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Fiscal Prudency in Urban Planning

By: James Jeff McLaren
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Opinion Piece On How to Keep the Tax Rate From Rising in the Long Term

Development applications for the city are like investment proposals for an investor. Both require resource to be invested with the hope of greater future returns. Development applications, like all investment proposals, should be subject to a rigorous cost-benefit analysis so that the City can grow and develop in the most, useful, beneficial, and cost effective way.

This is important because now that we have an urban growth boundary there is a limited amount of developable land and we should make sure that if the land is developed it be developed with the highest and best use. Development applications should now be thought of as investments opportunities the City may invest in if the financial analysis numbers and all the other analyses show it is a solid and sound investment. Like all good investors, we really should see a cost benefit analysis for the whole life of the proposed development. In this way the City can determine if an application is a net benefit or a net detriment to current residents’ tax burdens. This can easily be determined by comparing the tax rate of return over the life time of the investment with the total cost to the City’s budget from the investment. This is one way to measure and judge a development’s fiscally prudency.

This is doubly important because Kingston is a relatively high tax jurisdiction and our taxation level will only get higher if we do not start discerning prudent and imprudent investments. The old thinking that any development is good development has been shown to be not true. The fact is that development proposals fall into a spectrum between fiscally good and bad; between fiscally smart and not so smart.

We do not usually want development proposals that will need to be subsidized by the tax dollars of the rest of us in perpetuity. New development applications that would fail a fiscal cost benefit analysis would eventually drive up taxes for all of us if they were approved.

A cost benefit analysis should be rigorous but not onerous. The City has the current costs to the City of all expenses; the City calculates this and replacement and maintenance schedules as part of budget preparations. For most cost items, the costs from a new development would be proportion to the City’s currently existing expenses for that item. Summing up all the expenses in a new proposed development would give the current costs to the City as if the development were to exist now. By comparing this dollar value to the expected tax revenue we can determine if a development proposal’s yearly expenses would be paid for by taxes this year. Next we project costs forward and add the maintenance and replacement schedules for the project’s lifetime; we also project future tax revenue. By summing and comparing these two series we can see the net benefit or detriment to current city residents’ future tax burdens.

Some of the more obvious and direct future capital and operating costs for the city to consider are road lighting, street sweeping, and painting; snow clearing, public transit, landscaping, garbage collection and recycling pick up; crack filling, pothole filling, micro re-surfacing, road reconstruction and repaving. We also have the increased costs for fire protection, police enforcement, ambulance calls, as well as funding for more recreation centres, libraries, parks and other amenities.

Since sometimes the future tax revenue from a proposed development does not cover the future costs to the city and since the short fall is made up by raising the taxes on all the rest of us, a good principle of sustainable fiscally prudent urban planning should say: each new development should pay for itself over its entire existence. I believe applying this principle will keep Kingston from making costly mistakes. Starting as soon as possible we should see that a rigorous, complete and comprehensive cost benefit analysis of all future capital and operating costs to tax revenue be done for all development applications that have a potential to draw subsidies from all the rest of us over the proposed project’s entire life cycle.

In this way we can be more certain of the real value of each investment opportunity as each development application comes in. In this way we can reduce future tax increase. In this way we can make Kingston a more sustainable city: a city that approves development which meets the needs of the present without compromising the ability of future generations to meet their own needs.

Added on: Sept 25, 2015
By: James Jeff McLaren
© 2008 - 2018, James Jeff McLaren