City financing: thoughts from the peanut gallery

I am going to tread on other peoples' turf here. There are other pundits who are more knowledgeable about City financing than myself, like this guy and this guy. However I am still compelled to chime in because I don't believe this pony has been flogged quite enough. We have been hearing and reading about "new deals" and calls for a share of the PST and whatnot for years, but the whining from the Mayor for more money continues, and is sure to continue as long as the City of Winnipeg is dependent upon the province for funding.

Incidentally, I was just watching feeding time on the falcon cam, and it struck me that it very much resembles the relationship between Sam Katz and the Provincial government.

Yes, we could cut a new deal for a share of the PST or some other revenue stream from the province, but wouldn't it be better if the City wasn't dependant on the province at all? When any organization is responsible for funding itself it tends to be more responsible with its money. This is true with people and this is true with governments. You need look no further than our provincial government and it's free spending ways as evidence of that.

How would you like it if the City could fund itself AND decrease property taxes? While the City of Winnipeg is squawking and begging for Mother Broadway to tear off hunks of it's revenue and stuff it down it's gullet (okay, maybe the falcon metaphor isn't great), the City is collecting close to half a billion dollars a year for the Province. Education is a provincial responsibility, but it is funded in part through property taxes collected by the cities and municipalities. I do not know why it is the way it is, but I suspect it's just one of those things that seemed like a good idea at the time and nobody has ever bothered to change it.

This blog post is certainly not the first time that somebody has suggested taking education off the property tax roll, but each time it seems to be shrugged off as some unobtainable pie-in-the-sky idea. The political landscape in these parts, both at the provincial and civic level, has been devoid of bold ideas for far too long. Perhaps it is time to take this concept a little more seriously.

Transfers to the City from the Province in 2009 totaled $187m (both operating and capital). As mentioned, the City collected $474m in school taxes for the Province. If the Province funded education in its entirety and dropped the transfers, the City would have room to increase property taxes to fund itself and still able to reduce the overall property tax bill. In fact, they could increase their revenues by $250m while still reducing the tax bill. No more complaining about not getting enough money from the province to fix roads!

The PC party needs more votes in Winnipeg if they want to form the next government. This issue could be a winner for them. Vote for us: we will reduce your property taxes! Of course, that leaves the Provincial government with a $287m hole to fill, but giving up a point of the PST would be almost as painful. Stop me if I'm out out to lunch here, but if we need to increase funding to Winnipeg this is the best way to do it, plus it simplifies the education funding situation:

We elect trustees for each school division who have the task of setting a budget. While the Province imposes various requirements on them and does not give them the autonomy to close underutilized schools, they also cannot raise the mill rate or else the Provincial government will punish them by withholding their "tax incentive grant". They are between a rock and a hard place. That would no longer be a problem if everything was funded centrally.

If $287m is too big of a pill for the Province to swallow, they could always reduce but not eliminate the education property tax. Have a smaller fixed mill rate for education but still eliminate transfers from the Province to the City. Provincial funding will no longer be driven by what provides the best photo op. No more whining to the province for money and no more sharing the spotlight with a grinning Premier when the ribbon is cut.

Do you want another helicopter? Fund it yourself. Too many pot holes? Fix them yourself. Is the traffic snarled all the time at the new IKEA? Increase taxes by a quarter point and build a bloody overpass like you should have right from the start. You have control over your own revenues. You get the credit. All you have to do is justify it to the tax payers -- as it should be.

School taxes collected by the City:

2008 $465m

2009 $474m

Transfers to the City from the Province:

Operating Capital Total

2008 $135m $53m $188m

2009 $123m $64m $187m

http://winnipeg.ca/finance/files/2009AnnualReport.pdf

Watt kind of a deal is this?

Are you shocked and concerned that Manitoba Hydro is selling electricity to the U.S. for barely 1/3 the price that we pay here in Manitoba?

most of Manitoba Hydro's export sales last year were made on the spot market and sold for an average of 2.37 cents per kilowatt hour, down dramatically from 2008-09 and a fraction of what Manitoba homeowners pay. -fp-

You shouldn't be too concerned because spot market prices change, and we could be selling it for much more next year. Look at this as a blip. What you should be concerned about are the long term deals that Hydro is negotiating, and don't be surprised if the "locked in" prices are shockingly low. The hints are already on the Hydro web site:

• The extension of our existing contract with Xcel Energy was signed for 'close to' $3b for 375-500 mW of power for 10 years. This works out to about $0.068 / kWh. No additional generating power required.
  
• The new contract signed with Wisconsin Public Service is also for up to 500 mW of power, but it is for 15 years, will require new hydroelectric facilities and the bipole III line, but is only anticipated to be worth 'over $2b'. This works out to something more in the range of $0.03 / kWh

Although the details need to be worked out, what it looks like is we're selling 5 more years of power for almost $1b less than what we're currently selling to Xcel.

