Comment
Lost revenue
Council pushed back on a Picton Library expansion project last week. Originally pegged to cost about $1.2 million, it was greenlighted by council in March despite the fact that the price tag had already risen to $2 million. On Thursday, the project proponents presented their chosen contractor and were ready to go. Except the cost was now $2.7 million.
No worries, said the project spokespeople. They would raise the difference in donations and such. Council balked, understanding the acute funding pressures heading their way this winter and the risks of a runaway capital project. Specifically, that any shortfall would likely be borne by the municipality.
Oddly, a couple of councillors who were ready to approve the Picton Library’s proposal as presented, suggested neither they nor most of their council colleagues, believed the $2 million budget presented in April anyway. It was a bizarre argument that raises serious questions: Why greenlight a project in which you don’t believe the numbers? If their project plan wasn’t credible in March, what makes it more believable now? This seems a rather careless way to manage public money. But for the purposes of this column, I will set this aside. For now.
Nor should anyone who has doubts about this project, be cast as anti books/libraries/literature or anti-anything. At issue is not whether our libraries exist, but rather can we afford to expand this particular library, at this time. And what impact will funding expansion of one library have on the other facilities in the Prince Edward County library system? These are fair questions. And council is to be commended for asking them.
Now, however, here is the bit at which I want to take a closer look. It is a little complicated, but important. I hope you will stay with me.
The Picton Library expansion champions expect to raise about $1 million through fundraising. That’s good. But this leaves the bulk of the funding for the Picton Library expansion to come from the municipality through a variety of buckets of public money. One of those buckets is revenue derived from development charges (DC).
Project proponents contend this DC money ($508,000) shouldn’t be counted as a municipal contribution because it is raised specifically for libraries through the fees charged on new homebuilding. And they have a point. This money is estimated, and included, as part of the exercise to set development charges. It is among a long, long list of capital projects prepared and estimated by municipal staff, in anticipation of growth. The entire purpose of development charges, after all, is to ensure that expanding services for new homeowners in the County is paid for by new residents rather than adding to the cost of services to existing residents.
But the County isn’t growing. Our population is declining.
I contend uncompetitive development charges are, at least, part of the reason.
Here’s why: Through much of the previous decade, the County enjoyed about the same level of new home building as Quinte West and Belleville. Very roughly speaking, we each built about 150 new homes per year. In the fall of 2008, credit markets froze around the globe, thrusting us all into a deep recession. In 2009, in a fit of really bad timing, the County adopted development charges. For the first time. Most other jurisdictions had been collecting them for more than a decade, so our leaders decided to make up for lost time, imposing the highest development charges in the region. By a wide margin. This decision would have profound repercussions.
The County’s consulting economist assured us at the time that our neighbours would soon catch up to our rates. They didn’t. Today the County charges $15,843 for each new home. (That’s a discounted rate from the nominal rate of $19,186). Belleville charges $12,321 and Quinte West is $9,829. It should be no surprise that Quinte West is building tracts of new homes marketing itself as Prince Edward County.
The recession impacted new homebuilding everywhere. But not uniformly. While Belleville and Quinte West new home markets plateaued, before rising again, the County new homebuilding fell off a cliff. The County issued just 69 new home permits in 2012. Building has recovered somewhat, here and across the region, but the County continues to lag far behind our neighbours—our competitors for new homes. New residents.
Here is the upshot: Since 2009, both Belleville and Quinte West have built approximately 875 more homes than has the County. Using a back-of-the-napkin calculation, considering $2,500 in property taxes for each home they built that we didn’t. That represents lost revenue to the municipality of $2.2 million. Each and every year. That is a stream of revenue that sure would be handy in order to fix roads and bridges. Build affordable housing.
Let’s go further and calculate the lost development charges. But let’s assume we could go back in time, wiser, knowing what we know now, and reset DCs at a more competitive rate, let’s say, $10,000 per home. That equals $8,750,000 of lost development charges in a decade.
That’s a lot of library expansion.
It is abundantly clear that the hard choices we face now are a direct result of a poor understanding of market mechanisms by everyone at Shire Hall a decade ago. We believed, and some still do, there was no cost to high development charges, uncompetitive development fees, and a restrictive building regime. We know now this was a mistake. We should have known then there would be consequences to ignoring market forces.
Council enters into perhaps its toughest budget in a decade this winter. They begin this exercise, unable to fund roads. Population is declining. Shire Hall manages and maintains more than 80 buildings. Each is deteriorating, with scant funds to fix them. And seemingly no ability to part with any.
The tragedy is that it didn’t have to be this way. Had we just kept pace with our competing neighbours, our financial picture would have been massively improved.
Sadly, it is not at all clear the lessons of this lost decade have yet been learned.
Comments (0)