A Councillor's Perspective

Up until May of 2011, the Joint Abbotsford Mission Environmental Systems Wastewater Treatment (“JAMES”) plant processed sewage from the Aldergrove area of Langley Township via a sewer main at the Aldergrove/Abbotsford boundary.  As a result of Aldergrove disconnecting from Abbotsford’s sewer system, the sewage volume at the JAMES plant between May and June, 2011, decreased by 12%.  While this may not seem like a large decrease, it had a surprisingly large impact on the cost of processing one cubic metre (m3) of sewage.  The sewer operating costs rose by 30% – from $0.51 per m3 in 2010 to $0.67 per m3 in 2011.

Residential sewage volumes are calculated to be 90% of the water volume measured by individual water meters.  Against this calculated volume, the City applies the rates and fees established by the Consolidated Sewer Rates and Regulations Bylaw.  For residents with water meters, the sewer rate in 2011 was $0.84 per m3 – this is 25% higher than our operating costs.   For non-residential users, the Industrial, Commercial and Institutional (“ICI”) users, sewage volumes are also calculated at 90% of their metered water usage, although the larger ICI users have separate sewage meters.  The 2011 sewer rates were:

1 – 10,000 m3                                    $0.62/m3

10,001 – 100,000 m3                  $0.57/m3

100,001 + m3                                    $0.49/m3

Interestingly, as a result of Aldergrove disconnecting from Abbotsford’s sewer system, all of the above ICI rates are now BELOW the $0.67/m3 processing costs.   Since May/June of 2011, residential sewer users are subsidizing the ICI sector.

Recently, the Audit & Finance Committee unanimously agreed that the City cannot afford to process sewage at rates below cost.  However, the increased ICI rates will be phased in over a 3 year period, which means that the residential users will continue to subsidize the ICI users by paying higher rates for 3 more years.  Additionally, at the end of the 3 years, the ICI user rate per m3 will be capped at 90% of the residential rate.

The rational for lower ICI rates was explained this way at the November 13, 2012 Finance and Audit committee; “traditionally, rates were lower for industrial and commercial to encourage those businesses to locate in Abbotsford.”  It would be interesting to know how many businesses located in Abbotsford because of lower ICI rates.

In my November 30, 2012 Blog entitled “What Should Our Water Rates Be”, a number of principles were listed that should be considered and applied to the sewer rates;

1. Every sewer user pays the same rate per m3.
2. Sewer rates must cover the cost of operating the system, including amortization (allows for capital replacement over the asset’s life).
3. A utility is supposed to operate on a break-even basis.  Therefore, the Sewer Fund should not be generating a $1.6 million surplus (2011), UNLESS specifically approved by Council for an identifiable project(s).
4. A uniform sewer rate should be based on affordable and sustainable budgets and capital plans…which should eliminate annual rate increases of 40% (as in 2008).  The City needs proper long-term financial planning which is affordable and sustainable.

Sewer rates increased by 95% since 2008 and are scheduled to rise by an additional 5% per year for each of the next 5 years.  These are significant rate increases that are inconsistent with the rate of inflation and out of touch with the current state of our local economy.

This is an area that needs further review in order to understand what is driving these significant operating increases.

 

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There are good reasons why the City of Abbotsford may wish to extricate itself from the Memorandum of Understanding (“MOU”) that was signed with the YMCA on February 28, 2011.  The underlying assumptions that were used when the City approached the YMCA included growth projections that are questionable.  Moreover, given the cost of this project, and the City lacking meaningful reserve monies to fund it, common sense would dictate that this project likely needs to be delayed.

Both the City of Abbotsford and the YMCA agree that the signed Memorandum of Understanding (“MOU”, dated February 28, 2011, is what it says it is, a memorandum of understanding.  It is NOT a legally binding contract.  There are a number of essential elements normally found in legally binding documents that are missing in this Memorandum.

In addition, the Memorandum does not provide much in the way of definitive “understanding”.  For instance, the MOU doesn’t state with any certainty what is being built, how it is being built, where it is being built, and who is providing the funding for what is being built, nor is there a set closing or completion date by which the legally binding in definitive agreement must be signed (merely an “anticipation” that a facility would open in 2016).

Even if the MOU was drafted in such a way as to make it binding upon the parties, it is questionable whether the City has the legal authority to gift $17.5 million to the YMCA, representing 50% of the capital cost of the facility contemplated.  This would seem to be the City potentially providing impermissible “assistance” to the YMCA.

