The city’s budget pre-season is done. Friday’s budget committee meeting of Halifax regional council brought the preparations for next year’s budget to an end, with council giving chief financial officer Jerry Blackwood and chief administrative officer Jaques Dubé their marching orders. The senior staffers will come back in a few weeks with information, suggestions and requests from the city’s various departments, then the work of finalizing Halifax’s 2022-23 spending plan can begin. And while it’s always hard to predict the future, this budget season is shaping up to be very interesting.
The tension is that the city has gotten into a tough financial situation, but HRM’s elected officials don’t want voters to be upset by the budget because there is an election in two years, and some of councillors are considering re-election. Broadly speaking, the politicians are trying to avoid the unpopular move of raising taxes, while maintaining—not cutting—the service levels we expect and rely on, from transit to garbage pickup to paying for substitute teachers for the Halifax Regional Centre for Education. (Seriously. Even though education is very clearly defined as a provincial responsibility, the city has been kicking money to the province for the HRCE since 1995.) Plus, Halifax just got more unplanned expenses thanks to the province downloading millions of dollars of asphalt liabilities to the city.
Make no mistake, the city is in a very precarious financial position. For a long time, the HRM was able to kick its fiscal troubles down the road because of its growth and the deed transfer tax. As fraudster Bernie Madoff proved, when money is coming in, times are good and it’s easy to hide looming financial shortfalls. But now, the money is not coming in, and we, the voters, are left holding the bag for decades of short-term, politically expedient decision making. And we’re all about to get fu-
A Ponzi scheme like Madoff ran is defined in the dictionary as “a form of fraud in which belief in the success of a nonexistent enterprise is fostered by the payment of quick returns to the first investors from money invested by later investors.” But lots of cities, whether they realize it or not, are running a version of the Ponzi scheme to fund development in the suburbs.
Strong Towns was the first to label suburban development as a Ponzi scheme. In the essay that identifies the grift of the suburbs, Charles Marohn writes: “What we have found is that the underlying financing mechanisms of the suburban era—our post-World War II pattern of development—operates like a classic Ponzi scheme, with ever-increasing rates of growth necessary to sustain long-term liabilities.” Essentially the city expands service and infrastructure in hopes that it will attract new people. And then hopes the new people will pay enough in taxes to cover the cost of the expansion. But it never does, because the suburbs are too inefficient to ever be financially sustainable. We ran out of growth in the past two years, and now we are stuck holding the bag.
It should worry residents of the HRM that the city has fallen for the myth of the suburbs and bought into the Ponzi scheme.
This year, as the early budget meetings rolled on, the city’s financial experts warned councillors that they are in for a rough year. A rough couple of years, truth be told, because Blackwood is projecting the already-sky-high prices of consumer goods and construction costs will continue to increase into next year (and 2024’s budget).
On top of the increased cost of being alive, the city is expecting far less money from the deed transfer tax. The city funds everything it does through tax revenue, but has very limited sources of that revenue. In Halifax, the majority of the city’s income comes from property taxes. The city also gets a piece of the action when land changes hands—by charging a tax on the transfer of deeds. When people are buying and selling property, which was happening surprisingly often in recent years, times are good. When the housing market cools off because we’re all broke due to inflation and we can’t afford to take out a mortgage because interest is high, the deed transfer tax dries up.
Now, if the HRM were sustainable, losing a bonus source of revenue should only impact bonus services. Since the HRM is not sustainable, losing the deed transfer tax means cuts to core services. This is why, on November 25, council told CFO Blackwood to plan for a 4% tax increase.
How is a proposed tax increase actually a cut?
The city is directing its business units to cut what they can cut and spend less money because “the city's Expenditure growth has outpaced tax revenues. This was only sustainable due to the surge in Deed Transfer Taxes and use of one-time funding.” Classic Ponzi scheme stuff. Even with these cuts baked into the financial outlook, an 8% increase in the residential rate was still required for the city to function; to pay for things like gas or heating oil or not shutting down Larry Uteck for a few weeks. Instead of giving Blackwood the money he needs, councillors instead told him to cut more.
But that doesn’t make any sense. I pay a lot of taxes.
But not enough—if you live in the suburbs. This is the crux of the suburban Ponzi scheme, and it’s a complex nexus of policies combining to create fiscal and environmental unsustainability. The suburbs are quite simply not financially or environmentally sustainable. (This article will ignore that suburbs also kill the planet because this article is about the budget.)
In 2013, Stantec Consulting put together a report for council on how much the various zones in the city cost to run. In 2013, it cost the city $1,416 to provide services to an urban home, while each suburban home cost the city $3,462. Yeah. More than double. City staff told The Coast that these exact 2013 prices are no longer accurate in 2022, but the cost to service suburban homes is still much higher than urban homes.
The reason it’s cheaper to service urban homes is that they are densely packed. Portland Estates Boulevard is about 1km long and has about 30 houses. The Coast office’s street, Maynard, has about the same number of homes in less than 200 meters. Residential roads are cheaper to build than the $3 to $6 million required to build 1km of highway, but if the city wants to pave Portland Estates Boulevard, only 30 property taxes are directly contributing to it. If the city wants to pave Maynard Street, about 1,000 property taxes and a few business occupancy taxes are directly contributing. And that’s true for every piece of physical infrastructure—the denser it is, the cheaper it is.
These economies of scale are also present in the more ephemeral pieces of infrastructure, albeit in less concrete (pun intended) ways. Activity programming can be scheduled more frequently in dense neighbourhoods—for instance, allowing more programming for less staffing costs.
