Winnipeg begins to wonder if it TIFs too much
'Buy now, pay later' strategy poses opportunities and dangers for the city
Buy now, pay later is a great sales pitch for retailers looking to sell products to cash-strapped customers.
But it's not always the best financial strategy on the buyer side of the equation, especially if the consumer in question is a major Canadian municipality.
Elected officials at the City of Winnipeg are beginning to wonder whether they've leaned too heavily on a funding mechanism known as tax-increment financing, or TIF.
It's not exactly buy now, pay later — it's a bit more complicated than that — but it does involve using future city revenues to make projects possible today when those projects otherwise may not be financially feasible.
Traditionally, tax-increment financing is used as a means of stimulating economic development in undesirable, underdeveloped or otherwise blighted neighbourhoods. Property owners in those areas are often reluctant to invest in upgrades for fear of getting hit with higher property-tax bills after the improvements are made.
What a TIF does is allow cities to capture the additional tax revenue generated by properties that are improved and then do a number of things with that money.
The cash could be rebated back to the property owner, a move that effectively freezes the taxes of an improved property at the same level as it was taxed when it was not improved. A modified version of this mechanism has been used to stimulate the construction of residential housing in downtown Winnipeg.
Alternatively, the new property taxes could be spent on other amenities within a tax-increment-financing zone, such as better sidewalks, improved lighting or other infrastructure works. This is how TIF works in downtown's Winnipeg's so-called sports, hospitality and entertainment district, an 11-block area around Winnipeg's MTS Centre.
Less commonly, TIFs can be used by taking new tax revenue from one area to fund amenities elsewhere. For example, new property taxes generated by the former Canad Inns Stadium site in Polo Park — which didn't yield any property taxes when the stadium was still around — are being used to help pay for Investors Group Field, the newer stadium at the University of Manitoba's Fort Garry campus.
In all three cases, the city leverages future revenues to help pay for existing public and private projects, either by reducing their tax burdens — thus providing a better return on investment — or using future revenues to pay for amenities, debt or the projects themselves.
This effectively kickstarts construction in the short term. But in the long term, TIFs tie up property-tax revenue in specific projects rather than allow the new tax money to flow into general revenue for cities.
Winnipeg is at the point where elected officials are musing whether too much future tax revenue is already spoken for right now.
"That's the big question, isn't it?" asked city council property chair John Orlikow (River Heights-Fort Garry), who wonders whether Winnipeg has already mortgaged too much of its future to pay for projects now.
During the Sam Katz administration, a growing city reliance on public-private partnerships — construction projects where private companies pay for infrastructure upfront on behalf of the city — led the city to place a cap on what are commonly known as P3s.
Orlikow said it may be time for Winnipeg to consider a similar cap on TIFs, which are no longer used only in blighted areas.
"We're going to have a conversation about TIF in general. Do we cap it and how do we do that? It's easy for a council who is elected (on a) four-year cycle to say 'Yeah, we'll TIF it,' but again, what happens in X amount of years, when we TIF the whole city and there's no new tax revenue coming in?"
This is not just an abstract concern for the City of Winnipeg, where property-tax revenue is the single largest source of municipal revenue. In 2016, property-tax revenue will cover 52 per cent of the city's $1.05 billion budget.
The risk for the city is siphoning away too much of this revenue if TIFs are applied too liberally.
"We can't TIF everything," said Mayor Brian Bowman. "These have to be very focused initiatives. They can't just be across the board. We simply don't have the resources to TIF everything."
Bowman said he's mindful of the fact Winnipeg's TIF policy is focused on specific geographic areas. While he is correct, those specific areas can not accurately be described as blighted neighbourhoods in need of economic-stimulus mechanisms.
The downtown sports, hospitality and entertainment district, for example, includes valuable commercial land south of Portage Avenue. The former Canad Inns Stadium site sits within one of the city's most desirable big-box retail districts.
The challenge for the city moving forward is to use tax-increment financing judiciously, if not sparingly. There will always be a temptation to buy now without considering the payments later.
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