Why the City should get into business

On EDGE: Opinion

by David Wasylciw

Last fall, in preparation for Yellowknife’s Geothermal Energy Project, city council passed a bylaw enabling the creation of municipally owned corporations. This was a first for our city and something that can be used in many ways. With the ability to create corporations, the City can get into business on its own. While originally intended for a district heat utility, it holds the possibility for much more.

Municipal governments have very few revenue tools available – generally property tax, user fees, permit/licensing fees, franchise fees (on your hydro bill) and, of course, fines. These limited sources have to pay for every service a city offers: pools, garbage pickup, dumps, bylaw enforcement, building inspections, parks, street lights, snow removal, and everything else.

This means when the City adds a service or a facility faces rising costs – power, staffing, etc. – one way or the other, residents beari the cost. Sometimes the new revenue comes from property tax, although in recent years it’s become more popular to add things like user fees. This means that to cover increased costs, traditional methods for a city to raise money just cost residents more money. Frankly, whether we pay a user fee, a higher franchise tax on our power bills, or higher property tax, it’s still bothersome, and costs more to live in the same city.

Municipally owned companies would allow the City to generate money in other ways. For instance, with the City’s heating solution, the idea was that the City-owned corporation would profitably generate and distribute heat throughout a number of major downtown buildings. This would be a direct source of revenue for the City that wouldn’t have taken additional money out of resident’s pockets.

Other cities have used municipal corporations to do things like distribute power, operate telecommunication services (internet, cable, telephone), and run a multitude of other businesses. For instance, the City of Edmonton, which owns EPCOR Utilities Inc. – originally started in 1891 as Edmonton Electric Lighting and Power Company – has been doing this for years. The company has grown considerably and, in recent years, invested in facilities in other parts of Alberta and all over North America. Annual dividend payments to the City of Edmonton are currently well over $130 million per year.

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In the mid-90s, Yellowknife briefly considered taking over local power distribution – having estimated the cost to end the franchise agreement and buy out Northland Utilities (Atco) at roughly $17 million. While it would have been a significant investment, it would also have been a great opportunity early on to own and operate a profitable utility. If the City is able to generate a profit from operating a utility that makes life less expensive in Yellowknife, then it’s better for everyone. Now, instead of operating the utility, there is a franchise tax of approximately two per cent on monthly power bills. This franchise tax brings the City just over $750,000 annually. But if the City simply earned the profits of local operations, this franchise tax wouldn’t exist, and our monthly bills would be lower.

This same model applies to communities that got into the telecommunications business. A great example is Thunder Bay, Ont. In 1902, Thunder Bay Telephone was formed to connect the first phone calls between communities in northern Ontario. The company now operates as TBayTel, offering 3G cell phones, cable, internet, and home telephone to regional residents and returns over $20 million per year to the City of Thunder Bay. Now Thunder Bay and the surrounding communities certainly have more people than Yellowknife, but that doesn’t mean the same type of ventures won’t work here.

Edmonton and Thunder Bay both showed a desire to be entrepreneurial and were successful at it. In doing so, they formed municipally owned corporations that gave their cities an important revenue source and, at the same time, made them better communities to live in. Yellowknife is full of entrepreneurs; let’s get the staff at City Hall thinking the same way when it comes to finding revenue.

David Wasylciw is an advocate for open government, and works as a consultant on public policy and the strategic use of technology. Outside of work he is involved with a number of community events and other non-profit groups.

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