Troubled water

Committee to seek opinion as to whether County’s connection charges are legal, and if so, will they stand up in court

The meeting was another compelling argument for the waterworks utility to be separated from the County’s governance and instead be overseen by a full-time commission. There are too many moving parts, whose mechanisms are not well understood that, nevertheless, possess the capacity to fundamentally alter the affordability of living in the County’s urban areas—at least in the six areas served by municipal water and two with wastewater services.

It has already done so. Waterworks bills have tripled for many users over the past decade. Combined with rising taxes and other homeownership costs, it may have prodded many give up on the County and seek more affordable living elsewhere.

Connection charges—the price for the privilege of becoming a waterworks customer— is several times more expensive in the County than it is in neighbouring municipalities in this region. It is certainly part of the reason new homebuilding in the County lags behind communities such as Quinte West and Belleville. It is surely part of the reason these communities are enjoying increasing population, while the number of County residents declines.

NOT SO SIMPLE
Waterworks seems a simple business. Keep the pumps working, the pipes unclogged and the product safe. But the cost of doing each of these things has risen sharply. Water quality and safety has put enormous pressure on costs since a municipal well in Walkerton poisoned several residents of that community.

The province dictates that only consumers of water and wastewater system may pay for this service—in the form of a monthly water bill or when becoming a customer.

When the costs are tallied—operating, maintenance, capital repairs and replacement and debt servicing— it is obvious the current waterworks finances are broken. Revenue from waterworks bills this year will be about $3.3 million. But expenses are expected to be about $3.0 million, with debt servicing costs adding another $1.0 million. That points to a shortfall of about three-quarters of a million dollars.

It turns out running this simple business is really hard.

CAN WE DO THIS?
When working through these issues in 2008, the then-council opted to increase waterworks rates, but concluded that a then-robust new homebuilding market could bear a significantly larger share of the cost burden. To do this, however, it had to avoid the Development Charges Act—used by virtually every other municipality—for it restricted connection fees raised in this way to fund growth-related costs only

Too much of the County’s waterworks deficit was due to a legacy of neglect and artificially reduced rates, primarily in Picton. It was far more than could be raised using the development charges regime.

So the County invented its own connection charges. Overnight, the County became an uncompetitive place to build new homes—charging several times more than neighbouring communities for the same service.

Not surprisingly, new homebuilding dried up in the County, aided by the collapse of world wide credit markets. Yet as housing rebounded in the region in the years since, the County, hobbled by extra costs and a thicket of regulations, failed to keep pace.

The result was that far fewer homes were built than the waterworks plan had anticipated, creating yet another hole in the plan—a significant and expanding revenue shortfall.

The plan to tax new home buyers to ease the burden for existing consumers had backfired.

The administrators of the County’s waterworks system are, however, set in their ways. They aren’t convinced that eyewatering fees are discouraging new homebuilding. Moreover, they are reluctant to pursue any of the other three options available: higher water rates, more debt or reduced capital expenditures.

In fairness, all three have been tweaked as part of the current rates review process—but likely not nearly enough to eliminate another hike in connection charges: proposed to jump from $12,296 to $18,171, let alone reducing this fee so that it fits within the Development Charges strictures. (Keep in mind Quinte West charges $3,577 to connect to its waterworks sytem, Belleville $8,789 for the privilege.)

WILL IT WITHSTAND A LEGAL CHALLENGE?
Committee member Graham Shannon argued that the way the County calculates connection fees is inappropriate and likely illegal under the Municipal Act. He was permitted a more full-throated opportunity to make his case last week before committee members.

Some members are clearly concerned about the implications. Councillor Treat Hull has asked that the question be put to the County’s legal counsel. Chief administrative officer James Hepburn and works chief Robert McAuley said they have received the verbal opinion of the County’s lawyer on the issue in the past, but agreed it would be useful to get it in writing.

Shannon, clutching a legal opinion by respected municipal lawyer Quinto Annibale, says the opposite. He argues that it isn’t enough that the County’s lawyer support the County’s position. Instead, he wants a third party with expertise on development charges to assess the legality of the County’s connection charges.

“It’s not enough that our lawyer has an opinion and your lawyers support your actions,” said Shannon. “What matters is whether it will stand up to a court challenge.”

The committee decided to put off that debate until it had the County’s lawyer’s opinion.

Meanwhile, Hepburn and McAuley were warming to the notion of regulating connection fees under the Development Charges Act. The CAO acknowledged it would be easier to administer under the provincewide regime.

Robert McAuley suggested that it would be useful to ask the County’s consulting economist, Andrew Grunda, to push the changes the committee has made so far, through the model so to better assess the current impact on rates and debt. Doing this, he said, would help him determine which way to go with connection charges—either the DCA or continue to be self-guided.

“Then we can see the changes we’ve made,” said McAuley. “Once we see this, it might affect my decision.”