City-developers feuding over infrastructure costs

Mayor scrambling to salvage legacy says developer rep

After years of explosive growth in population land development and debt in Calgary city council is about to open a can of worms – its $1-billion debate about who should pay for water and sewer infrastructure in new communities.

On one side is the mayor who after giving property developers a sweet deal for years is now demanding that developers carry their weight by paying for infrastructure. On the other side are developers who want the cost spread over several years. Caught in the middle are taxpayers who have for nearly a decade paid for suburban sprawl — and now new homebuyers may get dinged $10000 extra for their new homes.

The issue is coming to a head because a five-year infrastructure agreement between developers and the city is about to expire. During the existing agreement water and sewer infrastructure debt has soared to $1.5 billion — more than half of the city’s total $2.9-billion debt. Without a new arrangement the $1.5-billion debt will grow to $2.5 billion by 2018. And as it now stands one-third of property taxes goes toward paying the city’s debt.

With the existing infrastructure deal expiring at the year’s end Mayor Dave Bronconnier and several aldermen are pushing hard for changes. “This is important for the long-term financial viability of this city” he says. “This is $1 billion at stake.”

Simply re-signing the deal would “bankrupt” the city’s utility says the mayor.

“From the city’s perspective short term we’ve got to get the developers to pay for the cost of suburban growth” says Bronconnier. If we don’t do this people’s water bill will see double-digit increases from now over the next decade — every year double-digits.”

But developers warn that if the cost to them isn’t spread over three to five years (a timeline Bronconnier scoffs at) they will simply pass the cost onto new homeowners which will inevitably increase Calgary home prices.

“These extra costs all end up on the doorstep of the consumer at the end of the day” says Michael Flynn executive director with the Urban Development Institute. “That point tends to get lost.”

During the past year several groups including homebuilders developers top city officials and the mayor have met several times to set guidelines to hash out a new deal. Last week the city’s finance committee approved the guidelines which city council is to vote upon July 19 — the final council meeting before October’s civic election. Ald. Druh Farrell points out it’s better to handle the issue now — not after a new council is elected — because rookie aldermen could be strong-armed by developers.

Meanwhile the director of the city’s water resource department says the escalating utility debt is “getting serious” adding “The interest keeps piling up so we would really have to adjust rates.”

The city ended up $1.5 billion in the red from a deal between the city and developers 10 years ago (deals are signed every five years) that ultimately went “badly” for the city’s water and sewer department says Wolf Keller. Faced with “major transportation issues” the city signed a deal in which developers paid for new roads and the city paid for water and sewers.

But a decade of explosive population and development growth coupled with high inflation during the boom saw Calgary borrow “beyond what’s really prudent” says Keller. Every Calgarian owes $768 an amount that is set to pass the $1000 mark later this year and exceed the province’s debt-limit regulation. “What that translates into is that we would be able to borrow less than we have been in the past” he says adding the city could run into problems when borrowing for future infrastructure.

Developers want the city to lobby the province and the federal government to share resource and gaming revenue — an unlikely scenario given the current fiscal realities facing those governments.

Developers don’t support the report that is going to council Monday. Flynn says it’s one-sided and the city chose to ignore key advice from his industry. “It is a gong show” he says. “It’s a very confusing report in the way it was ushered through.”

Small-to-mid-size developers already struggling to raise capital won’t be able to compete if they have to pay for infrastructure costs says Flynn. “Unless you’re one of the larger companies and can actually bankroll the development with this extra levy then we’re probably going to see some companies go out of business” he says.

New development creates immigration which has several positive economic outcomes including an increased tax base says Flynn. “When you look at all the associated economic benefits of new growth then the calculation becomes grey” he says. “It’s just healthy for the economy; if you’re not growing you’re dying.”

Bronconnier frames the debate in black-and-white terms: Either users pay for the cost of new development or taxpayers continue to pay. “You want a single-family big home out in the suburbs you should be able to buy that” he says. “But you shouldn’t ask somebody else to subsidize your lifestyle — it’s that simple. Why should a person living in a condo in the Beltline have double-digit water and sewer rate hikes to subsidize suburban growth?”

Flynn says the mayor who is just months away from quitting his job is trying to salvage his legacy. “Unfortunately for him we do have a legally binding contract where we have until the end of the year to negotiate this thing” says Flynn. “I guess for him it’s a piece of his legacy that he’s trying to make it look like he’s fixing the infrastructure deficit problem.”

Email: thowell@ffwd.greatwest.ca