Calgary's tough choices: Gamble on growth or gamble on retreat

Tuning into the great social media debate over Calgary's finances, it would appear to the casual observer that there are only two options for the city to save itself from financial ruin kill the Green Line or kill the arena deal.

As with most things tied to social media, the truth lies somewhere else. But the debatedoes represent a meta-level view of some of the competing visions of what this city should be, what its purpose is, and who it should serve.

Drilling down further, however, is the uncertainty that is now pressing up against both visions for the city and the myriad visions in between. Faced with the consequences of a persistently cheap barrel of oil and the effects of the pandemic, Calgary will have to confront some hard truths in the coming months and years about the kind of city it wants to be, and how it's going to get there.

Calgary will either have to find a way to pay for a vision of growth, or to tactically shrink in a way that doesn't bring down the house in the process.

The Calgary left behind under either scenario could be a drastically different place than the one we know.

The great debate

The broad strokes of Calgary's challenges are now well known. The shock of the oil price collapse that first started in 2014 has never really subsided, leaving some downtown towers completely empty, and many more with high vacancy rates.

That has caused overall property values in the core to plummet by around $14 billion, and has left a hole in the city's finances worth hundreds of millions of dollars.

• Calgary, already bloodied, now requires more help than other cities

Now, with the pandemic and its economic gut punch, the city has to face the prospect of massive tax defaults, less revenue from service fees and a transit system that's bleeding money.

It is struggling with a big deficit, thanks to the effects of the shutdown, and Mayor Naheed Nenshi has said the only real hope is the province and Ottawa provide more money, which has yet to materialize.

The city has already gone through several rounds of cuts to its budget, the latest shaved off $60 million in the middle of the budget year, and services have been pulled back throughout the pandemic.

Reserves have been used to hold back crippling tax increases on businesses outside the downtown core, but that Band-Aid solution can't continue.

It's hard to see where else the city can find efficiencies, although it's sure to try to look beyond some of the low hanging, and part-way-up-the-tree-hanging fruit.

"It's serious to the degree that it's not about council sitting down and getting a line-by-line audit," says Lindsay Tedds, a professor of economics at the University of Calgary, who also advises the city's financial task force.

She says she wouldn't be surprised if 60 per cent of businesses in Calgary did not recover from the pandemic shutdown.

"If there's no help from higher orders of government, what municipalities everywhere, and more so the City of Calgary, has to do is cut off a limb."

The investment strategy

To be sure, there are some big items on the budget books these days, including the aforementioned Green Line, and more than $1 billion on capital projects, including the arena deal inked with the Calgary Flames, the newly unveiled expansion of the BMO Centre and the planned revitalization of Arts Commons.

There's also that massive line in the budget that's getting a lot of scrutiny these days: the police. That alone eats up almost 14 per cent of the money spent by the city each year.

But cutting back on police spending doesn't appear to be a priority for the city. Yet.

What is focusing minds and sharpening pencils is whether the city can afford big projects like the Green Line, the BMO Centre, Arts Commons and the arena.

• Why Calgary's mayor says spending billions on infrastructure is more crucial than ever given economic woes

Nenshi argues that in a downturn, everyone is a Keynesian, and that this is the perfect time to invest in these types of projects, when the economy is down and so are the relative costs. He argues the projects will create much-needed jobs in a city where the unemployment rate has remained stubbornly high for the past few years.

More than that, Nenshi is a firm believer in the need to make up what he calls an infrastructure deficit, and to use those investments to try to attract new industries to the city, to diversify away from the dominance of oil and gas, and bring in more young workers.

The devil, of course, is in the details.

Transit vs. hockey

Revitalization schemes are a well-worn strategy, used all over the world in an attempt to stave off contraction. But they're not always successful, and many argue over the relative worth of, say, a transit project versus an arena even outside the various silos of social media.

Tedds thinks comparing the dollars spent on the two projects is like comparing a "moldy onion to a nectarine."

"One of the core responsibilities of a city is public transit," she says, pointing to the broad public benefits of moving people around. "There's no core responsibility to subsidize a hockey team."

She, and many others, argue that investing money in an entertainment district simply moves money around, taking funds from other areas that could use investment and concentrating it in a specific location.

• Green Line divisions open up on going north
• Group that wants pause on Green Line hosted private event with top city officials

"So the city is saying that restaurants and bars and everything in this area of the city is more important than say, Kensington or Inglewood."

