Earlier this week, our Priorities and Finance committee received a troubling update on how new community growth is impacting the City’s finances. It is bad news for Calgarians, who can expect a tax increase, utility rate increase, and/or decrease to services to cover a projected $56.9m shortfall from new community expansion.
Growth is complicated. What are the highlights?
Council approved 14 new communities on Calgary’s edges (greenfield)
This is in addition to 27 actively developing communities
Council already committed $537 million to these 41 communities
Housing demand is declining because of the economy
We now have more land than required to meet demand, so new communities will be slower to build out
The City must pay to service these communities and Council policy is that levies collected from development are supposed to cover the costs to the City as the communities build out
Slower build-out means slower financial return to the City
This causes the $56.9m shortfall that must be made up through tax/rate increases and/or service cuts elsewhere
The City is expanding unsustainably, meaning we must provide services over a larger area, at the same time as we are already cutting police, fire, transit, roads, parks, recreation facilities, social supports, and other City services because of the Downtown tax shift and the provincial budget
This is a classic example of less butter spread over more bread, and it is happening at the worst time
Let’s get into more details…
New housing starts are, unsurprisingly, 18% lower than expected a year ago. The City is expecting 41,300 new housing starts between 2019 and 2013, but this forecast is now 9,300 homes lower than it was in 2018. Across the city, Council approved funding to service 14 years of supply for single/semi-detached housing and 24 years of supply for multi-residential housing.
Tell me more about how the 14 new communities affect this?
The slowdown is happening at a time when Council rejected City Administration’s expert advice and approved 14 new greenfield communities all at once. In addition to already developing communities, we now have even more land supply for new community growth than the market can absorb at a time when demand is decreasing.
These, and the other new communities, already required a 2.15% property tax subsidy paid by all Calgarians for 2019. In 2020-2022, there will be an additional 0.4% increase for already developing communities. This contributes to a roughly $537 million expenditure to the City for new community growth. Rather than review our finances holistically, Council, with the exception of Mayor Nenshi and myself, supported this subsidy outside of our normal budget process. Because the lower demand is now being spread out over more supply, new communities will be slower to complete, meaning the City will collect lower development levy revenues to offset the subsidies. This translates into the City having to cover more costs for longer.
What is the new financial impact to the City and to me?
We are projecting, by 2022, a $56.9m shortfall to the City. This is in addition to the previously approved tax subsidy. The shortfall impacts transportation projects, community services such as fire, and utilities such as water. To cover the shortfall, we may need to further increase taxes for all Calgarians, increase utility rates, and/or cut services. Administration indicated that there may be the potential to delay some City expenditures in new communities, but this can only go so far.
We already know 2020 utility rates will increase as a result of the shortfall. This amounts to a 1.6% increase to wastewater collection and treatment rates, on top of the already approved rate increase of 5.1%. Thankfully, this particular change will not have much of a dollar effect on Calgarians in 2020 because other rates are decreasing. Expect more increases to come in future years.
Shouldn’t we have seen this coming?
This is frustrating because it was predictable. When Council made the decision to approve all 14 new communities at once, I recognized that we were providing more supply than the depressed market demand could meet. I also saw that the communities would cannibalize demand between themselves, and between already developing communities, slowing all of their build outs. I voted against approving all 14 because I anticipated that this decision would result in a revenue shortfall and further financial challenges for the City.
Perhaps most frustrating is that the greenfield development industry is actively pushing for the approval of further new communities. As financially irresponsible as it was to approve all 14 new communities at once, approving more should be out of the question at this time. Especially during an economic struggle, we should be doing even more to maximize the use of existing infrastructure, rather than adding new and then cutting services in existing communities.
We need to, again, learn from these mistakes and make smarter growth decisions in the future. Growth must pay for growth.