Buying Now, Paying Later

More than ever, we need our leaders to consider their lasting legacy: will they leave their grandchildren clean water, safe roads, and functioning sewers, or just a huge bill and long to-do list?

By Michael Borrelli
Published February 01, 2012

Around the same time U.S. President Barack Obama intentionally stepped on to the obscured third rail of American politics by uttering two incendiary words - "class warfare" - in his State of the Union address, a Canadian public figure took a principled stand against the status quo in a similar appeal.

Just a few days before Obama invited Americans to consider the fairness of their economy, Nova Scotia's Auditor-General released an annual report that dared citizens from Halifax to Digby to ask themselves, "Is it fair to pass on the bill?"

In his remarks to the media, A-G Jacques R. Lapointe observed that Nova Scotians are some of the most indebted citizens in Canada. This province of less than one million people services a provincial debt of $12.8 billion, costing $861 million a year in interest.

Astoundingly, these payments are equivalent to about nine percent of provincial revenue.

Noting that the province's debt was the result of decades of decisions by Liberal and Conservative governments to spend beyond their means, Mr. Lapointe did not blunt the pointed question that followed:

Is it ethical for Nova Scotians to expect and receive services that they will not pay for, deferring those payments to future generations, who have no say in those decisions?

That uncomfortable query directly challenged the perceived correctness of sustained deficit spending by governments, begging a response from the generation of big spenders who rightly own it.

Ethics and Governance

But no response or serious discussion about the topic was forthcoming, as the Auditor General would soon discover.

Nova Scotia's government did its best to distance itself from Lapointe's very focused criticism, with NDP Finance Minister Graham Steele taking issue with the use of the term 'ethical.'

If you wanted to know how much regard the 21st century politician has for ethics, you couldn't do much better than Steele's response:

The word 'ethical' is such a loaded word with so much baggage that it's possible to say an issue is a serious issue that needs to be seriously discussed without adding into the debate a loaded word like the one he used.

Ethics, a loaded word?

Once upon a time, judging and defending the rightness and wrongness of actions, especially those that impact a broad swath of society, had a place in directing, or at least informing our public behaviour.

Now, a Minister and duly elected member of a provincial parliament obfuscates when invited to consider the fairness of a generation living beyond its means.

Ethical Spending in Hamilton

Hamiltonians know this dithering well. It wasn't long ago that our Mayor and Council mortgaged the city's future, deciding to spend $45M of the Future Fund on a taxpayer-funded gift to a for-profit corporation.

And while Ivor Wynne 2.0 is being constructed with money meant to "create economic prosperity, enhance our community's social fabric, and enhance community life" for future generations, our city's underfunded infrastructure will continue to disintegrate beneath our feet.

For instance, the $45M the City will hand out to a private sports franchise is not much more than the annual budget for roads and traffic, which the Hamilton Public Works report card rated a D- in 2009.

In a 2011 report [PDF] on the state of the city's roads, consultants estimated:

[B]ased on the current projected funding level, the roads will continue to deteriorate, with the most significant decrease being attributed to the Urban Local roads - the neighbourhood roads the public uses every day.

The city's stormwater system does not fare much better. When it was rated as a C- in 2009, consultants [PDF] yet again found a public work operating at capacity and left to deteriorate due to age, climate change, and "No dedicated funding for system management."

Reconciling the Irreconcilable

Yet with the fiscal challenges of maintaining our crumbling infrastructure undeniable, our Mayor and Council continue to try to reconcile the irreconcilable: maintaining low property tax increases while pursuing new, big-time public expenditures of questionable value to future generations.

Of course, few of these elected officials expect to be around when the bill finally comes due, and maybe that explains their confidence in a belief that tomorrow's leaders will somehow find the billions it will cost to maintain or replace the essential but oft-overlooked guts of our city.

