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Arsenic, cyanide or strychnine.

For some time now, I have been making the argument that the municipal finance system we have for cities in Canada is a failing entity, an agent of slow necrosis that was particularly exposed by the pandemic.

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That has left cities in increasingly precarious circumstances, forced into a game of “pick your poison” to raise taxes (or fees), cut services or compromise on infrastructure.

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Here in Edmonton, as in many municipalities, the city is most heavily relying on option one at the moment, which is why residents are now staring at the prospect of an 8.7 per cent property tax hike this year.

If council approves the number in upcoming budget meetings, my research suggests it will be Edmonton’s second largest tax hike in at least 30 years — behind only the 11.9 per cent jump that came amid the economic recession of 2008.

But wait, that’s not the only pain ahead. Taxes are proposed to rise another seven per cent in 2025, then 6.4 per cent more in 2026.

And what’s especially hard to swallow is that all this is mostly just to maintain the status quo. Edmontonians are paying more but not really getting more.

But wait, there’s another layer of torment, because the city also must find a way to cover a $40-million deficit recorded in 2023. This will involve dipping deep into the financial stabilization reserve, draining the emergency fund down to about one-half of its minimum balance.

That’s bad on two fronts. First, the fund is so depleted at this point that there is very little capacity to handle any other significant financial calamity.

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Second, by law the city is mandated to return the reserve to its minimum balance within three years, which will likely require an additional one per cent tax increase beyond the hikes already proposed.

In short, the situation is grim, and that doesn’t even mention the news that the city doesn’t have the money to renew its aging bus fleet.

How city finances soured

Before we get to what council might do to manage all this, it’s first worth a short recap of how we got here.

To be sure, some of this is due to council’s own self-inflicted wounds. Everyone likely has a different opinion on where spending went wrong, but my own view tends to focus on some overindulgent infrastructure choices.

Debt-servicing is the second biggest line item in the city’s operating budget — nearly on par with police funding — and I think this council could have avoided some pain by delaying or scaling back new recreation centres, as one example. Different choices on developing Blatchford may also have been prudent.

Upheaval among the ranks of senior management likely hasn’t helped either.

That said, much of the hardship to befall this council has come from things beyond the city’s control. We are still living with the effects of the pandemic. Revenue from transit and tourism has not yet fully recovered. Homelessness, social disorder and drug poisonings have skyrocketed.

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The city has also seen massive population growth that has strained city services. High inflation has persisted, driving expenses for utilities, fuel and labour well beyond what was expected. And more union negotiations are on the horizon.

Meanwhile the provincial government, despite a few helpful moments, has generally made life harder for the city by squeezing municipal revenue, neglecting its health and housing responsibilities, and underfunding infrastructure — and is now even trying to interfere with the city’s access to federal funding. With friends like these, who needs enemies?

Only bad options

Either way, much of this council has talked for awhile about the need to make tough choices. Now councillors can’t avoid it anymore, so what actions should they take? 

Though proposed tax hikes are already about as high as we’ve ever seen them, one potential idea is to go even further with a tax increase of, say, 12 per cent or even 15 per cent this coming year, before returning to more normal rates.

This would stabilize the city’s finances for a while, but it would also likely be political suicide, and would not exactly help struggling Edmontonians in housing precarity.

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Alternatively, the city could try raising revenue through other means. How about increasing transit fares to $5, or charging $30 for a day pass to a recreation centre?  Fines for bylaw violations could be jacked up. Or the city could start charging for parking on all neighbourhood side streets.

Maybe it’s even time to resurrect Coun. Michael Janz’s idea of a mansion tax?

Frankly, I can’t see any of those ideas as palatable, though hikes to taxes and fees can be more easily sold if the public sees council is also working to cut costs.

On that front, I see a need to take a harder look at infrastructure spending. Unfortunately, most of the big projects council has funded — recreation centres, the Yellowhead Trail upgrade, LRT lines — already have signed contracts and are too far down the road to postpone or cancel.

Then there is of course the $100-million bike lane expansion, which many readers would target for cancellation. That could potentially be done, but be aware that shelving it would have a negligible impact on taxes.

Moreover, the bike lanes are probably going to be helpful in coming years. Edmonton’s road network will be unable to handle its growing population, and it will be far more expensive to expand it than building bike lanes.

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And that’s really the issue with compromising on infrastructure. If the city continues to grow at 50,000 people a year, existing amenities will be subject to increasing strain. Cutting infrastructure creates a different kind of deficit, and only serves to push construction into the future when it is more expensive.

Cutting staff and services

As for the operations budget, the city also has a range of unpleasant options.

The biggest single line item is police. But cutting the cops after just approving a budget hike would make council look foolish, and would be sure to draw the ire of the provincial government, Downtown advocates, transit riders and others.

An alternative, which council has already started, would be to stop funding social services, housing and health interventions that should be the responsibility of other governments. But those governments aren’t likely to pick up the slack, which means more pain for vulnerable residents who are already enduring too much.

Other ideas seem equally fraught. Scaling back transit at a time when bus ridership is growing? No more grass-cutting? Reducing snow-clearing work that already seems under-resourced? Good luck with any of those.

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Away from the front lines, I know some readers have a perception that Edmonton has a bloated layer of middle managers, planners, communicators and so on. The city’s cost-saving initiative, known as OP-12, has already dealt with some of this, and more will probably have to be done. But the bloat is not as extensive as some think, and further cuts will soon start to hurt services.

So if you were in a council chair, which of these ugly choices would you pick, and what consequences would you be willing to accept?

My own view is that council is going to have to touch all three areas of taxes, services and infrastructure, and it’s going to hurt. People will be upset. Political fortunes could be mortally wounded.

Accelerating the tax base

As well, the city does need to grow its property tax base more quickly.

Edmonton is perhaps the last major city in Canada where owning a home is still within reach, which offers big potential, as long as people aren’t eventually deterred by high taxes and overstrained services.

All the people coming here should improve the tax draw, but housing construction has been sluggish, which leads to a dilemma about development choices. This council has been laser-focused on infill, but there are pressures to again emphasize suburban expansion, which is probably the cheapest and most familiar path for developers and buyers.

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The question deserves discussion, but my hope is that the city sticks to its densification goals even though it’s going to be rough for awhile, because continued sprawl will only exacerbate long-term financial issues by making the city more expensive to maintain.

Either way, while certain external pressures such as hyper-inflation will eventually pass, there remains an underlying structural problem with the way cities are financed.

Simply put, the one major revenue source for municipalities — property taxes — is an inefficient and unsuitable mechanism to handle the increasingly complex social issues that cities are being asked to manage.

Sooner than later, higher levels of government must see the plight of cities like Edmonton as a call to action for a new funding and governance model, or else watch them succumb to their own self-administered toxins.

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