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Posted: June 22, 2017 at 3:16 pm   /   by   /   comments (0)

Waterworks users to shoulder the rising cost of the system

A committee of council has ratified the recommendations of a waterworks committee that will see municipal water and wastewater treatment charges rise by five per cent on July 1, increase another five per cent in January 2018 and continue swelling by five per cent each and every year until 2026.

It is a tough prescription brought about by the waterworks utility’s broken finances. It is not a new problem. This is now the second ad hoc committee assembled over the last decade, tasked with the job of making the County waterworks financially sustainable. The utility’s problems confound easy solutions.

WHY IT’S HARD
According to provincial dictate, municipal waterworks must be self financing— the users of the system pay the full cost of the service. But the fact is that the County’s waterworks utility has rarely seen a year recently in which it didn’t have to borrow from the general taxpayer to pay its bills.

While costs to maintain and operate the six water plants and two wastewater plants scattered across the County continue to climb, capital expenditures and plans to replace decaying pipes and pumps also expand. Meanwhile, revenues are falling. These are three very bad trends when aiming for financial sustainability.

When waterworks rates rise, consumers tend to conserve. Ironically, the act of water conservation— normally considered a virtuous decision—works against the utility, robbing it of the rising income it had planned on in its forecasts.

There was another major miscalculation made about a decade ago—adding another dimension to the utility’s woes. Faced with rising costs, big spending plans and nervous about jacking up rates too quickly, Council in 2008 arbitrarily elected to shift a large portion of the financial burden onto the thengrowing residential building sector in the form of eyewatering connection charges. That council reasoned that new residents were better able to pay these costs and that they would be a minor component in the cost of a new home. It was a big mistake.

What that council hadn’t calculated was that residential homebuilding is a competitive business—that builders would simply build new homes elsewhere. And that is what they did.

While new homebuilding in Brighton, Quinte West and Belleville has boomed in recent years, growth in the new homebuilding sector in the County has been anemic—despite extremely strong demand to live here.

These were the two main challenges facing the most recent waterworks committee.

WHAT THE COMMITTEE FOUND
Councillor Treat Hull spoke on behalf of the committee. He began by observing that things could not continue to go on as they had—that County coffers were being raided to fund the utility’s deficit—expressly prohibited by provincial rules.

“The current state is unsustainable,” Hull underlined for his council colleagues. “Sadly there are no easy solutions.”

Hull knows that asking ratepayers to pay more will be painful for some consumers, but says there are few other choices. He noted that the committee had worked very hard, meeting for as much as 1,000 person hours. He praised the insight, endurance and hard work of his fellow committee members, including waterworks and finance staff, consumers, builders and contractors in the water sector.

He said the committee concluded the way out of this mess was to grow—to drive the revenue line by adding new users. To do this, the committee concluded it had to revisit connection charges to put the County back on a competitive footing with neighbouring jurisdictions. It recommended using the same methodology used in these communities to set the rate.

So instead of rising to $18,171 (as the County had planned) from $12,296, connection fees for a single detached home will fall to $10,339. Much more importantly for builders is that the discretion has been removed from council or municipal officials—this fee may now only be set by using the transparent formula common to every other municipality in the region.

This gives homebuilders a measure of predictability and gives the County a chance to prove it is committed to seeing more new homes built in this community.

“We need more development,” said Hull plainly. “Our population is shrinking.”

He noted that the province makes capital commitments to growing communities. That trend was working against the County.

Once the waterworks committee had cleared that hurdle, it had made the funding problem worse. It recommended a few technical actions, including extending the terms of the utility’s debts to better reflect the lifetime of the assets they funded. For example, some of the Picton wastewater plant’s debt were set to amortize over 20 years—even though the plant is expected to be in service for at least 40 years. Stretching the term to 30 years lessened the monthly payments, easing cash flow a wee bit.

The committee also recommended using more debt financing to fund its capital plans.

WHO WILL PAY
But ultimately the committee had to figure out how— or more accurately who—would pay to get the waterworks utility out of the hole.

Hull explained that the committee had briefly discussed the potential of rural residents helping to pay urban water bills by way of a waterworks levy on the general tax bill, but quickly concluded that this was a non-starter.

“In my opinion, I did not think this was politically viable,” said Hull, adding that left only the existing waterworks users to shoulder the weight of fixing the utility’s finances. “At the end of the day we have a solution which financially is extremely painful, but which is sustainable and offers the best promise of encouraging development.”

Other council members were largely appreciative to Hull and Councillor Janice Maynard for their efforts on the waterworks committee. That feeling may have coloured their responses to a tough set of recommendations.

“I want to commend those who participated on this committee,” said Councillor Kevin Gale. He was encouraged by the recommendation that recognized the need for more users and more residential development. “A great start.”

Picton Councillor Lenny Epstein wanted to know why the waterworks utility wasn’t relying on more debt to fund its capital plans. He noted that at the peak of its big spending plans, waterworks debt remained well within limits set by the province.

Chief Administrative Officer James Hepburn agreed that debt levels remained modest throughout the plan, but felt that offloading current costs onto debt would have a minimal impact on rates.

Hepburn acknowledged, too, that this plan was not without some risk—that assumptions of water use, revenue, grants from senior levels of government as well as operating costs may not be realized as predicted. To ensure the plan stays on track, his team will conduct an annual reconciliation of assumptions with actual performance.

He vowed not to let any new problems fester and become big ones.

Councillor Maynard assured her council colleagues the committee’s work wasn’t yet complete and that the plan wasn’t static.

“Our work is not over,” said Maynard.