With the days of unlimited growth behind us, more than ever we need the generation of leaders that has held the reins of power for so long to consider their lasting legacy: will they leave their grandchildren clean water, safe roads, and functioning sewers, or just a huge bill and long to-do list?

If Hamiltonians want the city to stay above water (literally and figuratively), it's essential that we begin a conversation about the fairness of this unhealthy generational habit of buying now and paying later.

Michael Borrelli is a social researcher living with his family in Hamilton's North End. He tweets @BaysideBadger.


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By mystoneycreek (registered) - website | Posted February 01, 2012 at 10:56:11

Mike, I agree that we need to begin the conversation. As long as we're not 'pointing fingers', because I'm a little tired of particular labels being applied when clearly little historical context is included in the proceedings.

Life is hard enough without 'the blame game' and 'Us vs Them' taken to the worst place, when both parties are actually in the 'Us' category.

I'm reading a great book on 'collaborative consumerism', 'What's Mine is (Y)ours', and what it's reinforcing for me isn't so much the financial aspect of the conversation we're talking about being so vital to's more the cultural and societal.

As for the responsibilities of our leaders in your penultimate paragraph, I disagree with the emphasis. Having witnessed yesterday's debate at Halton Regional Council over de-fluoridation, I'm all the more convinced that our leaders require coherent guidance from residents, constituents...which means that once again, the real crux of the issue is...

Comment edited by mystoneycreek on 2012-02-01 11:50:27

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By Capitalist (anonymous) | Posted February 01, 2012 at 11:34:03

Let's not go down the stadium debate again. As a huge Ticat fan I am biased of course.

Debt is not necesarily a bad thing. Government borrowing money to build a road or hospital makes sense because future generations will benefit from them so they should also bear some of the costs. On the other hand, gov't borrowing money to fund lavish wage and pension increases or hold extravagant Christmas parties does not benefit future generations - so people should pay for those things in full today.

We live in an era where people always choose to spend or use credit instead of save and live within their means. The governments we elect reflect that - just look at Ontario.

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By jorvay (registered) | Posted February 02, 2012 at 11:07:47 in reply to Comment 73590

Sorry Capitalist, looking back on this it might seem like I'm jumping all over you. In fact, I generally agree with your comment.

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By jorvay (registered) | Posted February 02, 2012 at 10:52:49 in reply to Comment 73590

And here is the biggest misconception in municipal finance: using debt to pay for long-term assets is more fair because future generations that help pay off that debt will share the use of the infrastructure.

Why is it a misconception? There are two reasons. 1) Cities are perpetual, or at least are expected to have extremely long lives. This means that expenditures that seem like one-time capital costs to you or me actually start to look like regular, predictable expenditures from the viewpoint of the city. New roads are built and existing roads are maintained every year. From the city's view point, that's the equivalent to picking up a cup of coffee every morning on the way to work. Even something like a major building (70ish year design life is typical) starts to seem more like a predictable and regular over the life of a city. Maybe the equivalent to a person buying a car every four years. This brings me to... 2) It is almost always cheaper to save up for purchases, no matter how big, than it is to use debt. Saving up allows you to both avoid interest rates and actually earn interest on the savings until the time that they are required to make the purchase. The reason that people don't save up to buy a car or house isn't because it's cheaper to borrow for those purchase, but because it takes so very long to save up for them and we typically need them soon. But for smaller purchases, debt is usually considered to be a foolish choice, and for good reason. In fact, if you read further into some of those State of the Infrastructure reports, what you find is that on something like City Work Yards, the annual cost of saving up for new facilities and repairs in advance would be about 26% cheaper per year than borrowing for the same exact expenditures. And that doesn't include any interest income on savings. In other words the question is this: would you rather pay $1 for a box that your parents built (while they payed $1 for the old box that it replaced), or have them pay $0.75 to build the same box up front and you pay $0.75 for the next replacement box for your kids? In the long term, every body gets a box, but the debt scenario costs a lot more. The only really tricky part is moving from debt-financing to savings-financing.

