Crumbling foundation

Consultant confirms massive hole in waterworks plan

The story started falling apart early last week. Shire Hall’s audit committee had been tasked with nailing down the assumptions that supported spending hundreds of millions on waterworks in Wellington and beyond. How many people are coming? When will they come? How much commercial development will they generate? And when?

Shire Hall wants to spend as much as $300 million on waterworks infrastructure, based on the belief that the population of Wellington is set to explode by four to seven times—and Picton is set to grow six times its current size. But where did these assumptions come from? What happens if they don’t pan out? And who will pay?

These questions have grown louder and more persistent over the past couple of years. That is until January, when Council agreed to hire a third-party consultant to take another look at the numbers. But by April senior leadership was reporting that there were no takers for the assignment— no firm was interested in doing the work.

Undaunted, Shire Hall decided it would continue to push ahead with the regional water plant and pipeline to Picton. It would do so without a third-party review. Instead, the municipality’s Audit Committee would ask a few questions, and that would be that. According to committee chair John Hirsch, the assignment had become more about assuring the “naysayers” rather than a rigorous inquiry.

But things went off the rails quickly last week when the committee met with their economics consultancy, Watson and Associates. Sean-Michael Stephen didn’t know the population growth assumptions that underpin the expansion plan in Wellington. Stephen, nevertheless, proceeded to blow massive holes into the County’s plan—letting daylight into the works for perhaps the first time in four years. He explained that existing ratepayers would pay the cost of these projects and interest on debt until development happened. In the case of commercial development, such growth may not occur at the scale proposed.

A COMMERCIAL HOLE
A third of the $100 million project costs were supposed to be paid by commercial development. But development charges— the source of this funding—in Wellington are ten times the rate in Picton and nearly four times the rate in Belleville. Indeed, they are much higher than other communities in the region. The councillor from Wellington, Corey Engelsdorfer, suggested it was unrealistic to expect one million square feet of commercial to be developed in this village—ever, but especially at the highest rates in the region.

That’s when the foundation gave way.

According to Stephen, these calculations were not based on expected market demand for commercial development. They were not based on a calculation of population or employment growth. The size of the commercial development and the $30 million in DCs to come from it were merely a function of the amount of land (28 hectares) accorded to Wellington in the Master Servicing Plan. The engineering consultants designing the plants had come up with this number—not the consultants whose job it is to predict such things.

The plan was based on lines drawn on a map of the village. (See story here.)

Folks on the committee struggled to understand what they were hearing.

“If I am gathering this correctly, this 927,000 square feet of non-residential is based on the fact that there are 28 hectares available, and we don’t have any idea if anybody is actually going to develop those 28 hectares?” asked Hirsch still processing the consultant’s words. “What happens if it doesn’t happen?”

Stephen said existing ratepayers would carry these costs until commercial development came along. But what if it never does?

“In the event you’ve got overbuilt infrastructure, and that you need to operate it and pay interest on the debt, then that is going to impact ratepayers,” explained Stephen.

According to Stephen, the only way to avoid this is to re-examine the size of the infrastructure, its timing and the hope that population growth vastly exceeds even 2021 assumptions to sop up the hole left by the overstatement of commercial development.

“If, for example, you believe that only a third of non-residential will be developed, that means that two-thirds of the infrastructure cost apportioned to that land just hangs out there with no funding source,” said Stephen.

Chair Hirsch wanted to know what that meant.

“How do we finance that? asked Hirsch.”

“That is going to be a rate-based impact,” said Stephen. Existing water customers will pay for it through higher bills until commercial development comes along.

To sum up, no analytical or predictive basis supports a third of the spending on Wellington’s waterworks expansion. Existing waterworks users across the County will have to fund the debt to finance this overstated development.

So what is there to do?

Stephen recommends a thorough re-examination.

“I understand there have been significant changes since the 2021 Master Servicing Plan that are likely going to significantly change these calculations, including the actual infrastructure,” said Stephen.

“If that is re-examined and it is determined that the infrastructure we have designed is no longer appropriate for the non-residential portion, either the infrastructure will be sized differently, or it’s getting supplanted by other potential developers.”

The message could not be clearer: The consultant has revealed a massive hole in the plan. Population growth predictions are outlandish.

The entire project must be re-examined in the clear light of day. Then, some hard questions have to be asked about how we got here.