Why Calgary’s mayor says spending billions on infrastructure is more crucial than ever given economic woes

via CBC News  By Scott Dippel

‘Many would argue that the building of the convention centre … is actually by pure luck perfect timing’

Calgary’s mayor has been saying for the past couple of months that his city has been hit harder than any other metropolis in Canada.

Its people have been coping with a pandemic, the economic fallout of COVID-19 and a global oil price crash, due to a spat between OPEC and Russia.

But Naheed Nenshi insists the city must push ahead with the core of its economic strategies. That includes getting on with building the Green Line LRT project and spending more than $1 billion on various major projects in the years ahead — such as the entertainment district in Victoria Park.

CBC News asked the mayor about his plans to stay the course, even if those plans run counter to common sentiments.

Calgary catches up

Q: There are people in Calgary today saying we can’t afford to spend billions on city projects like the Green Line, BMO Centre expansion, a new arena, a new field house, Arts Commons expansion, etc. They’re not all saying we’ll never build such things, but that we need to pause for now until we know more about our finances going forward. How do you respond to that?

A: I take a different point of view. In cases like this, the evidence has shown that we’re all Keynesians in a situation like this. In other words, when interest rates are extraordinarily low — that money is essentially zero per cent right now — and you’ve got huge unemployment problems and people need to get to work, this is actually the very best time to build infrastructure. You know, for many decades in Calgary we played the cycle the other way. So we didn’t build infrastructure during bad times, exacerbating the unemployment, and then when we went to build in good times, it was really expensive and we were competing with the private sector for that labour.

So in my mind, a project like the Green Line, which is estimated to create 20,000 jobs, this is exactly the moment that you want to be investing that way, and the bonus here is: you’re actually building stuff we need. You know, pure Keynesian economists will say it actually doesn’t matter what you build. You could dig holes and fill them in again. It’s just about getting money into the economy. I take a different view which is: we have a giant infrastructure deficit in the city and this is our opportunity in times where prices are low and people need work.

Q: But that also carries with it an assumption that the Calgary level of growth that we’ve seen in let’s say the last 50 years is going to continue. What if the scenario changes, that either Calgary grows much more slowly in the next 20, 30, 40 years or it just flattens out?

A: Well, then we really will get a chance to catch up because a lot of this infrastructure is needed, has been needed for a very long time. You know, people in southeast Calgary have been waiting for rapid transit for decades. The ring road is 70 years in the making. So these sorts of things really give us a chance to catch up. That said, the broad trend in the world is a trend of urbanization, and I don’t see that changing. I think that cities that offer an attractive quality of life will continue to be magnets for talent, will continue to grow, and that piece around offering a decent quality of life will be the key differentiator.

And that’s really what we have to work on right now because increasingly, borderless talent, young people but not just young people, are choosing cities because of their proximity say to natural resources because they can start their businesses and invest in different kinds of places. They’re choosing cities based on those intangibles as well as the overall quality of life. That’s what we’re investing in here. And, you know, you’ve heard me say it millions of times, but the fact that we are called the best city to live in the entire Western Hemisphere is a giant calling card. And that’s what we’re going to be using to continue promoting growth.

Can Calgary pay for it all?

Q: You’ve long spoken about our dependency as a city on property taxes as the way of funding things. But without any of that structural change that you’ve long sought actually happening, what do you see in the near to mid-term with our city’s finances — if now property values drop, if people can’t afford to pay their taxes, businesses fail. Where’s the money going to come from, or are we just going to borrow it?

A: Well, no, we’re not just going to borrow it because, of course, cities can’t easily run deficits. So when you think about the operating side of the business, you know the good news is that we’ve created a system where we are able to provide high quality services with the lowest taxes in the country.

So that gives us considerably more buffer room than other cities may have. But this really is a very serious problem. Property values fall, the tax rate automatically adjusts itself. That’s just how property taxes are calculated. You know, no surprise to hear me say I think property taxes are incredibly regressive, incredibly unfair and probably the worst way to tax people’s activity. But it’s all we’ve got.

Now the real concern for me is the second part of your question which is: what if businesses fail? What if the business side of the property tax, which is just under half of all the property taxes we pull in, if people are just unable to pay or we have far fewer businesses and the rate goes up for everyone? This is the tax shift situation that we’ve been dealing with for the last several years and we could see that multiplied much larger. And that’s a very serious concern.

Q: And if that scenario does happen, how can a city cope with that?

A: You know ultimately, this really is an opportunity for us to proceed more strongly with the conversation about structural reform. There are absolutely better ways for cities to fund themselves. We don’t have to look far. Even in the United States, cities have far greater breadth of revenue-generating tools.

And ultimately we do need to reduce our reliance on the property tax. If we don’t and we have a situation where we just do not have much of a business sector to raise taxes from, there’s only two things to do. One is really have unsustainable increases in residential property taxes. Nobody wants that. And the other is you have massive cuts in services. And when you’re dealing with a budget that is 75-ish per cent in police, fire, 911, transit and roads, nobody wants that either. So ultimately, economic growth has to be part of the solution.  But this really is the time to talk about structural reform as well.