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By Undustrial (registered) - website | Posted February 01, 2012 at 12:55:52

Government debt is the bedrock of capitalism. It's one of the safest and most stable investments around, making it indispensable for larger institutions (banks, funds etc) to hedge their bets while purchasing riskier assets like property, mortgages or stocks. If the government balances its budgets, that means no more treasury bonds, and that would threaten the very nature of money as we know it. Also worth mentioning is that the infrastructure paid for by government debt (courts, roads, hospitals etc) are at least as indispensable to the rest of the economy as services, and often again as lucrative contracts.

So, as long as we live under a capitalist economy, there's certainly an argument which can be made that a relatively stable amount of government debt. Tax revenues, after all, are totally dependent on this economy functioning, and if it slows we'll have little other choice but to take on more debt. Unfortunately, the amount of debt we have is not stable and has been exploding since around 1980, most of all under conservative administrations usually coming into power promising to do the exact opposite. One need only look toward southern Europe right now to see where this is leading.

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By A Smith (anonymous) | Posted February 01, 2012 at 14:27:18 in reply to Comment 73601

>> the amount of debt we have is not stable and has been exploding since around 1980

Debt charges in Canada (all levels of government)

1961 - 2.89% of GDP
1971 - 3.81
1981 - 6.25
1991 - 9.41
2001 - 6.61
2008 - 3.89
2009 - 3.82
2010 - 3.71

However, even if these charges were 99.9% of GDP, as long as the debt is issued in Canadian dollars, someone will buy it, at some interest rate.

If you think about a government bond as being Canadian currency + interest, the only way we could ever have a problem selling our debt would be if people decided Canadian currency was 100% worthless.

For example, imagine the Canadian dollar is worth 70 cents U.S. and inflation is 10%. If you are an investor (worldwide), you will likely buy that debt at a 12-13% yield. In other words, it will get sold.

If our dollar moves to $0.000001 U.S. and inflation is 1000%, someone will still buy Canadian bonds, because it will still be worth more than zero.

In contrast, the Euro countries are having problems because they don't issue their own currency, nor do provincial/state level governments.

But for Canada and other currency issuers, default on debt is impossible, as long as there is the political will to issue more debt.

Our leaders are also talking about the dangers of our household debt. The following chart details how it has come about...

This chart tracks the financial balances of the four sectors of Canada's economy.

When these four sectors respective surpluses and deficits are totaled, they sum to zero.

In 1999, they were almost all in balance.

Today, we see that the corporate sector and foreign sector are in surplus (~4% and ~3% = ~7%), while the government sector is at ~5% and households are at ~2%. Added together, they sum to zero.

If the feds want us to save more, and the corporate/foreign sectors keep saving at +7%/GDP, the only way for households to do this is for the feds to save even less.

For example, if household savings are to go from -2% to +2%, that will require the government sector to move from -5% to -9%.

And yet, the feds want to reduce the deficit, not expand it, even though they are the only ones who can take on limitless debt.

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By Capitalist (anonymous) | Posted February 01, 2012 at 14:26:15 in reply to Comment 73601

It is not just the governments of capitalist countries that have debts. Commies need to borrow money to. That's what communism/socialism is, spending others peoples money.

As for debts being racked up by conservative governments, most of Canada's debt was racked up by Trudeau. Most of Ontario's debt was racked up by NDP and Liberal. And Greece and Spain were run by socialists when their debt crisis hit.

Obviously you don't like capitalism so I will ask you what I ask all the others: Millions of people fled communist countries to immigrate to capitalist countries, however, I don't know of any communists/socialist who live in capitalist countries that choose to immigrate to communist/socialist countries. Can you explain this? Perhaps you would consider immigrating to Cuba or North Korea?

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By -Hammer- (registered) | Posted February 04, 2012 at 23:07:56 in reply to Comment 73612

I would argue Mulroney racked up FAR more debt then Trudeau. I will agree the NDP under Bob Rae did rack up a huge debt, although that was also during one of Ontario's worst recessions (at the time).