But in spite of the higher costs to service suburbs, they are taxed at lower rates than urban areas. Currently, urban homes in the HRM are taxed $0.6260 per $100 of assessed value. Suburban and rural homes are taxed $0.5930 per $100 of assessed value. The reason for the difference, according to the HRM’s website, is sidewalk snow clearing.
But in reality, the suburbs get a lot more services than they pay for. Take transit, for example. In urban areas, there is regular bus service and bus terminals. In the suburbs, there is regular bus service and bus terminals. In rural areas, there are park-and-rides and things like MusGo Rider, which are municipally subsidized vans and buses that rural residents can pay a minimum of $7 out of pocket to use. And on top of that, one of the (many) reasons for Halifax Transit drivers burning out and quitting in record numbers is the unpaid three-to-four hours in the middle of split shifts where drivers have to get from one suburban route to another on the other side of the city without the use of their car.
In simple terms, people who live in the city pay more for less, people in rural areas pay less for less and people in the suburbs pay less for more. The suburbs, in fact, cost so much more and pay so much less that it’s an unsustainable cycle that, left unchecked, will bring the city to financial ruin.
Some other weird quirks are pushing the HRM toward financial ruin. Property taxes are capped by the province and go up based on the purchase price of the house. As mayor Mike Savage pointed out, his house, which he bought a long time ago, is still being taxed as though the value of his home has not skyrocketed. His property tax bill, he said, should be higher. If he were to sell his house at current market prices, the new owner would pay the taxes Savage should be paying today. As an added little cherry, this incentivizes people to stay in their homes, which could also further reduce the amount the deed transfer tax brings in.
But Savage also rightly pointed out that because the housing market is so inflated, bringing those properties’ tax rates in line with market value would financially ruin a lot of families who now rely on generations of suburban subsidies to stay afloat. That's why the province created its assessment cap system.
What is council going to do about this?
This is a hard question to answer, as most members of council don’t directly talk about the underlying issues in meaningful ways in public.
However, councillors broadly seem to understand they (and their predecessors) have dug the huge financial hole that we now find ourselves in. The number and severity of cuts required to maintain some semblance of municipal governance without a tax increase will drastically reduce the services we get from the city.
Councillors now find themselves caught between two absolutely brutal options. The first is to cut, cut, cut, and the city gets worse. Councillors will get punished at the polls for balancing the budget by making the city worse.
The second option is to raise taxes to sustainable levels, which will financially squeeze constituents. Councillors will get punished at the polls for balancing the budget by making life harder.
It is genuinely hard to predict what council will do about this. Even the politicians who are most conservative (small-c conservatives, or both small and big-C conservatives, in the case of Paul Russell) acknowledge that sustainability is important. And they seem to acknowledge that what the city is currently doing is not sustainable and that cuts alone won’t make the budget healthy. It’s less clear what they will do about it.
There are some little areas of optimism. Councillor Sam Austin asked the CFO to look at cutting money from street paving. And there’s a new budget process for the police that means they might have to cut like the rest of the city’s departments. These two things mean that previously untouchable budgets—roads and police—are starting to be treated the same as other “less important” city business units, like the library.
Truth be told, the best solution to this problem would be to have never built suburbs for the past 60 years. The next best solution would be to have taxed them fairly when they were built. But since the suburbs have been undertaxed for so long, suddenly raising the taxes to the required level simply isn’t feasible. The city likely needs to switch its taxation model—it’s been thinking about switching to service-based taxation (which would charge the suburbs fairly for their services instead of the current subsidized rate), but so far hasn’t done that.
And the real wild card in all of this is us.
One of the fascinating questions that always comes out of a major tragedy is “how did we let this happen?” How did normal people perpetrate such evil, such destruction?
Economist, journalist and super nerd Tim Harford attempts to answer that question in the most recent episode of his Cautionary Tales podcast. Harford uses an example from the Second World War when the Allies firebombed the town of Lubeck because the medieval wooden buildings would be extra susceptible to incendiary terror bombing. In the process of committing this atrocity on a city of no military importance, the Allies also destroyed the Church of Saint Mary’s (AKA Marienkirche), and afterward, a myth arose that the firebombings revealed murals that had not been seen since the 1400s. Even with definitive proof that the paintings are modern forgeries, complete with two fraud convictions, the official guidebook for the church states: “Gothic frescos of christ and saints add colour to otherwise plain walls. The pastel images only resurfaced when a fire caused by the 1942 air raid licked away the coat of whitewash.”
“We all want to believe in miracles,” says Harford in his podcast. “The miracle of Marienkirche shows us that even a democracy isn’t invulnerable to grand self-deception.”
And that is the secret to how humanity perpetrates its largest injustices. People want to believe, need to believe, that how we live is good and that it’s a net positive to the world, even if it’s not.
Even though Halifax is in a dire situation, there are still reasons for hope. No one yet knows what Blackwood and his team will propose in January. If council asks them to get us out of this hole and limit financial suffering, then they can give us a path away from the brink.
This requires acknowledgment of the severity of the problem and a massive amount of civic engagement. If we don’t want the city to fall off a fiscal cliff, we need to write our councillors and tell them to prevent this from happening (raise suburban taxes, you cowards). We need to tell them that if they do their jobs and do their due diligence, we are willing to make sacrifices to become a financially sustainable city. If COVID and 2020 proved anything, it’s that we can collectively come together and endure when we need to. We need to now. Because if not, the city of Halifax our children live in will be much worse than the one we live in today.
Will you do your part?