[darwink]

If Calgary ran a sovereign wealth fund then you could make an argument that selling it and buying better assets, rather than just local assets make sense.

Calgary effectively does, with $4.2 billion in reserves. I'd argue the city is over reserved to mitigate against risks that are entirely manageable with other strategies and a much lower reserve balance.

The 407 was sold for $3B in 1999 with the proceeds used to fund education and healthcare, but the asset is now generating $1.7B in revenue PER YEAR and worth over $30B, I doubt those healthcare and education investments are generating that level of returns.

The 407 contract didn't have either a return cap (now common) or a provision for a shift to a historically different interest rate environment.

It isn't an example to follow. And because you can contract around those problems, you can't really use it as a counter example either. That type of risk is a known known.

Utilities also pay out significant dividends

Why should the public sector be operating them at a profit at all? If a profit is ok, why only a public profit?

 

[trtcttc]

Calgary effectively does, with $4.2 billion in reserves. I'd argue the city is over reserved to mitigate against risks that are entirely manageable with other strategies and a much lower reserve balance.

The 407 contract didn't have either a return cap (now common) or a provision for a shift to a historically different interest rate environment.

It isn't an example to follow. And because you can contract around those problems, you can't really use it as a counter example either. That type of risk is a known known.

Why should the public sector be operating them at a profit at all? If a profit is ok, why only a public profit?

Right, so why would you sell Enmax and increase that reserve even more? There's also requirements on those reserves, they don't go out there to invest in private equity assets like a CPP. It's in money market and bonds I believe.

The 407 was a lease, but selling Enmax in its entirety will have no cap on profits.

I'm not really sure what you mean by only a public profit is ok, I have no issue with ATCO making private profits on gas delivery. Utilities in most developed countries operate at a cost recovery + set profits. The profit element is necessary because they're private companies (Enmax is private corporation where City of Calgary is the sole shareholder) so they need the profit element for basic business functions like financing. Regardless, I don't see the argument that selling Enmax is beneficial in any way to the City of Calgary and it's residents.

 

[Mountain Man]

Well he does bear more responsibility than any other Mayor as be reigned for about half of the post 2004 period. The McKnight water main break would have brought the need to replace Bearspaw to the forefront. I'm sure the UCP has oppo researchers searching for Nenshi's voting records and Council minutes for any budget deliberations or other conversations about replacing Bearspaw

Why? the McKnight main broke in 2004 when Bronconnier was mayor. The UCP are just trying to score points against their rival and I have seen very little from them to suggest anything other than a major bias.

 

[darwink]

Right, so why would you sell Enmax and increase that reserve even more?

The city should spend down the reserve, including the value of Enmax, to build things Calgary wants but complains about not having money for, especially investments which reduce long term life cycle costs from what they would otherwise be.

The city as a perpetual organization doesn't need the equivalent of a retirement fund, nor does it need an emergency fund anywhere close to as big as it does. The aesthetic difference between a sinking fund drawn down to pay for infrastructure compared to debt taken on to pay for infrastructure does not matter for the health of the city. Plus a sinking fund means we're always going to be paying catch up compared to what we're saving for.

 

[CalgaryTiger]

The city should spend down the reserve

If it isn't a rainy day now, then it will never be a rainy day. Especially if what you build, employs people, improves the life of people, and makes living here generally better.

The issue is as soon as the City starts to single-handedly fund things that should also be contributed to by other levels of government as well, you do risk setting a precedent.

Thinking about the redundant replacement pipe. Is it not prudent to do what was done for the green line, bring a section to a level of planning that it can be built, then do another section and another section. That way you can start now and move up the timeline. It is probably too late to do that but yeah.

I hope yesterday was day one of a different way the City delivers services. Maybe Transit shouldn't be its own thing outside the City, but maybe it should, and maybe that thing should serve the region. It is time to ask what else can we be doing better.

 

[darwink]

If it isn't a rainy day now, then it will never be rainy day.

It wasn't a rainy day in COVID or during the floods either.

The issue is as soon as the City starts to single-handedly fund things that should also be contributed to by other levels of government as well, you do risk setting a precedent.

I don't think that is true. In some places grants from other levels of government are used to fund taxpayer supported utilities, where in Calgary there is user pay. The overall level of grants remains the same.

 

[trtcttc]

The city should spend down the reserve, including the value of Enmax, to build things Calgary wants but complains about not having money for, especially investments which reduce long term life cycle costs from what they would otherwise be.