I'd also note that the Republican's in the states racked up the vast majority of their debt. Capitalism is well and fine, so long as money is being spent and moving and not hoarded at the top. Trickle down economics don't work, waterfall economics do.

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By Undustrial (registered) - website | Posted February 01, 2012 at 19:28:42 in reply to Comment 73612

I didn't write that to critique capitalism, simply to define it. Debt is a form of capital - a very important kind for modern monetary systems. The fact that public debt can't simply be removed from the equation is basic intro-to-macroeconomics, but it's all too often forgotten in these discussions.

As for capitalism, you're right, I don't care for it. But Communism (or at least the kind practicd in the countries you mentioned) clearly isn't a solution. It's like replacing a coke habit with heroine addiciton - cheaper, but more drab, and still utterly miserable. For your consideration (and A Smith's), I'll post the following link to a group of free-market anti-capitalists whom I rather enjoy.

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By Capitalist (anonymous) | Posted February 01, 2012 at 14:37:47 in reply to Comment 73612

Apologies on the above post. I went on a rant.

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By mystoneycreek (registered) - website | Posted February 01, 2012 at 17:09:11 in reply to Comment 73615

Apologies on the above post. I went on a rant.

No worries. It was rather cute.

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By Freedom seeker (anonymous) | Posted February 01, 2012 at 15:15:01

When an individual employed by the Mafia takes money from you at gunpoint we call it "theft". When an individual employed by the State does so we call it "taxation".
If we can agree that theft is unethical then in order to believe that taxation is not we have to imagine a moral universe in which an individual, or group of individuals (citizens), can endow another group (employees of the State) with a right that they do not themselves have, that is the right to steal.
Now if it is ethical for State employees to steal in the here and now why would it be unreasonable for them to assure us that they and their successors will continue to do so in the future (to collect the funds necessary to repay the State debt)?
And if actual citizens alive now have no grounds for objection to being robbed by the State how can we say that some hypothetical citizen as yet unborn has a right not to be robbed by the State? or indeed that they have any rights whatever?

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By arienc (registered) | Posted February 01, 2012 at 19:25:32 in reply to Comment 73621

That worldview only works if you consider the "state" some entity that is foreign.

The purpose of government is to represent us...the people. In other words, the collective, the royal we, society.

It's far easier to accomplish things as a group than it is to accomplish them individually. This is why human beings formed societies.

There are good arguments that the present level of governance is excessive, the benefit to specific individuals is questionable, and the funds end up being misappropriated from where we intended to direct them. However, taxation is not theft, it is the pooling together of resources.

Is it really that unreasonable to require those who have benefitted from all of the things that society has enabled (infrastructure, universal education, health care, national defence, research & development...), to pay for and support these things?

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By Undustrial (registered) - website | Posted February 02, 2012 at 09:50:49 in reply to Comment 73629

That's not what a "state" is. Just because you have power doesn't meant you "represent" those you have power over, especially when military force is involved.

As for our taxes, yes, they're ultimately enforced by violence, but only in fairly extreme cases. Most of our society's major rules are enforced this way (that what having a "state" means), and a great many tend to be enforced much more harshly than tax evasion. One could far more easily end up dead or in jail as a result of violating drug, immigration or property laws, which never tend to get the same level of scrutiny. Also worth mentioning is that many groups and societies which lack state oversight (squatters, indigenous tribes etc) regularly collectivize costs this way on a voluntary and consensual basis.

Overall, I'm not fond of paying taxes (is anyone) and my blood boils when I see tax dollars wasted. Nevertheless, many of the social programs which depend on tax dollars were hard-won victories of long popular struggles (ie: health care, workplace safety programs), and they tend to be the first ones facing the axe when taxes are called into question, rather than prisons or armies. For this reason, I'm often deeply sceptical of the motives of those who attack "taxes".