I am no lawyer, but section 181 and 185 of the Local Government Act seems to define what “assistance” means; “providing a grant, benefit, advantage or other form of assistance, including:

1.  an exemption from a tax, fee or charge
2. (a) disposing of land or improvements, or any interest or right in or with respect to them, for less than market value;
(b) lending money;
(c) guaranteeing repayment of borrowing or providing security for borrowing;
(d) assistance under a partnering agreement

The Memorandum of Understanding does not clarify how legal restrictions against providing “assistance” can be complied with.  If the proposed assistance to the YMCA is legally sustainable, consider that:

1.  The City does not have the money to give to the YMCA.   The anticipated plan to come up with $17.5 million by 2015/2016, is to defer, eliminate or reprioritize other capital works in each of the next 4 years.  It will become a question of priority and need.  This leads to the second issue.
2. The case for another indoor pool has not been made.   Abbotsford’s current pool to population ratio (1,000’s) is about the same as the two Langleys and Coquitlams.  Surrey and Kelowna have almost half the pools per population of Abbotsford.  With another pool in Abbotsford, our pools to population ratio would be higher than Surrey, the two Langleys, Coquitlam and Kelowna.
3. When there is a real demonstrated need for another pool in Abbotsford, it might well be advisable to invest in a 50 m pool, not what is being proposed in the MOU.

Most of us would like to support good organizations that do good work, including the YMCA.  But in this time of fiscal constraints we must exercise good judgment, especially when spending money we don’t have.  So it is not a question of whether it is good cause, but is it a good cause we can afford and justify to future generations of taxpayers?

 

 

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The aftershocks emanating from the financial crisis of 2008 are still being felt around the globe.   The private sector adjusted fairly quickly to the reality of what some have dubbed the ‘new normal’.   However, the transition for governments has been much slower, often lacking any urgency to ratchet back spending for items that taxpayers would classify as ‘wants’, rather than ‘needs’.  This  brings me to the central question of this blog:  should  $17.5 million of taxpayers’ money  be given to the YMCA to attract them to Abbotsford?

To be clear, the YMCA is a great organization with a long and rich history of community service spanning some 150 years.  The City of Abbotsford would be greatly enriched if the YMCA located here.  The YMCA coming to Abbotsford, however, is not the issue.   The issue for this Councillor revolves around the following:

1. The City’s current backlog of AC water main replacement is estimated to be $14 million, plus an additional $20 million for water mains that must be replaced in the next 10 years.  The fact that we have accumulated a $14 million backlog (deferrals), confirms that we do not have the funds necessary to carry out basic capital works.

 

1. In order to accumulate $17.5 million to fund the YMCA grant by 2015/2016, the City will have to eliminate, reprioritize, or defer other General Capital Works for each of the next 4 years.  This will further increase the backlog of capital works.   Moreover, a deferral plan will have a significant impact on all areas of City operations and infrastructure.  At some point, this will result in increased property taxes, borrowing, or a combination thereof.

 

1. The City has a debt obligation via internal borrowings from the Development Cost Charges Reserve Accounts (DCC’s), totaling $29 million.  DCC monies are ‘Trust Funds’ provided by developers to solely fund growth related infrastructure projects. These internal borrowings must be repaid within 5 years, which means that $20 million is due in 2015 with the remainder of $9 million due in 2016. If these funds cannot be repaid within 5 years, the City may have no choice but to borrow the $29 million in order to replenish the DCC accounts in order to fund growth related capital projects.

 

1. The Memorandum of Understanding (MOU), that the City signed on February 28, 2011, does not ‘cap’ the City’s grant contribution at $17.5 million.  The City’s commitment is to contribute 50% of the capital costs of the facility, design and offsite upgrades, which could end up costing more than $17.5 million,  or it could be less – it all depends on the final costs.   In any event, the City will not have an ownership interest in the land or facilities despite paying 50% of the costs.

 

1. Subsequent to signing the MOU, the YMCA has requested that the City consider granting a Permissive Tax Exemption.  If approved, this means that the City would forgo significant property taxes on an annual basis.   Over time, the loss in property tax revenue would be much more than the City’s 50% grant.

 

1. A grant equal to 50% of the capital costs gives the YMCA an enormous competitive advantage over all of the other private facilities located in Abbotsford who provide similar services AND pay property taxes.   There are many unintended consequences that will result from this uneven approach, including increased subsidies (taxpayer’s money), for the City’s own facilities:  ARC & MRC.

Is a grant of $17.5 million to the YMCA really the best use of taxpayer monies given our current financial situation?    Shouldn’t our first priority be to repay the $29 million borrowed from the DCC accounts (a very risky decision in itself), and then be in a position to fund the $14 million AC water main backlog?   These are real ‘needs’, as opposed to ‘wants’.  In the end, the required funds will have to come from the residents who already absorbed large property tax and water rate increases over the last 5 years.

 

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