I don't know how much the Keeyask dam will cost, but Wuskwatim will cost $1.3b (if all goes well I assume) and it only produces 200 mW. I need to do some ball-parking here, but since Keeyask is a much larger dam (695 mW) I will guesstimate that it will cost as least twice as much ... say $2.6b. bipole III will cost $2.2b. How are we going to get our money back on this $6.1b investment? By selling our power for 3 cents?

If we sell our power to Wisconsin and to Minnesota Power (15 years, up to 250 mW) at that rate, the present value of that revenue using a modest 5% discount rate is only $2.08b. Using a 3% discount rate we'll break even after 100 years. With a 3.5% discount rate we never get our money back.

Of course it's much more complicated than that, but all I'm doing here is what we in the biz call a "sanity check", and to me the numbers aren't adding up. At the very least we can get a sense of the risk that the whistle-blower chick was talking about.

*****

I took issue with M.A. Welch's statement in the paper that the east side bipole III route is "less green". I've suggested on this blog before that incremental line losses from the west side could have displaced coal power in the U.S. thereby eliminating 500 million pounds of CO2 pollution each year, or potentially much more.

I emailed Mary Agnes, who sent me a thoughtful response conceding that perhaps she could have worded it differently, but pointing out that all the environmental groups support the west side. My response (in part):

I'm not sure that every environmental group agrees the west side is greener. The ones that I've seen take a position on it -- Boreal Forest Network, CPAWS, etc. -- have a mandate to protect the forest. They may not be ambivalent towards pollution and global warming, but to them cutting down trees will trump the waste of 50 MW of power, even if the waste of power is more significant in the larger view.

I have difficulty accepting that any objective environmentalist could advocate the waste of that much power, and I maintain that picking the west side route has nothing to do with saving the environment. If you want to know what it's really about read my last post on this subject.

Long form census

Canada must be a pretty damn boring country if the big issue of the month is scrapping the mandatory long form census. Still, while it might be a dry and esoteric subject, there is some significance to it. The significance is not just in the potential loss of accuracy in the data, or increased costs of collecting the voluntary surveys that will replace it; but in the bigger picture about how people view the government. Anytime the government implements a policy that costs more money, with explanations that don't make any sense at all, people get suspicious and cynical; and start hypothesizing about alterior motives -- very much like the Manitoba government and their unjustifiable direction regarding Bipole III.

Let me paraphrase some of the arguments:

Tony Clement: "We are scrapping the census because Canadians are complaining about the intrusion of their privacy."

Office of the Privacy Commissioner: "Uh, no, actually. We've only received three complaints in the last decade."

Tony Clement: "It was a recommendation from Statistics Canada. If it's good enough for them, why isn't it good enough for you?"

Statistics Canada: "Uh, not quite... You asked us for options, and that was the least recommended of the options we gave you."

Let's let Maxime Bernier get in on this:

The state does not belong in the bedrooms of Canadians and Canadians must have the freedom to choose if they want to answer it.

Trudeau? Really, Maxime, you're going to pull a page out of the Trudeau playbook?

Then there was Dean del Mastro, who "has taken a number of statistics courses" in his life. Dean explains that, in fact, voluntary data is used all the time, and through the magic of random sampling, can be quite accurate within know parameters.

Hey, I've got a riddle for you: what has two thumbs, a green avatar, and has also taken a number of stats courses?

...

Me. It's me you idiot.

Maybe that would have worked better if you could see me. Anyhow, Dean is quite right of course ... voluntary surveys are used all the time. Money is spent and decisions are made based on the results of those surveys, and there is a whole science concerning the design of questionnaires and surveys, and the accuracy and biases therein. So why can't it be used in place of the long form census?

Well, for one, it's going to be more expensive because it's going to go out to more people. Also, if asking 1 out of every 5 people personal questions is wrong, is asking twice as many people personal questions not wrong?

There is also a question about potential biases: when response rates drop, accuracy becomes more questionable. With the sensitive nature of some of the questions on the census, one might expect response rates to drop significantly. This is more problematic when the response rates vary between different demographic groups. You might be able to adjust for that in some cases, but the long form census itself is one of the key sources for collecting that demographic data, and therefore is very important.

To me, this decision by the government is puzzling and disappointing. They still have failed to properly explain it, choosing instead to make unprovable claims about privacy concerns, and playing up the fear factor about soldiers smashing down your door and throwing you in the gulag if you don't fill it out.

My answer to them is this: if some of the questions on the long form are too personal and have outlived their usefulness, then change those. Shorten the form a little bit. Have a little chat with Stats Can and say, look, is this particular question really necessary? But you've lost this battle, and anything you say at this point will just make you look more foolish. Not only that, but Michael Ignatieff could run over a baby on his bus tour and nobody would notice because of this stupid census squabble.

Or maybe that's the point ... keep the press's attention turned away from Ignatieff's BBQ road trip, even if it means making a bad decision and creating a whole new wave of cynicism in the electorate.