And although there could be changes to the Green Line, depending on how council votes on the final alignment on June 15, it's unlikely that it, or any of these large projects, will be sacrificed wholesale in the face of Calgary's economic woes.

Killing any of them, aside from the arena, would also erase billions in investments from other levels of government.

Also unlikely to be reversed is the approval of any of the 14 new suburban developments around the city's edges that require massive investments from the city in order to provide services.

So while there are some big items on the budget lines, the much more likely scenario in the near future are a thousand little changes, which is either a pragmatic response to the current crisis, or a means of hiding one's head in the sandstone.

It's the little things

Justin Hollander, a professor of urban and environmental policy and planning at Tufts University in Massachusetts, studies the phenomena of shrinking cities and how they cope with the loss of population or money or both. He's found that big bold moves aren't necessarily the way to go when facing a potential crisis.

While he believes that investments that serve the community, like transit and access to amenities, can be beneficial for citizens and attract business, he argues that a city facing a possible decline needs to do smaller, boring things like ease zoning regulations so that empty office towers, for example, can be put to alternative uses, or empty lots can be easily taken over.

• Zoning (yes, zoning) could save Calgary's finances
• Transforming towers: Might Calgary convert vacant downtown offices into condos?

Cities that are facing the possibility of shrinking need to be able to recognize the warning signs, but they have to be wary of the way they talk about those challenges.

Bad news begets bad news, chasing away potential investment and immigrants and sucking the long-term optimism out of a placewhen that is just what a city requires in order to regain its footing.

Riskier, however, is holding on to a golden past, hoping that the oil and gas jobs will return. The rust belt cities of the United Statesare a prime example of places where industrial change hit hard and strategies to adapt were slow or non-existent.

If a city gets its messaging wrong, or even worse, if it refuses to act or makes the wrong investment and policy decisions, it can have profound implications.

The shrinking city

The question of whether Calgary is shrinking, or whether it could, would have been laughable a few short years ago. Luxury cars parked in front of high-end restaurants were the norm. While those working outside the downtown towers scraped by, as costs continued to rise, there were big bonuses and big paycheques in the energy industry.

But not many are laughing now.

Unemployment went from negligible to the highest in the country faster than a Calgary winter turns to spring. The vacancy rate downtown has hovered around 25 per cent and could grow. Although the city hasn't lost population, there has been a slowdown of in-migration compared with the overheated booms of the past, and the housing market has plenty of options for the would-be new homeowner.

• Calgary housing market still weighed down by oversupply, CREA says

"One of the things that people look for in signs of distress is total population figures falling, total number of jobs, increasing vacancy rates. And so all of those are strong signals that there's a major change afoot, and that local and provincial government intervention is probably needed," says Hollander, who has not studied what's going on in Calgary.

If a city like Calgary starts to struggle for income, it can spiral into a reduction of services that could affect some neighbourhoods more than others. Or it could see a reduction in spending on things that Calgarians have come to expect, like libraries and recreation centres.

• Calgary faces $235M budget shortfall, or more, due to pandemic

If its efforts to attract new industries and investments does not pay off and the oilpatch does not recover, even a little, Calgary could face extreme choices.

"There are core responsibilities that it can't choose not to do, like sewage and water and things like that," says Tedds.

"But yes, these other community supports, which are incredibly, incredibly important, are not in their core responsibilities, but it would be devastating for them to move out of that. I mean, to not have the library this is some weird sort of libertarian world that I don't want to live in."

The risks and rewards

Calgary has always been about breathtaking growth and the accumulation of wealth. But now it faces a new reality and the potential for a very different future. It can't bank on visions of its past success, and risks falling harder and faster if it makes the wrong decisions or self-perpetuates a fall from grace.

The city and its citizens could face hard decisions about whether to fund libraries, or big roads, or transit projects, or conference centres and arenas, and there could be hard conversations about issues like defunding the police and the continued spread of sprawl.

If Calgary can't rebound and refill its downtown towers, triggering the massive tax benefits that would flow from rising values in the core, it will need to redouble efforts on more flexible zoning, easing transitions from one use to another, and providing incentives for those adaptations.

It will also need help from Ottawa and Edmonton.

Doing what it has always done is no longer an option.