Using the Power of the Market to Shape Efficient Urban Growth

Reading recent accounts of Council’s reluctance to endorse, even if only in principle, the City Treasurer’s recommendation to begin the study of an “area rating” system for the calculation of development charges (DCs), I was struck once again by how shallow and unsophisticated deliberations by Council have become.

A fully developed area rating system, a potential tool in the growth management toolkit, would be an approach firmly grounded in the recognition of the power of the market in influencing development and locational choices.  The other pole in the continuum of growth management techniques is, of course, the status quo – the planning regulation approach, which causes so many of our councillors such extreme distress.

Now, to be clear, Mr. Hayward is NOT recommending the study of a fully-developed area rating system.  It is but the first tentative step in that direction. But, with area rating, comes the acknowledgement that DCs should at least attempt to reflect the true cost of providing urban goods and services as they vary with location, land use, building type, density, and proximity to existing urban infrastructure.

With the planning regulation approach, cities, via their planning departments, attempt to shape and manage growth through policies and regulations. 

What both approaches have in common is the acceptance that, within the urban growth boundary at least, there are MORE efficient and LESS efficient places in which to grow our city, and that this growth needs to be properly staged in order to make it affordable for taxpayers.  As has been said elsewhere, “Growth is good, but not all growth is equal.”

We can try to drive growth to the more efficient places and away from the less efficient places by trying to regulate where it can occur, or by using the power of the market to send the appropriate price signals to accomplish the same goal.

People who know me will understand that I don’t, generally, have great difficulty accepting the use of regulatory means to accomplish sound public policy outcomes.  Accommodating the future growth that is absolutely necessary for the future prosperity of this city within a more strategically-determined and compact urban footprint – with all of the economic, social and economic efficiencies this will bring – fits within the parameters of “sound public policy”, at least in my mind.

Readers are well-advised to review the ReThink London discussion paper on a compact city, in which the costs to taxpayers of three models of growth are costed over the next fifty years.  The costs are truly staggering.  We’re talking billions of dollars.

So, having said that, one would expect that I would be firmly on the side of the planning regulation approach (let’s regulate our way to future prosperity through urban growth because I don’t trust the market to do what’s right) and, say, someone like Councillor Van Meerbergen would be strongly supportive of market-based approaches (let’s get the planners out of the way and let the market do what it does best).  This is where it gets confusing….

My own views on the most appropriate way for us to efficiently shape urban growth to fit the legitimate needs of this city – that, is regulatory approach vs. market-based approach – are, well, evolving…. 

I say this because I’m having difficulty getting past a simple and increasingly obvious fact:  despite at least twenty-five years during which smart and progressive urban planners (many of whom run the planning departments in large Canadian cities, including ours) have attempted to use increasingly complex planning regulations to shape and manage growth in the ways most affordable to the public purse, things aren’t improving much, if at all.  Sprawl isn’t being contained.  Intensification targets aren’t being met.  Residential and commercial development still leapfrogs.  Prime agricultural land on the fringe of the city are still being consumed by greenfield development.

So, I’m getting closer and closer to Councillor Van Meerbergen’s position that we might have to learn to harness the power of the market to accomplish sound public policy outcomes. Except that Councillor Van Meerbergen has since vacated that position.  He voted against Mr. Hayward’s recommendation to study this market-based approach – along with the Mayor and Councillors Swan, Polhill, Armstrong, Orser, Henderson, D. Brown and White. 

Interesting, no?



London Councillors support Arva Shirkers

It’s not often I’m left gobsmacked by the actions of Council.  The actions of the members of the Built & Natural Environment Committee LFP story here, at its meeting of August 15, 2011, have left me asking this question:  Exactly whose interests are the committee members serving in this?

The storyline is quite simple:  BNEC has recommended to Council that Arva be allowed to increase its wastewater flow into the city of London system to allow the hamlet to construct another 185 homes, effectively tripling in size.  These 185 homes represent increased assessment for Middlesex Centre in the amount of about $45 million and, given that planning staff feel these homes would have been built within the city limits of London in the absence of sanitary sewer capacity in Arva, the loss to London taxpayers is the property tax that will be paid on this $45 million of new assessment.  Our Mayor’s oft-repeated homily that he can hold property tax increases to zero by increasing assessment growth in the city is only potentially true if the assessment growth happens inside the city.

