial and federal allies. Until we achieve modern tax equity “responsible debt” is a necessary tool for cities.
Everyone has a stake in well-financed, well-run cities. Cities drive our economies and provide exceptional quality of life for the citizens of Alberta and Canada.
Update: Sept. 13, 2013
Mayor Mandel requested a report from the City Administration on Edmonton's current debt. The report can be view here.
I am concerned about the rhetoric around debt in this election. Edmonton's ability to maintain a strong economy and to retain and attract creative, educated and well trained professionals depends on our commitment to building and maintaining modern and functional infrastructure. As I write above, our relationships with our regional, provincial and federal counterparts leave us with little choice other than to use debt to provide this necessary infrastructure. Comparisons to Americans cities and their financial woes are foolish and misleading.