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By Freedom Seeker (anonymous) | Posted February 02, 2012 at 08:49:21

"Is it really that unreasonable to require those who have benefited from all of the things that society has enabled (infrastructure, universal education, health care, national defence, research & development...), to pay for and support these things?"
Yes, it's completely unreasonable.
Let's try a thought experiment.
Imagine that I kidnapped you, took you to my house, and kept you locked in the basement for 5 years. At that point you manage to escape.
A few weeks later I send you a bill for $20,000. In the covering letter I explain that this is to cover the cost of the food and clothing I supplied to you while you were locked in the basement, as well as a share of the heating, water, and electrical bills for my house during that period. Would you willingly pay the bill?
There is no question that I gave you the things listed on the bill, and you certainly benefited from getting them. Life in the basement would have been much much worse with no food, water, or if the house was unheated.

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By Brandon (registered) | Posted February 02, 2012 at 09:17:22 in reply to Comment 73640

Freedom seeker,

You're more than welcome to leave the city or region that you're in and not take advantage of the roads, water, electricity, education and other advantages that communities provide.

You have not been trapped here, you are choosing to be here.

A better example would be me coming to live in your house for free for 5 years. Would you not then expect some form of compensation?

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By Freedom Seeker (anonymous) | Posted February 02, 2012 at 10:03:40 in reply to Comment 73643

It's kind of an empty claim to suggest that I or anyone else is "free to leave". The entire land area of the planet, with the exception of Antarctica, is the claimed territory of one State or another, all of which make similar demands as regards my "basement" analogy. Leaving aside the "difficult" living conditions in Antarctica the States collectively have decreed that no one may reside there permanently, I imagine that if one was to try action would be taken against them.
Further: Under Canadian law, by which I found myself as an accident of birth, not by choice, the Canadian state will not allow me to renounce my Canadian citizenship unless I can prove to their satisfaction that I have become the "citizen" of some other State.
And of course being theoretically free to leave the "basement" called Canada is not the same as being free to be imprisoned in some other basement of my choosing. All States impose various restrictions on who may take up residence within their territories.
Now, given that one is going to be trapped in a basement I would certainly say that the one called "Canada" is one of the more desirable ones to be trapped in, but my original point in the previous post was that, useful or not, one is not ethically obliged to pay for goods or services that were not the result of a voluntarily agreement.

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By arienc (registered) | Posted February 02, 2012 at 09:16:41 in reply to Comment 73640

Freedom Seeker...interesting thought experiment, but I fail to see how the notion of being "kept locked in the basement" applies. We all have the free will to create our destiny.

At least in this society, the freedoms we have are substantial. Of course this freedom is not absolute - we do have a number of responsibilities to one another, and my freedom to swing my fist ends at the tip of your nose.

Where things fail is when a large portion of the population get into the mindset of "consumers" or focus solely on creating wealth for themselves instead of living up to their responsibility to properly govern their actions and the harm they cause to others.

In fact, our freedoms are made considerably greater by the fact that we have public services available to meet basic needs. For example, public transportation networks allow an individual to seek employment that is suitable for them nearly anywhere in the region.

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By Borrelli (registered) | Posted February 02, 2012 at 09:53:06

Freedom Seeker, I see where you're coming from, but I think you go too far off-base.

As others have pointed out, you tacitly consent to this "theft" every time you turn your tap on, use a road, or flush the toilet. It's fee for service, but applied differently.

But what I find most interesting is your thought experiment: it is only the protection of the state, funded by taxes, that allows virtually everyone to be safe of suffering through such a scenario.

Which is to say, without the state as arbiter of the use of force, I'd have a reason (profit) to kidnap you and ransom you back to your family, as happens frequently enough in societies where the central state is weak or crumbling (see Mexico).

Don't discount the benefits of the state too heavily. It's not perfect, but it serves an important function.

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