Generational Equity

Courtesy of the City of Quesnel:

Editor's Note: This week's Quesnel City Council column is written by Quesnel Mayor Bob Simpson.  He can be reached via email here

Last week, I had the pleasure of spending an hour with the participants in the Quesnel Ambassador program. During their zoom interview with me, these young women showed they had a keen sense of the key issues confronting our community; proving once again that the voices of youth should be sought out by leaders in all organizations. One of the questions I was asked was about the process of budgeting for the City; specifically, what was the hardest part of setting the City’s budget. I think my answer may have surprised the group, as it wasn’t the normative political answer about the challenges of keeping taxes low, or the struggle to manage costs. Rather, I told them that the biggest struggle, in my estimation, is to achieve generational equity. Unlike the private sector, which is focused on present value and profits, public finance must take into account the impact of today’s budget on future generations; both positively and negatively. While much of the dialogue around public sector financing has focused on the negative aspects of generational equity, specifically the concern about ‘passing on unsustainable debt to our children,’ this is too simplistic a characterization of the challenge associated with creating budgets at any level of government. The issue for governments (and taxpayers) isn’t the size of government debt, it’s how the debt was created: was it to build hard assets that will last generations (roads, bridges, schools, hospitals, etc.), or was it to cover deficits. The household analogy would be whether the debt is a mortgage or is primarily made up of a whole bunch of unpaid bills from current expenses. The former can be construed as “good debt” (i.e. money borrowed to buy a hard asset that provides long term and possibly increasing value), while the latter is a sign of a household that is living beyond its means. Since municipal governments must, by law, balance their budgets every year, there is no concern about deficit financing as there is at the provincial and federal levels. Since they cannot deficit finance and accumulate “bad debt” to pass on to future generations, the real generational equity challenge for local governments is how to fund community investments and build new assets in a way that spreads the costs across the generations that will benefit from these investments. Unlike the provincial and federal governments, local governments cannot borrow money without taxpayer permission (by referendum), so elected Councils are often reluctant to use debt to finance major initiatives simply because they are reluctant to engage in the referendum process. However, this is bad public policy, as failure to use debt strategically means that the current generation can get saddled with all of the costs associated with investments that will benefit multiple generations. The recently completed public works facility is a case in point. If Quesnel City Council had merely used its taxation authority to fund that facility, current ratepayers would have been burdened with a major tax hike to fund a building that will benefit generations of Quesnel residents. Borrowing to build that facility was the right thing to do to achieve generational equity in the City’s budgeting process. In short, public borrowing to build infrastructure should be viewed as a fair way to share the cost over the generations that will use and enjoy that infrastructure rather than as a way for local politicians to pass on ‘debt’ to future generations.