Residents of Arva pay their property taxes to Middlesex Centre – a fact of which we should hope the members of BNEC are aware. Our Mayor is certainly aware of this.  Arva is where he lives and his property taxes are payable to Middlesex Centre, not the city of London, even though he certainly consumes his fair share of London services.  As does Clr. Henderson, who also lives outside the city and pays his property taxes to Middlesex Centre.

Clr. Swan, who is bright enough to get this, reassures us by touting the benefits of a “shared regional services” model, a concept he surely doesn’t understand. The model, as practiced in other jurisdictions at least, is predicated on the notion that there will be a “win-win” for all the parties involved.  Having London taxpayers subsidize the opportunity for consumers of London services to shirk their responsibility to pay their fair share by living just outside the city boundaries and paying their property taxes to someone else is hardly a “win” for the taxpayers of London.

Where I do agree with Clr. Swan is that the proposal is indeed “innovative”. But the creativity here accrues to Middlesex Mayor Al Edmonston and his peers in selling a proposal to London councillors that fleeces London taxpayers.  Clrs. Swan, Denise Brown, Polhill and White should be ashamed of themselves.  They should have stopped checking their email or playing Solitaire on their desktops long enough to listen to their staff on this one, as the lone dissenting voice, Clr. Baechler, was doing.

Clr. Swan’s feeble attempts to shore up his argument (they would build it anyway, we’re going to get a share of the assessment growth, and so on) are mildly offensive.  The servicing arrangement – yet to be negotiated – MAY include a payment from Middlesex Centre to the city of London equivalent to our development charge rates for water and sewer, and it MAY include a fee based on total wastewater flows to cover operational costs.  It may even capture the full cost of processing this wastewater.  But there is an iron law for pipes in the ground: every pipe has a certain capacity; once it is full, it needs to be either twinned with another pipe or replaced by a bigger pipe.  This type of work is expensive.  Very expensive.  And when these expenses arise, either in the wastewater treatment facility itself or in the pipes running to the facility, it will surely be London taxpayers footing the bill.

Every single gallon of Arva sewage that comes down that pipe displaces a gallon of capacity for London sewage that will, at some point, be generated by houses built in the greenfields in the north end of the city, occupied by persons paying London property taxes.

If Clr. Swan were truly a creative thinker, he would give some thought to the substantial uncharged benefits gained by the legion of shirkers who make a conscious decision to avoid paying their fair share of the London services they consume every day by choosing to live outside of the city, while continuing to work and play in it.  London, like all regional centres, has a fiscal problem that is exacerbated, in some measurable and substantial way, by the daily activities of these shirkers.  When Mayor Joe or Clr. Henderson drive in to work each day at City Hall, (and the same is true for the thousands of other commuters who enter the city each day to work or play), they do so on roads for which they do not have to pay and which they incrementally degrade in their travels.  When they take a shit at their place of employment, we pay for its processing.  When citizens fall through the cracks in the tiny economies of these small towns, when they find themselves homeless or have mental health issues, they come to London, where services are available, paid in some part by London taxpayers, and the economy is large enough to provide opportunities.  When London taxpayers forked out some $30 million to construct the new Oxford St. bridge a few years ago, London taxpayers in the Riverbend community certainly benefitted from easier access into the city proper, but so did thousands of residents of Strathroy, or Komoka, or Mt. Brydges entering the city for work or play.

People should be free to live wherever and however they wish, but they shouldn’t be free to expect others to subsidize their freedom to live where and how they wish.  Freedom isn’t free.

So here’s an idea for Clr. Swan to try on for size.  If he is truly interested in capturing London’s “share” of regional assessment growth, made possible by the heft of the London economy in the local regional economy, let’s look at a municipal income tax.  It’s quite simple, really, and fair to all: a payroll tax (for the sake of this argument, let’s say 5%) based on employment income earned within the city), which is remitted to the City of London and recorded as a credit against the property tax account of each ratepayer, or as a refundable credit for renter-residents.  It is tax-neutral for residents of the city.  For those non-residents who are accessing the city on a regular basis, and anyone who is working in the city but living elsewhere is travelling to the city regularly, it represents a fair share payment for the city services they consume.  They may continue to live where they wish, as they should be free to, but they will no longer be insulated from the financial costs of their locational decisions.

Now, to be fair, I’m just spit-balling here.  There may be other and better ways to do this, but let’s not reward people who avoid their responsibility to pay their fair share by making it easier for them to do so.