How will Waterloo region weather COVID-19? Experts say it looks good but there will be challenges

Looking back, 2019 was a good year for growth in Waterloo region, officials say.

Building permits were up, with many projects going in along the still-new light rail transit line. The population increased by about 8,000 people. Many people in the region had jobs and were doing well.

"In a nutshell, I think the key messages are that the region's 2019 performance was exceptional in terms of all of the three indicators: population growth, labour market performance and building development activity," said Rod Regier, the region's commissioner of planning, development and legislative services during a regional council committee meeting on Tuesday.

But that was last year.

Now, the region, like the rest of the world, has been shaken by COVID-19.

Regional revenues have dropped off — the region isn't taking in any money for transit, or at area dumps. The region has allowed residents to waive late payment charges on water and wastewater utility bills, as well as all other residential and non-residential accounts.

"There's no doubt that we are experiencing a significant shock right now," Regier told councillors, admitting the 2019 numbers might seem "out of context" given the current situation.

But, he said, the news going forward appears to be good. 

"Our historic performance through the last decade illustrates that Waterloo region is actually much better positioned than many other regions, similar regions, to recover in the years following the resolution of the COVID-19 situation," Regier said.

No basis to predict what will happen

Not so fast, warns Harry Kitchen.

That optimism might come from a good place, but doesn't have a strong foundation, cautions Kitchen who is a professor emeritus of economics at Trent University. 

He says while things do look good for the region, it's unclear what the future will bring and it's much too soon to predict what Waterloo region will look like once COVID-19 passes.

"I don't think anybody really has a very strong idea of what is going to happen. This is totally unprecedented. We're facing changes that we simply can't predict and I don't think we've got any basis for projecting exactly what's going to happen," he said.

He says the region, townships and cities are going to face significant financial hardships because of a lack of revenue in the coming months.

Municipalities are not allowed to budget for an operating deficit, Kitchen noted. To fund their budgets, they charge property taxes and user fees to generate revenue.

"Property taxes and user fees are the backbone of municipal finance," he noted.

The revenue stream from user fees has mostly dried up. When it comes to property taxes, he said in general about 20 per cent are from businesses while 70 to 75 per cent is from residential and the rest is from industrial. The tax rate of businesses tends to be higher than residential, so that means if businesses close or go bankrupt, that's a significant drop in tax revenue for the region.

"The same thing could happen for some residential properties where there's defaults on properties," he said, as people ask for financial forgiveness or deferrals. 

He said the region could dip into reserves, similar to a savings account, to make up shortfalls but he notes reserves are not slush funds and are usually earmarked for particular purposes.

Allow municipalities to go into deficit

What might happen in the coming weeks, Kitchen said, is the province may relax the rule that municipalities can't budget for a deficit. He said some critics say that shouldn't happen, but he thinks it would be a good idea, at least for a year or two.

When asked if that could be a possibility, Ontario's Minister of Municipal Affairs and Housing Steve Clark said the provincial government is willing to listen to the needs of municipalities as they deal with the impact of COVID-19.

"We understand that municipal revenues are impacted by the current situation. In addition to tracking response costs related to healthcare, we are encouraging municipalities to track other incremental costs related to COVID-19," Clark said in an emailed statement.

"We are monitoring the situation and will be working with [Association of Municipalities of Ontario] and our federal partners over the coming weeks and months to better understand the fiscal impacts on municipalities and identify possible steps we can take to support our municipal partners."

Generally, Kitchen says he believes Waterloo region is on good footing right now.

"There's no question that the Region of Waterloo and that entire area is one of the more prosperous regions and areas in Canada and it has been for some time," he said.

"Will they come through it? Well, Waterloo region, of course they will. They're one of the strongest regions in the province, or in the country, and they've got a tax base. How they use it is up to them. But they'll come through it."

Critical time to 'take stock'

Mary W. Rowe is president and CEO of Canadian Urban Institute in Toronto, which normally facilitates conversations between municipalities about best practices and is currently trying to help them weather COVID-19. Part of that has been setting up websites to gather information about how cities are responding to the pandemic and encourage conversations about what's working and what isn't.

"Municipalities are the level of government that absorbs all of the direct impacts of this kind of a challenge," Rowe said. "They are absolutely the front line."

In many municipalities, the pandemic is showing where the cracks are in services, she said.

"I think that what we're seeing, the phrase that I've been using, is that COVID has acted as a particle accelerator," she said. "Where there was any kind of disconnection or dysfunction, that has just been exacerbated."

Waterloo region, she noted, has a good group of key ingredients to help them through the pandemic, including strong anchor institutions like the universities and college, services including the LRT and local libraries and a tech sector that's adapting to the changing workplace landscape.

"[Waterloo region has] a lot of tacit knowledge as a result of having invested for years in post-secondary infrastructure," she said, adding the regional chair and local mayors "have aligned seamlessly" and are adapting to "harness all the ingredients of your region."

But while the region may come away from COVID-19 in a good position, she says it doesn't mean things should return to normal. Rowe says now is a good time to ask questions about what has been working, what isn't working and what failed completely.

"We need to not waste this crisis," she said. 

"This is a critical moment for urban Canada to take stock," she said. "The one risk that we've got is that people will heave a great sigh of relief and go back to the way we were."