Bang for Buck

This morning I attended the Codrington breakfast (which was lovely, as always!), and had a lively conversation over pancakes and sausages about rural broadband and the critical role it plays in economic development and the livelihood of residents. It brought up the question of how governments decide how to spend public funds for infrastructure: do we prioritize those who are currently least-served, or do we seek the most efficient use of funds (or as we say about fireworks, get the “best bang for buck”)?

Ideally, we do both. In reality, that almost never happens. Efficiency almost always wins…but not always, and it’s worth breaking down when and how and why.

Market vs Government Spending

On matters like rural broadband, this question brings in the difference between public and private spending. Rural broadband is rare because it is infrastructure-heavy: connecting every rural household in Brighton would require hundreds of kilometres of buried cable to service the same number of people as live within a few blocks downtown. Private companies won’t voluntarily make that massive investment because it will take them decades to recoup the cost through the subscriptions of those few users, much less turn a profit. They find that fighting other companies for market share in urban areas is a better investment.

But governments aren’t motivated by profits. We want our residents to have access to amenities. We want our local economies to grow. The internet is critical to both: these days, it is common to hear people frame internet access as a matter of human rights, as it is nearly impossible to access the public realm OR markets without it. So it makes sense that we would invest in providing internet access to all residents, from both an equity and an economic development perspective. We will collectively do for ourselves what private companies will not.

This is the reason why core infrastructure is usually owned by governments. If we only got roads through what was profitable for private companies, major industries would have high quality roads with restricted access while residential areas would have toll roads as subscription services. The ability to get around should not be tied directly to economic productivity or power. When we build transportation infrastructure for everyone, business also benefits, but we all get more freedom of movement. I would argue that the same should be true of digital infrastructure, and I fully support the rural broadband project (in principle) as a public investment in critical infrastructure. (I will note that the broadband project is not something we pay for through our municipal budget – it is primarily provincial funds, in a public-private partnership.)

Efficient Spending, and Fairness

So if governments aren’t profit motivated, and are instead driven by fairness and universal access, does that mean that we can ignore efficiency? Well, it depends on how high you want your taxes to be.

Let’s stick with roads as an easy example. I just did a search for how much it costs to pave 1km of road, and got estimates ranging from $175,000 – $3.5M per km. Obviously that depends on the type, size, and quality of the road, but let’s ballpark it at $1M/km of road for the sake of illustration. There are roads in Brighton where 1km of pavement, or even gravel, serves a handful of homes and farms, which might see travel from ten people or less on a given day; whereas 1km of pavement downtown serves several thousand people on that same day. Obviously the road that gets more use will also wear out faster, but even aside from the increased demand for maintenance, it makes sense to prioritize the road that gets the most use if we have limited resources and are forced to choose between them. If our goal is to serve all residents, and almost all of them use the road downtown, then that road is of higher priority than a road that only a small handful of people use regularly and most people will not use at all. That’s just the most efficient use of spending.

Does that mean that we shouldn’t build or maintain rural roads? Not at all. But the standards we keep them to might be lower.

Is it fair to have different standards for different people?

Is it fair to make people pay for infrastructure they’ll never use?

These are the two questions we hold in tension whenever we look at public spending and infrastructure. I sometimes get complaints from residents that they don’t want to pay for things that they don’t use, usually from rural residents who are concerned that their tax dollars are paying for water and wastewater infrastructure that they don’t have access to. To be clear, water and wastewater services are paid completely separately from property taxes so that only those who use them pay for them. But aside from that, all public spending comes more or less from the same pot: so whether or not you attend free skate or play hockey, you’re paying for Brighton to have an arena; and whether you ever travel the last km of Goodfellow Rd. (as a random example of a rural road), you’re paying for it to exist and be maintained (at levels determined by the province).

Is it a fair use of public resources, then? Ideally, it’s a wash: we get tremendous value overall from our tax dollars, and even though a portion of your taxes goes toward infrastructure and services you don’t personally use, you’re still much further ahead than you would be if you had to purchase those services individually.

But we could break it down, if we wanted. I sometimes hear from rural residents that they pay high taxes and get little for them, so let’s compare. I’m sitting in an office on Main St right now, right next to Sobeys; I live about 1km away, and usually walk here. This morning I drive to Codrington and back, 14km each way. I really like going to Codrington, but I don’t need to go there; whereas we all need groceries, and those are found downtown (except when the farmer’s market is open in Codrington!). So for my daily needs, I use 1km of either road or sidewalk, vs 14km of road for someone coming down from Cod to get groceries. If roads cost $1M/km, and access to roads were broken down to a user-pay system to maximize fairness, my usage would be much less than the person from Cod; should they pay 14x more in taxes than me?

The reality is that rural taxpayers often pay much less: agricultural land is taxed at a much lower rate than other property, and all properties are taxed based on property value, with urban properties usually having a higher value (e.g., urban land is worth much more per acre, and urban homes often have much more demand and therefore higher prices). So rural property owners are often paying less overall in property taxes, but using many times more of the infrastructure that is paid for via tax dollars.

Does that mean I think rural taxpayers are freeloaders? Not for a minute. Because I believe in universal access, and as much as possible, universal standards. And I believe those things are worth paying for.