The city as a perpetual organization doesn't need the equivalent of a retirement fund, nor does it need an emergency fund anywhere close to as big as it does. The aesthetic difference between a sinking fund drawn down to pay for infrastructure compared to debt taken on to pay for infrastructure does not matter for the health of the city. Plus a sinking fund means we're always going to be paying catch up compared to what we're saving for.

Enmax generates a return each year. we can fund some flagship projects by selling Enmax, but face a permanent increase in property taxes to make up for the dividend shortfall.

Most of the 4.2B in reserves you mentioned are committed. As of the end of 2024, we had about $1.5B in uncommitted reserves.

https://pub-calgary.escribemeetings.com/filestream.ashx?DocumentId=331845

 

[darwink]

Enmax generates a return each year

So? And yes, Calgarians should pay for their services and not be under an illusion that services are a lower cost than they actually are.

are committed

By choice for the vast majority beyond developer contributions. Even then, those contributions aren't doing any good sitting in a fund.

 

[lemongrab]

Why? the McKnight main broke in 2004 when Bronconnier was mayor. The UCP are just trying to score points against their rival and I have seen very little from them to suggest anything other than a major bias.

And there were two full terms between then and when Nenshi took over where you'd expect the main work should happen to assess and bolster system resiliency

 

[lemongrab]

So? And yes, Calgarians should pay for their services and not be under an illusion that services are a lower cost than they actually are.

By choice for the vast majority beyond developer contributions. Even then, those contributions aren't doing any good sitting in a fund.

Don't reserves help ensure a high credit rating so the city can borrow at good rates and more easily manage cash flow?

And also gives the city the ability to self-insure on big ticket items (which may or may not make sense and is a whole other topic)

 

[darwink]

Don't reserves help ensure a high credit rating so the city can borrow at good rates and more easily manage cash flow?

If there were big revenue risks yes. But since there isn't, no. Historically the province has issued debt on behalf of municipalities, and did so, as the interest rate was lower, with an implied guarantee that the province mitigated with debt limits.

And also gives the city the ability to self-insure on big ticket items (which may or may not make sense and is a whole other topic)

The city has ready access to debt. And the ability to raise taxes.

A lot of the practices at municipalities are in place for a financial world that existed in the 50s and 60s to mitigate the risks of the financial and revenue system of the 20s and 30s.

 

[trtcttc]

So? And yes, Calgarians should pay for their services and not be under an illusion that services are a lower cost than they actually are.

By choice for the vast majority beyond developer contributions. Even then, those contributions aren't doing any good sitting in a fund.

I mean I don't really mind an illusion of cheaper services through yearly Enmax contribution in perpetuity, than to blow that on some short term project and lose all the future cash flows.

So your proposal is we spend all the reserves, including the committed ones? For example, there's a reserve for the city contribution to the Fieldhouse, which they're spending on a plan and Prov/Fed contribution. If they spend that down, essentially the project is gone, because what would the Fed and Provinces be funding? There's reserves built up for lifecycle improvement like watermains. I don't get this argument that we shouldn't build up these capital reserves and will have to find money somewhere if things like a watermain break.

 

[darwink]

than to blow that on some short term project and lose all the future cash flows.

Thats what you're not internalizing, those are the same thing with the same cost. The future cash flow should be represented in current terms, it isn't the dividend times infinity, it has to be discounted just like the value of current spending, or services created by a service asset is discounted. All the owning the revenue generating asset does is shift the mechanics of spending from [revenue-->spending] to [revenue-->save-->revenue-->spending] while delaying spending by decades.

For example, there's a reserve for the city contribution to the Fieldhouse, which they're spending on a plan and Prov/Fed contribution. If they spend that down, essentially the project is gone, because what would the Fed and Provinces be funding?

The city can make a funding commitment without money sitting in an account. When the feds and prov committed to funding the greenline, they respectively didn't create bank accounts with green line funding in it, waiting until conditions are met.

There's reserves built up for lifecycle improvement like watermains.

But why? Because the city is investing less in maintenance than the infrastructure is depreciating? That is a bad thing. The other option is that we're over estimating depreciation, which is also a bad thing, as it leads to underinvestment in underlying assets for the same service fees.

I don't get this argument that we shouldn't build up these capital reserves and will have to find money somewhere if things like a watermain break.

