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The Myth of the CRL

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Recently Cult of Hockey posted a letter written by Edmonton city councilor Ben Henderson where he lays out why he supports the downtown arena project. It's a well written letter and it's worth reading if you are even remotely interested in the arena debate. I applaud Mr. Henderson for taking the time to clearly lay out his position on the arena project, something not many other councilors have done despite the fact that there are millions of taxpayer dollars at stake. I am, however, concerned that Mr. Henderson, and possibly other councilors, simply don't understand what a Community Revitalization Levy (CRL) is, or that they are intentionally blind to the truth.

Out of the City's $177M investment in the project, $40M will be funded through a CRL. The idea behind a CRL is simple: the City invests in a revitalization project and the incremental increase in tax revenue from the revitalized area is used to pay back the the loan that was needed for the original investment. That's the short version, if you want a more in depth look at CRLs I'd suggest checking out this three part series from mastermaq.

In a lot of ways a CRL seems like a can't miss option. The City invests in an area, revitalization happens, and the City covers the loan without issue. If that sounds too good to be true, it's probably because it is.

For a CRL to work, all of the development within the boundaries of the CRL must be new development that wouldn't have otherwise happened. For this to be true there has to be a latent demand that Edmonton consumers are unable to satisfy currently. But the people that live in and around Edmonton are a fixed quantity with a fixed amount of income, and as a group we can't suddenly start consuming more goods and services just because we want to because we just don't have the means to do so. What drives development is an increase in population or incomes that in turn increases the demand for goods and services. You can't magically create demand out of thin air.

What will happen in reality is that development will occur inside the boundaries of the CRL (or at least that's the hope but it's far from guaranteed), but that development won't result in new people or new money; it will have just shifted those things from another area of the City because there isn't any latent demand. So why is this a problem? Because the increased tax revenue inside the CRL has to go to pay off the loan that started the whole thing, and if that increased tax revenue is really just shifted taxes from another area then the City is left with a shortfall in general tax revenues. That will leave the City with two choices: cut services or raise taxes.

At the end of the day, if Council wants to fund an arena with taxpayer dollars then that is going to be their choice and eventually they will have to answer to the electorate for that decision. But in the meantime I'd prefer if everyone involved was truthful about how the funding actually works and what the true impact of this investment is.