Scarcity and Investment

I’d love to have universal, and universally high, standards. Every road should be of excellent quality, every household should have equal access to services. That would be fair. But when it costs 20x more to service 10 people in a rural area than it does to service 1,000 people in an urban area, just as a function of distance and density, that ideal of fairness shatters and we default to doing the most good for the most people that we can. And that often doesn’t feel fair.

I get that feeling of unfairness. It also isn’t fair that the county seat for Northumberland is in Cobourg, and many county-level services are concentrated there. It isn’t fair that the biggest city in Ontario, which has the most resources of its own to pay for things that we couldn’t even dream of here in Brighton, also attracts the most provincial and federal dollars for infrastructure. It doesn’t seem fair that we’re paying for transit services in suburban Toronto (via provincial funding) when we don’t have regular transit routes in our own town. But an investment from the province there might serve 500,000 people a year, and our whole community is only ~13,000. It will always make sense to spend more money in Toronto than in Brighton, just as it will always make more sense to spend money downtown than in rural areas.

But Brighton still has needs, and still gets funding. And rural Brighton still has needs, and still gets funding. We just have to make sure that we’re spending all tax dollars strategically, aiming them at the projects that have the most utility for the people who will use them. We don’t need a four-lane highway in Orland, but we do need reliable internet access there. And if we want rural Brighton to provide value to urban Brightonians in the same way that urban Brighton provides value to rural Brightonians, us urban folks will support their economic development and access to services through our tax dollars, even if it seems an inefficient use of those dollars at the time.

Generational Fairness

We aren’t made of money, and even though we aren’t profit-motivated we still need to invest carefully. Big projects need to either be funded by taxes, or by taking on debt. The more debt we carry, the more tax dollars we give to banks to service the loans we need for those big projects. If we’re concerned about spending public money efficiently, the best thing we can do is agree to pay for major infrastructure investments through our property taxes, even through special levies for major projects (something I’ve never seen a municipality actually do, it’s terribly unpopular), rather than financing them and spending millions on interest.

Municipalities aren’t allowed to take on too much debt, and we aren’t allowed to run deficits. This is to ensure that we don’t go bankrupt. Nonetheless, we frequently use debt to avoid raising taxes when we have large expenses. Every time we take on a loan, the thing we spend that money on ends up costing considerably more over the long term. That often results in pushing costs onto the next generation, who will in some cases be paying the literal cost of the decisions we make today even after we are gone, both through long-term debt repayments and the opportunity costs of having reduced financial capacity over the lifetime of that debt.

Trade-offs

Does that mean that we should put off making big investments until we can afford it? Not at all. With infrastructure, which is what we spend most tax dollars on, delaying maintenance and replacement usually costs much more in the long run. When we run an “infrastructure deficit” to avoid running a fiscal deficit, it always costs more tomorrow than it would have cost us today. We’d be just as well off investing today with borrowed funds and paying the carrying cost of the loan. And as we’ve just seen, that cost can be quite high.

Does that mean we should focus on trimming the fat, so to speak, from public spending? Run everything on a shoestring budget, so we aren’t putting off major costs but we aren’t over-spending on anything either?

This is a particular trade-off that I pay a lot of attention to, because I find that I’m constantly faced with the cost of under-investing. Doing something half-assed is sometimes almost as bad as doing nothing at all. Take virtually any form of social services as an example, but let’s zero in on my personal focus: the cost of homelessness.

The social cost of homelessness is a figure made up of all of the costs associated with supporting people who are unhoused. Someone who lacks adequate housing is much more likely than anyone else to interact with police and by-law officers, courts, emergency rooms, social assistance programs, shelters, etc. All of those have big costs. And municipalities and the province spend more money on infrastructure-related costs in response to the presence of homelessness in a community (e.g., encampments, repairs to public infrastructure, temporary housing and programs, etc). A 2017 study figured that homelessness in Toronto cost the system as a whole about $60k per unhoused person per year. Even today, we can deliver supportive housing for less than half of that. But we’re told there isn’t enough money for more supportive housing, completely ignoring the fact that we’re spending more than twice the cost of that supportive housing to effectively keep those people unhoused. Under-investing is expensive.

So What Can We Do?

These trade-offs are not avoidable. The short of it is that we all deserve the best services possible, but we’ll get the level of services we’re collectively willing to pay for. The only way to pay less is to do less; there’s no way to put off or reduce expenditures for things that we need without it costing more in the long term. And there’s a significant opportunity cost to deciding to simply not do certain things: if we decide that rural broadband isn’t a priority for us, then our rural area simply won’t develop economically, and rather than being an asset to the entire community our rural areas will become sparsely populated and unproductive. We need to invest in all of our residents, to the extent that we can, if we want any of us to benefit in the long run. And the more we can pay for up-front, the less these things will cost.

All of which leads unavoidably to the conclusion (and I hesitate to even say this, but it is the logical conclusion) that paying taxes is not only something we owe to our community and each other, but it’s a good deal for us all. Investing in equal access to opportunity for our community will pay dividends; failing to invest in them will accrue long-term costs, both directly and indirectly. And the less we rely on debt, the better.

And if you’re not used to hearing this in an election year, I’m not surprised: I expect this is a hard pill for most of us to swallow (me included). But it is what it is. I think that all of our community is worth investing in, and I don’t want to be the guy who passed the buck to the next generation and/or presided over the decline of our community and/or missed golden opportunities for growth and better lives for residents.