How a Bridge Closure Can Spark Better Financial Decisions by Local Officials
This article was originally published, in slightly different form, on Strong Towns member Michel Durand-Wood’s blog, Dear Winnipeg. It is shared here with permission.
Today is the one-year anniversary of the day the city of Winnipeg, Manitoba, suddenly and indefinitely closed the Arlington Bridge, having let it fall into disrepair because it didn’t have the money to repair or replace it.
Time to, um, celebrate?
Like I mentioned at the time, this wasn’t the first piece of infrastructure we had abandoned, nor would it be the last. In the 12 months since then, the city has also announced the closure of the Portage & Main concourse, Happyland Pool, Windsor Park Pool, Eldon Ross Pool, plus 20 more wading pools.
Yeah, I heard the sad trombone too.
And sadly — but in no way surprising to anyone who has been reading my blog for any amount of time — according to a news article referencing the mayor last week, “the City of Winnipeg is heading into a 2025 budget cycle with few good options when it comes to delivering all the services the city offers, building and maintaining infrastructure and replenishing a rainy-day fund that was depleted during the pandemic.”
It’s easy to feel depressed about it all, but sometimes, the Universe throws you a bone.
In an interview back in October, the mayor said, “It’s no secret that Winnipeg, like every other city in the country, is dealing with financial challenges.”
That’s quite a departure from when he was campaigning for our vote two years ago, when he told Winnipeggers that “our biggest challenges are short term and especially on the operating (budget) side.”
Today, there’s finally recognition that our financial problems run much deeper. The city is no longer “talking about trying to get funding for bells and whistles of legacy projects,” the mayor said in a speech to a roomful of lobbyists on October 22. “We’re talking about funding for basic services.”
In trying to explain why we’re in this mess, he went on to say that “the City of Winnipeg has to wait until the pipe’s in the ground, someone comes in to build a widget-making factory, builds their building, and the assessed value of that property goes up and they start paying property taxes.
“Our return of investment on an economic investment takes years and years to begin to recoup.”
Oooh, so close, yet somehow so, so far!
It’s crucial to understand that what the mayor is describing here is actually a cashflow problem, not a revenue shortfall. It’s not something that requires any new revenue at all, much less a whole new “revenue model.” It just requires debt. And the judicious use of debt to smooth out delayed cashflows from capital investment is precisely what debt should be used for.
Making investments that take many years to pay off is common in the business world. Take True North’s proposed redevelopment of the Portage Place mall, for example. They were spending money on due diligence even before committing to the project. And they’ll spend hundreds of millions more over several years — most of it borrowed — before their first tenant ever pays them even a single dollar in rent.
In the words of the mayor, their return on investment will take years and years to begin to recoup.
And yet Mark Chipman’s company could keep doing this forever, getting wealthier and wealthier every step of the way.
So why is it different for the city? Why is it getting poorer with each passing year?
The difference is that Chipman makes sure his investments are profitable. That means the financial returns will be high enough to cover not only the interest and principal on the debt used to finance it but also future costs like maintenance, wages and eventual replacement, with some left over for profit.
The mayor, on the other hand, is proposing that the city borrow money to invest in the widening of Kenaston Boulevard, which a cost-benefit analysis showed would provide a return of 1.4%. Meanwhile, the city’s latest bond issue has it paying 4.65% interest on its borrowed money.
That’s the actual issue. Not that our infrastructure investments provide “delayed” returns, but that the returns they provide don’t even cover the interest on the debt, much less any principal, maintenance, wages, eventual replacement, or any left over to fund “bells and whistles” elsewhere in the city.
In other words, it’s not a cashflow problem, it’s an insolvency problem. And mixing up those two — deferred returns and negative returns — is a fatal mistake.
But it would be short-sighted to blame this all on our current mayor. He’s just the latest one left holding the bag.
For nearly eight decades, we’ve been investing in a development pattern that costs more to maintain and service than it returns in taxable economic value. And when the chickens came home to roost along the way, we just doubled-down on another round of outward expansion using the same unproductive development patterns, hoping the new growth would pay for the old growth. And again, and again. You know, the same way a Ponzi scheme works.
Instead of investing in infrastructure and development that enables more car-centric, segregated-use, all-at-once-to-a-finished-state greenfield growth, we need to invest in making our existing neighborhoods into walkable, bikeable, transit-friendly places that allow for gradual intensification through mixed-use infill.
Not because we prefer them, but because those are the profitable investments for a city. Just ask any city that’s bothered to do the math on it.
Here in Winnipeg, our net financial position — a type of liquidity-solvency measure for cities — currently sits at negative $1.2 billion. It’s been steadily worsening for decades.
Unsurprisingly, the eight years Gillingham has been mayor (or finance chair before that) have had no impact whatsoever on this trajectory. Because actually reversing that trend to improve our financial position would require us to change how we grow by changing the types of infrastructure we invest in and the types of development we allow and encourage.
That’s why the proposed zoning changes that the Winnipeg City Council has been hard at work discussing this week are so encouraging. Let me catch you up.
Last year at this time, the council approved changes to its federal funding application in order to access $122 million of Housing Accelerator Fund money to help create 14,000 housing units in the city over the next three years. The Feds had made the funds contingent on Winnipeg making some changes to its zoning bylaw, and this was the city pinky-promising that they would make them.
By doing that, Winnipeg committed itself to the following “Rapid Zoning Changes”:
Allowing residential development to happen on mall properties and on commercial corridors (like Marion Street, Henderson Highway and St. Mary’s Road).
Allowing up to four units to be built on any residential property in the city.
Allowing up to four stories on any residential property that is within 800 meters of a frequent transit route.
So here we are, 12 months later, and the council is now headed into a vote on the first of those items. The other two will be dealt with in March 2025.
Yes, that’s considered a “rapid” zoning change in city terms.
And although the vote hasn’t yet happened (the meeting is into its 18th hour over two days as I write this), the mayor has signaled his support for the changes. That’s very encouraging.
And if that passing vote does happen today, I can’t help but appreciate the sweet sense of cosmic justice that, on the one-year anniversary of the closing of a major piece of city infrastructure, we take a first step toward rectifying the root causes of that closure. Thanks for the bone, Universe!
Learn more about municipal finance from Michel Durand-Wood in his 2024 Local-Motive session “Parsing Through Your Local Budget to Find Some Real Answers.”
Michel Durand-Wood lives in the Winnipeg neighborhood of Elmwood with his wife and three children. He writes at DearWinnipeg.com, a really fun blog about infrastructure and municipal finance. He has no formal training or education in city planning, municipal finance, infrastructure maintenance, or anything else he talks about. He's just a guy, in love with a city, asking it to make better use of his tax dollars.