I was gobsmacked when people started phoning me earlier this month to tell me the City of Whitehorse was announcing a $55 million spend on not one, but two large new buildings.
Fellow citizens seemed equally shocked, judging by the jokes that flew around afterwards. I received an email entitled “Artist’s rendering of new Whitehorse city hall.” When you opened it, there was a photo of Queen Amidala’s cliff-top palace from Star Wars. Another joke picks up on the double-building concept, saying “This will be great for tourism; India only has one Taj Mahal.” And referring to the mayor’s claim the megaplex will be “tax neutral,” someone remarked that the Tax Fairy would pay for it.
The first reason I was surprised is that, having heard rumours in October that the project was moving through the bureaucratic obstacle course at city hall, I downloaded the mayor’s last budget speech from January. I also read the city’s slick “budget consultation” completed a few weeks ago. Neither mentioned the project and its $55 million price.
When we all filled in the city’s web survey on various minor topics like the snow clearing budget, did the mayor and administration know they were about to drop their $55 million bomb on us?
The mayor’s January budget speech is important since it announced tax hikes that, it now appears, will strengthen the city’s finances so it can pay for the megaplex. If you look on page 29 of the city’s latest annual report you’ll see that they ran an annual surplus in both 2012 and 2013.
The 2014 tax hikes will have increased revenue further. Page 10 shows how the reserves, or cash in the bank in colloquial terms, have risen rapidly from $15 million in 2010 to $27 million in 2013. Are these reserves paying for part of the project? Is the plan that our future taxes at the raised rates will pay back the $29 million in borrowing required for the megaplex?
One city insider told me what they have been doing with the city’s finances was on purpose for the megaplex. If so, why didn’t the mayor mention this in his budget speech or the budget consultation?
The second reason I was surprised is the economy. The mood at the Yukon Geoscience Forum recently was gloomy thanks to the collapse of exploration spending. Of our three operating mines, one isn’t actually operating and the other two have announced layoffs or shift reductions. Gold prices are down sharply. Many private sector people are working reduced hours or not getting raises this year. Statistics Canada’s latest numbers say the Yukon economy had the weakest performance of any province or territory in the country in 2013.
Generally, it is not considered wise to spend and borrow heavily on real estate unless you are pretty confident in the future economic environment. There is a non-trivial chance this project will end up as a “lessons learned” case vignette in some future public administration course, describing how a small city in a resource region went into big debt just before the bottom fell out of its local economy.
The third reason is how city council asked publicly a few weeks ago for the resignation of Brad Cathers, minister responsible for handing out cash to municipalities with infrastructure projects. This seems an odd way to get the Yukon government to spend some of its transfer payments on the project, lightening the tax burden for citizens. Indeed, the existence of this project, if known to the Yukon Party cabinet, may have reduced the chance that they would give money to the city for affordable housing or other programs. If the city can afford the megaplex, they might have thought to themselves, it doesn’t need any help from the Yukon government.
I’m not sure how this plan is going to fly politically for the politicians supporting it. I have to admit that as I read the 278-page megaplex report on the city’s website, I was reminded of Margaret Thatcher’s quip that the Labour Party campaign manifesto was the longest suicide note in history.
So, we citizens have to figure out what we think of the megaplex. Is it a big-budget tax-and-spend extravaganza, committing us to a generation of higher taxes just as the economy does a nosedive? Or is it a wise plan with good long-term economics that no previous mayor and council had the vision and gumption to push forward?
The megaplex report was prepared by at least eight consulting firms and is full of impressive-looking analysis and recommendations.
The megaplex may be the right choice, but that’s not the main point. The big point is that this project is big, risky, involves borrowing $29 million and was not mentioned in the budget consultations. We as citizens will end up paying the price if the experts are wrong.
The price will be paid in all the things we don’t get because the money was spent on this project. I talked to one city official who told me it was already clear in the corridors of power that the megaplex would be sucking up budgets from other city programs “for the next 10 years.”
The price may also be paid in higher taxes, if the experts turn out to be too optimistic in their conclusions that the megaplex is the most economical option in the long run. That $55 million in the end comes out of our pockets, whether it comes from reserves generated from past taxes, gas tax funding that could have been used for something else, or loans that future taxpayers have to pay back. That works out to over $5,000 per household, and could be higher if there are major cost over-runs or higher than expected borrowing costs.
I don’t recall the mayor’s or any councillor’s campaign platforms telling us they were going to raise taxes over several years and build a megaplex.
In Alaska, citizens get to vote before committing to huge debt-financed projects. We should do the same. City council should not sign a single contract about this project until they have held a binding citizen vote on it, or been re-elected next fall.
Disclosure: I own a house in Whitehorse and pay property taxes. My family uses facilities like the Canada Games Centre that may be affected if the megaplex negatively affect other city programs and services. And I am a user, donor or board member for four of the 11 community groups negatively affected by the city’s recent decision on property tax grants for community groups (and this column is my own opinion and does not speak on behalf of any of them). I also volunteered on the mayor’s campaign in the last election.
Keith Halliday is a Yukon economist and author of the MacBride Museum’s Aurore of the Yukon series of historical children’s adventure novels. You can follow him on Channel 9’s Yukonomist show or Twitter @hallidaykeith