Don Iveson was first elected to Edmonton city council in 2007, when he was 28 years old. He was elected mayor of Edmonton on Oct. 21, 2013.
Q: Topic A in Alberta: the collapse in oil prices. We’ve heard a lot about the budget challenges that creates for the province, but what does it mean for the people who have to make Edmonton’s budget?
A: We don’t really get a share in the “ups,” so we don’t really get a share in the “downs,” either. Our own-source revenues are quite stable compared to the provincial government’s: One of the redeeming features of property tax is that it’s stable. But it means we didn’t really get to share in the upside, either, except when it comes to grants from the province, which tend to float upward when times are good, then sometimes contract when times are bad.
We’ve already seen our principal infrastructure grant, the Municipal Sustainability Initiative (MSI), which was, at one time, going to be about $1.4 billion, compressed down to about $900 million a year. In 2009, the provincial government spread that grant out over several more years, and now there’s some speculation that that may happen again with this budget.
[I’m hoping not to see] dwindling transfers to municipalities for infrastructure at precisely the time when we can get great value for those dollars and put people to work. A downturn is a good time to prepare ourselves and get caught up on infrastructure in advance of the next likely spin-up of commodity prices. It’s countercyclical, and we should be putting money to work when we can, now. So we’re certainly advocating to the province that some of the best money they can spend right now [is on keeping] the Alberta economy moving, keeping people working in infrastructure, and we’re a good partner for that.
Q: The key word there, I guess, is “countercyclical.”
A: It’s basic stimulus. If things slow down, it’s going to be a little easier to find tradespeople, designers, engineers, project managers—all the people you need to put infrastructure in the ground. Six months ago, we were talking about the extraordinary growth in Alberta brought on by the commodity boom. People are still moving to Alberta, even though the commodity prices are lower. Maybe not as fast, but we still have growth pressures to catch up from, and we still have to prepare ourselves for the future.
Q: I have the impression some of the goodies Edmonton taxpayers have been promised, or that you’ve planned for, will have to wait a little longer than originally expected.
A: We just completed a four-year infrastructure plan based on the most recent numbers that the province had given us last year. So we’ve made plans for old libraries to be replaced, we’ve made plans for bridges to be rehabilitated, roads that need to be built or rehabilitated, roofs that need to be replaced on civic buildings: Those are the kinds of things that this very flexible and very helpful provincial grant goes into. For us to start to fall behind on road construction, roof replacements, some of the fundamental assets that our citizens rely on, that’s going to put us in a very difficult position.
Realistically, there aren’t a lot of “goodies” on the list. Eighty per cent of what we’re using MSI dollars for is refurbishment of existing infrastructure. We’ve seen what happens when you fall behind on that sort of thing. It’s much more expensive to fix it later.
Q: Was it a mistake to use a less stable revenue source—a sort of “bonus” or “extra” funding envelope—for basic maintenance?
A: Well, if the funding model is that the grants only come sometimes and they only come when money’s good, then you wouldn’t want to rely on them. But the whole premise of the MSI is that it was the Holy Grail, it was what cities across the country were asking for—sustainable, predictable funding.
Q: It’s right there in the name.
A: It’s right there in the name. But it’s proven to be not quite that. The MSI has never been fully funded, and it’s been stretched out into the future, so it was a $13- or $14-billion commitment that was supposed to arrive over 10 years. Now it’s 13, and it may get extended even longer than that. If municipalities can’t rely on those dollars, that makes it harder to do infrastructure planning, to get good value from contracts, to work around fluctuations in the economy, all those kinds of things.
Q: Edmonton has started making heavy use of tax-increment financing, or, as we call it locally, “community revitalization levies (CRLs)”—investments predicated on neighbourhood-level tax-base growth. The new downtown hockey arena is the most notable CRL-funded project. If oil stays in a long slump and the value of residential and commercial properties goes down, aren’t you concerned that the CRLs will go underwater?
A: I don’t have a concern about that at this time. Things would have to go south for a decade, really, for us to start to have a concern about the CRL projections. And that’s for two reasons: One is that we’ve already seen really positive development in the first few years of the CRL here; we have a line of sight to significant revenues, particularly in the downtown CRL, which is the largest one. As those projects that are being built right now come online, they will generate significant property taxes, particularly on the commercial side. There are a number of condo towers, rental towers and commercial towers going in downtown. At this point, we’re quite conﬁdent that with just those projects coming online, even if nothing else were announced for another 20 years, we’d still pay back the CRL before the deadline.
The other thing is that we phased the public projects within the CRL so that we only go ahead with them as the cash flows become apparent. We can throttle back on the spending from a CRL, if need be.
If nothing got built for another 10 or 20 years in Edmonton, there would be some risk to the other CRLs, but we’re quite confident about the downtown one right now, just based on what’s going in the ground today.
Q: Do people underestimate how resilient Edmonton is? One senses, living here, that some amateur economists have a picture of it that’s 25 or 35 years out of date—that they think of it as a monolithic oil capital with a simple, vulnerable economy that will start turning out the streetlights if the West Texas price drops too low. But Edmonton’s better positioned than it was in the 1980s.
A: I agree completely with that. We’re a manufacturing centre. We’re a construction and project-management centre. And the oil sands, in particular, are no longer just a prospecting and extraction activity. They have turned into an industry unto themselves. Edmonton is involved in building that industry when it’s expanding, which is a very good business with lots of lead time and, for every company that’s pulling back now, there’s another company that says, “Now’s the time to stay the course with our project, because we’re going to get a good deal and, in two or three years’ time, when it comes online, we’re going to have saved a ton of money.” There’s still going to be lots of work in construction, even if the capital expenditures in the oil sands are somewhat reduced.
And then a huge part of the Edmonton economy is operating and maintaining the resource economy in northern Alberta. It’s sort of a doubled-edged sword, being a high-cost producer of oil, as Alberta is. It takes a lot of energy, there’s a lot of wear and tear on material, there’s a lot of labour that goes into these processes. The people in northern Alberta—a lot of them work in Edmonton, and a lot of them come to Edmonton to shop or to get [professional] services. Being that service centre for a fairly mature heavy industry actually provides us with great resiliency. That’s one of the reasons why we barely had a recession in 2009. There’s no doubt it was tough for some people, but Edmonton weathered the storm really well. And the fundamentals are there to weather this, as well.
Q: Better than, say, Calgary?
A: Calgary’s much more dependent on the swings, and on that prospecting and initial extraction business, so their cash flow is way down and they’re seeing big layoffs there . . . They’re in the deal-making end more than we are; we’re in the building-it, maintaining-it and cleaning-up-after-it businesses. And those are really good long-term, stable businesses to be in. We’ve diversified into expertise in cold-weather construction, in materials and fabrication, and in exporting a lot of those things now to other places. Much of it still comes from oil, and we still suffer when people stop ordering new drilling rigs from Nisku, but the amount of innovation happening here is underestimated.