Are We in for a Rough Ride?
By: Jeff McLaren
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Opinion Piece on Negative Economic Forces facing Kingston and the Developed World
Our community is facing a new demographic and economic force that will likely dampen future economic growth. Demographically the baby boom generation has started to retire. Since most people make less money the day after they retire than the day before they retire, going forward, we are probably going to experience cumulative drops in our community’s income. The baby-boom is an 18 yearlong generation. They will finish retiring in 2029. Then they will start to reach the end of their life expectancy. Everyone loses their pension and makes less money the day after they pass away than the day before. This cumulative drop in our aggregate community income will continue for roughly another 18 years after 2029.
A decline in aggregate income leads to a decline in economic demand, a decline in investment, a decline in asset prices which lead to a decline in assessment value and the city tax base. In other words, less aggregate income means less disposable income which means that businesses may have less business; that house prices may drop in real value; that there may be less asset value for taxes. But expenses will still go up and taxes will need to too.
This is important because Kingston’s business viability, jobs and home values are at stake. The retiring baby-boomers have created a new negative growth force that has never existed before. This negative force is quantifiable. It is roughly equal to the net drop in the labour force and the net drop in population. According to Statistics Canada data, between 2016 and 2026 this overall net drop translates into a new negative 7.2% downward force that will have to be overcome just to reach the normal up and down of market forces. The bottom line is: the next 40 years will be less economically hopeful than the last 40 years.
The City of Kingston recognizes this and is working on mitigation strategies. First, the Youth Employment Strategy will help find and create jobs for our young people – this will help raise our community income. Second, our Workforce and In-migration Strategy will help skilled people fill some of the jobs that the retiring baby-boom generation leave behind – this helps push up disposable income. Third, the Integrated Tourism Marketing Strategy will create a unified brand for Kingston centered on quality of place and authenticity of experience – this will attract more money from the outside. Fourth, a new city devotion to finding and expanding new and innovative non-tax revenue streams – this will provide tax relief. Every $2 million in new non-tax revenue is roughly equal to a permanent 1% reduction in the need to raise taxes. And finally, a complete review of KEDCO, so that hopefully with new governance, new management, new vision and a new mission our new economic development agency will be in a position to help attract companies, jobs and investment given the values of our community and the economic realities of the 21st century.
These strategies are all pieces in a puzzle that I hope will add up to mitigate the long term economic malaise. None on their own will be enough. Together, they should give us a fighting chance. Together they should cushion the damage. But I believe we do need to do more.
We need to make sure we do not aggravate any other negative forces. Sometimes, small is beautiful and less is more. First, we need to make sure that in good times we do not build too much of what is not needed later. Being smart in our development avoids asset gluts and their corresponding price drops that may harm everyone’s home values. We can reduce the damage of gluts by only building what we need, having considered our real future needs.
Second, we need to build what pays into our collective pot. This will help keep tax increase low. Building what drains our collective pot will condemn us to paying higher taxes later. Proper demographic analyses and life cycle cost analyses will help optimize projects and make informed decisions in light of a less bright economic future.
Third, we need the expertise of stakeholders at all levels to make sure that the policies we come up with are the best; we need to be on the same page; we need to understand our vulnerabilities. Our private and public assets and our livelihoods are in jeopardy. Our economic sustainability and resiliency are at stake. We must make sure that our responses will safe guard all we value.
The future doesn’t have to be dismal. Don’t bet against our community; we are better prepared than most communities. With knowledge and an accurate appreciation of our problems, I believe we can find the wisdom to work together to find the best way forward.
Added on: April 20, 2016
By: Jeff McLaren
© 2008 - 2024, Jeff McLaren