There is only one way to find the money: raising revenue. Debt versus savings are reciprocal. Debt is negative savings. Savings is negative debt. Debt you pay interest. Savings you receive interest. Savings you net present value the savings capital and revenue. Debt you discount the interest payments and initial capital. Debt you undertake an activity and then pay off over a term. Savings you build up over a term to fund an activity undertaken at the end of the term.

Different sides of the same coin. There is nothing fundamentally better about using savings or debt, and savings has the huge disadvantage of delaying activity, so you reduce returns from that activity.

 

[trtcttc]

Thats what you're not internalizing, those are the same thing with the same cost. The future cash flow should be represented in current terms, it isn't the dividend times infinity, it has to be discounted just like the value of current spending, or services created by a service asset is discounted. All the owning the revenue generating asset does is shift the mechanics of spending from [revenue-->spending] to [revenue-->save-->revenue-->spending] while delaying spending by decades.


The city can make a funding commitment without money sitting in an account. When the feds and prov committed to funding the greenline, they respectively didn't create bank accounts with green line funding in it, waiting until conditions are met.


But why? Because the city is investing less in maintenance than the infrastructure is depreciating? That is a bad thing. The other option is that we're over estimating depreciation, which is also a bad thing, as it leads to underinvestment in underlying assets for the same service fees.


There is only one way to find the money: raising revenue. Debt versus savings are reciprocal. Debt is negative savings. Savings is negative debt. Debt you pay interest. Savings you receive interest. Savings you net present value the savings capital and revenue. Debt you discount the interest payments and initial capital. Debt you undertake an activity and then pay off over a term. Savings you build up over a term to fund an activity undertaken at the end of the term.

Different sides of the same coin. There is nothing fundamentally better about using savings or debt, and savings has the huge disadvantage of delaying activity, so you reduce returns from that activity.

Financially those cash flows can be discounted into a present figure, if we have perfect information. But the reality from countless privatization is that public entities consistently underprice their asset. They rarely get even a decades worth of discounted cash flows.

The fed and provincial government have a completely different regulatory structure. Cities don't choose to hold money in reserves, a lot of projects are federally financed, but the city has to front the cash flow. There's also less borrowing mechanisms available to the city, that no other level of government would fund the Greenline if Calgary said they didn't have their portion in reserve. That's just not how any municipality in Canada operates.

Because some maintenance is a one time capital cost? If we have to replace the watermain every 100 years, you'd hope we save up through those 100years so we don't get a giant tax bill in year 100.

Again cities are not provinces. We don't have access to the same debt instruments. Our operating costs have to balance each and every year. So yes, cities do run at a surplus, and they utilize that reserve for major projects or to lower taxes in certain years.

 

[darwink]

But the reality from countless privatization is that public entities consistently underprice their asset. They rarely get even a decades worth of discounted cash flows.

Don't have to sell assets, or lease assets on long enough terms to be akin to selling it. In France ten year terms are common for infrastructure assets.

There's also less borrowing mechanisms available to the city, that no other level of government would fund the Greenline if Calgary said they didn't have their portion in reserve.

The city can borrow money. The feds and province are funding the greenline without the city portion being in reserve. The city runs the greenline via a ring fenced (money raised for a specific purpose, money spent for a specific purpose) sinking fund (revenue goes in, expenses come out) due to the aesthetic preference of tying a specific tax increase to a specific activity, but it makes no difference in the end if the account was intermingled with other city money or not. It is all money, its nature doesn't change if it touches money for other purposes.

Because some maintenance is a one time capital cost? If we have to replace the watermain every 100 years, you'd hope we save up through those 100years so we don't get a giant tax bill in year 100.

But you don't need to have the 'cash call' tax if you just borrow the money. Borrow, pay off alongside amortizing the asset. Then do it again at renewal. No cash call. No delay for savings. Taxes or fees line up with the life cycle cost so investments are judged on real numbers instead of guesses.

We don't have access to the same debt instruments. Our operating costs have to balance each and every year.

I think you're equating the two to too high of a degree. The city does not need an entire year of expenses/revenue in reverse to balance lumpy cashflows (which are way less lumpy than they were in the 50s).

And yeah, I get that this is not 'conventional wisdom'. Part of learning about finance is learning that aesthetic preference on the look of a balance sheet does not equal superior financial performance. A lot of unlearning. Using sinking funds and reserves and ring fences can be justified from a 'values' preference, we just shouldn't equate those 'values' as rooted in or leading to superior financial outcomes.