William Watson: User-pay is a good principle for infrastructure |
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William Watson: User-pay is a good principle for infrastructure
It's both fair and efficient that the people who benefit from infrastructure should pay for it. In new subdivisions, that means residents
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The NFL’s Chicago Bears are thinking of moving just across the Illinois state line to Hammond, Indiana. Hammond is 20 miles from Chicago’s Loop. The Bears’ current home, Soldier Field, is only two miles from the Loop but it was built in 1971 and they’d like something new and covered. If they do move, that will give little Indiana a second NFL team, alongside the downstate Indianapolis Colts, which would be a coup for a state with just two per cent of the U.S. population.
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The sticking point is, as always, money. The Bears are willing to build their new stadium on their own dime. But they want help with the infrastructure — access roads, power, sewers and so on — and Indiana’s legislature is being more helpful with handouts than Illinois’. The team’s references to operating in “Chicagoland” rather than “Chicago” are ominous, even if “The Chicagoland Bears” doesn’t sound quite right.
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I suspect most people’s reaction to hearing about yet another sports team desperately seeking subsidies will be: “Pay for your own damn infrastructure!” It’s an outlook grounded in both fairness and efficiency.
The fairness is obvious. The Bears would be the main, maybe the only users of the new infrastructure they’re asking the legislature to build. Who else should pay for it, if not its users? What could be fairer than having the beneficiaries of a thing pay for it?
But user-pay is also efficient, both in the normal person’s and the economist’s sense of “efficient.” If the Bears pay for the infrastructure, they’ll see it’s built right and taken care of and they’ll be careful about costs. That’s normal-person “efficient.”
The economist’s sense of efficient has to do with whether it’s a good use of resources to build a thing in the first place. To that end, user-pay forces the Bears to consider all the costs of their new stadium. If they only pay for the stadium proper while a legislature picks up the rest of the tab, they may go ahead even if the project has net overall costs, so long as it has net benefits to the Bears.
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To be sure, there’s a problem with that logic if non-users also benefit from a project. (Elsewhere Thursday in FP Comment, Jack Mintz mentions how adding a spur line to a transportation network may benefit everyone on the network.) In such cases, pure user-pay may lead to projects not getting done even though their overall benefits do exceed their costs. Sports teams always claim to produce big spillover benefits. Economists who analyze such claims invariably find that teams mainly siphon consumers’ discretionary entertainment dollars away from other local activities, with no net gain. Yet politicians often fall for pot-of-gold-at-the-end-of-the-franchise stories. Indiana’s clearly have. Twice, in fact.
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Just after reading about the Bears’ migration plans I saw the reports on how best buds Mark Carney and Doug Ford will be spending $8.8 billion over 10 years to reduce the burden of local development charges in the purchase of new homes in Ontario. Made me think “Indiana wants them”: they’d be right at home in its legislature. They obviously believe giving stuff away is much better than making its beneficiaries pay for it.
But if a new subdivision requires roads, sewers, lighting and so on, how is it fair that people across the province and, because of Ottawa’s involvement, even across the country, will pay for it, effectively making a gift of the infrastructure to the people moving into the subdivision, who will be its main, maybe in fact its only beneficiaries?
Thank you, Corner Brook, for paying for my new sewer (though I live in Montreal). Now let me pay for yours. Because my money is dear to me I hope you really, really need that sewer — though because you won’t be paying its full cost, we’ll never know, will we? Now, about that kitchen renovation you’ve been thinking about: if I pay for yours, will you pay for mine? With neither of us paying the full cost of our new kitchens, we’re more likely to go ahead than if we stick to user-pay. The illusion things are less costly than they are, maybe even “free,” takes over.
That was supposed to be a joke about Canadians paying for each other’s kitchen renovations but in fact we’ve had tax breaks for home renovations several times in the last couple of decades. Whoever got my tax dollars, I hope you made good countertop choices.
Development charges can go awry, of course. Municipalities have local monopoly power, or at least they do if we let them. Maybe their charges are too high because their construction teams are inefficient (one pothole, eight guys). Or because they have all sorts of crazy local rules. Or because they close the local market by insisting on union or in-province labour only. (And in that regard wasn’t it galling to hear One Canadian Economy Minister Dominic Leblanc the other day summon his most annoying paternalism to tell Canadians how well discussions on removing interprovincial trade barriers are going, though of course there are no results to report just yet. Tear down these walls, Mr. Leblanc!)
If you think the role of government is to find any way it can to get money to people who have a problem or maybe even just a well-publicized complaint, the new policies won’t bother you. If you think the role of government is to establish sound rules, like user-pay, and abide by them, they’ll make you growlier than a hungry bear.
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