Trouble in the downtown

Q: In a post-COVID world — because we hope that science will find that vaccine — what do you perceive for our downtown if even the existing companies that are there want more of their employees to work from home so that they can just save money on leasing less space?

A: It really is anybody’s guess as to what is going to happen. A lot of people are prognosticating that work from home is going to become much more normal, that a lot of these companies will start pulling back on their space. And certainly we’ve seen a couple of large tech firms suggest that they’re going to work from home permanently.

However, I’ve also heard the opposite. I’ve heard from a number of businesses: you know, we went to this kind of workplace 2.0, this very open concept, no walls, squeezing more people into less space and we’ve determined that’s not good for the health of our employees. So, in fact, we’re looking for more space to try to go back to a world where the employees are a little bit more separated in their work.

I believe that we will — and my crystal ball is no better than anybody else’s — but I believe what’s going to happen is we will determine that there is a real value to people interacting face to face. That’s really what a lot of Calgary’s economy is based on. I think employers will be more flexible, allowing people to work from home a couple of days a week, for example, when they see that productivity is OK.

But largely, they’ll keep the same space. But like I say, my crystal ball is as foggy as anyone’s, so we have to be prepared for any eventuality. My guess is that human beings by their nature are social creatures and tend to revert back to the way things used to be. So that is my guess, but that will play out not over a few months but over many years.

Pushing ahead with entertainment district

Q: On the entertainment district, if you have the public money as the anchor — the new arena and the convention centre — but if new hotels or new retail and other features of an entertainment district are not as sustainable in this market as we thought they were in the past, does that vision now need to be recast?

A: The good news about the culture and entertainment district work is that the financial projections are very, very, very conservative. That the public investments in the BMO Centre and to a lesser degree in the arena actually balances over a period of time with very little additional investment. I wanted to be very conservative in those forecasts. All of that said, of course we want more investment and ultimately that is when you really get into the black on these investments.

So it is an interesting question. Many would argue that the building of the convention centre — the expansions to the BMO Centre — is actually by pure luck perfect timing because by the time that thing is ready to go in 2024-2025, most forecasters say that’s precisely at the moment where the convention business will really take off, as people are making up for lost time for what they lost in 2020-2021. So here’s hoping that we actually managed to time that reasonably well.

The arena is an interesting question as well. At what point will we be able to return to big gatherings of 20,000 people in one indoor space? I think that’ll be sooner rather than later. But again, that project will be several years in construction as well. So hopefully we actually have it timed nicely, through no fault of our own but through a little bit of luck, as we’re looking at the forecast going forward.

Q: But the whole economic environment for it seems to have changed. Are you worried about the retail and hotel pieces, in terms of being attracted to the district if the market isn’t as strong as projected pre-COVID?

A: I am. I certainly am and in particular when we think about hotels, you know, my family comes from the hotel business and I have never heard numbers like a three to five per cent occupancy rate, which is what hotels are looking at right now. I think that particular business is going to take a good while to recover. But I do also think that, given what we have, the assets we have for our travel and tourism industry, everything going on in the city as well as the natural surroundings, our tourism industry will come back.

It’s just a matter of what will be the damage between now and then in terms of hotels and other tourism businesses not able to make it through the inert time. So the worst-case scenario for the culture and entertainment district is you sort of have Stampede Park and the arena and the expanded convention centre sitting as they kind of sit now in a neighborhood where you could have more investment. But at the end of the day, we don’t really require that investment in hotels and restaurants to make those projects work.

Ultimately, we want to have a really vibrant streetscape around those projects. But the worst-case scenario is that it would look much like it does now. As we’re timing this out, you know, even if someone makes the choice to build the hotel in that area, that’s still three, four years of construction. And one thing we know for sure is that the world will look completely different when any of these buildings open, versus today.

Building now better than building later

Q: And, of course, back to your jobs argument, it means you don’t delay these things now. Our timing could be very good and we get the jobs in the meantime which we need. So let’s proceed?

A: Very much so. You know, the same argument works for private infrastructure as for public. Look, for example, at two big skyscrapers in downtown Calgary, Eighth Avenue Place. What you want to do when you’re building a building like that is you want to build it when costs are low and vacancy rates are high and you want to finish it and lease it when vacancy rates are low. And when you look at Eighth Avenue Place, that was built on spec.

There was no anchor tenant when that building was built. And when it opened to the market just as I became mayor, that was a point where our vacancy rates really dropped and they were able to lease that 100 per cent of that building at very very good rates. So ultimately even the private sector tries to time things in the way that I’m talking about. Build it when it’s cheap. Operate it when you need it. Ultimately nobody knows what’s going to happen. You know, the world has moved unbelievably fast.

None of us would have expected we’d be here two or three months ago and none of us really know what the world is going to look like in two or three months from now.  But we do know one thing, which is our job right now is to squash the virus. Up until there are treatments or a vaccine, the single best thing we can do is ensure that the spread of the pandemic in the city is as low as humanly possible.