In my last blog post, I explained why I’m concerned with the water rates charged to residents. These rates appear to be excessive, unjustified, and unsustainable and collectively represent many millions of dollars. This post explains what the City did with the money that was collected from residents.
The surplus funds have been used to subsidize two main groups. The first group is the Industrial, Commercial, Institutional and Agricultural sectors, more commonly referred to as the ICI sector. These groups pay a water rate much less than the rate paid by residents. The residential rate is $1.15 m3, while the ICI rate ranges between $0.69 & $0.92 m3. Since water is a basic life necessity, a common rate should be charged to all users since the cost of water is the same regardless of who uses it.
The second group that receives a subsidy from the residential water users is the Development industry. Developers pay a Water Development Cost Charge (DCC) to fund the costs of adding new water infrastructure to support the growth that comes as a result of new development. The City’s policy is that growth pays for itself. In other words, existing residents should not have to pay to increase the size of water mains or expand water sources that arise because of new development. Those costs are supposed to be paid for with DCC funds.
Between 2007 and 2012, residential water rates increased 80%. This large increase led to surplus funds in the Water accounts. For example, in 2011, the surplus amounted to $4.6 million. The City used this money and $23 million collected from previous years (2007 thru 2010), to fund the construction of capital projects.
In the 2012 Capital Plan, the City plans to spend $25 million on new water projects. Most of these projects are identified in the Water Master Plan. These various projects are classified by group with a notation as to who should pay – existing residents OR developers. Well over 80% of the Capital projects listed in the Master Plan are directly linked to and required by development growth.
A good example is the Stave Lake Water Main project, which was recently renamed to Gladwin Road Transmission Line. This project significantly increased the size of the water main along Gladwin Road and is clearly a growth related project. The cost of this project is estimated to be $20 million. Approximately half of the pipe was installed in 2011, with the remainder scheduled for 2012. Without question, this is a DCC project; however, it was funded entirely from funds provided by residents via the surplus water accounts. Not one dollar came from Developers. Why? Because there are no DCC funds available for ANY projects.
At December 31, 2011, the DCC Reserve Fund (basically the money saved from DCC contributions available for these projects), had anegative balance of $1.955 million. It is noteworthy that the average DCC’s earned per year over the last three years is $990,700. At that rate, it will take another two years before the DCC Reserve Fund is replenished to a zero balance. Going forward, there will not be enough DCC money to fund any project of any size for many years.
How did this happen?
While residential water rates rose 80%, the DCC rates remained the same from 2008 to 2012 – there was zero increase. There’s another factor that comes into play regarding DCCs. The Province allows the City to reduce the DCC rate by what is more commonly referred to as the Assist Factor. This provision recognizes that even though a capital project is required by growth and necessary for new residents, existing residents will receive some benefit from the project. In many neighbouring communities, the Assist Factor ranges between 1 and 5%. Historically, this has also been the case in Abbotsford. In other words, the residents pay a very small percentage of some projects required as a result of growth caused by new development.
Currently, the Assist Factor in Abbotsford is 30%. This means that the residents are paying a 30% subsidy for infrastructure costs that should be borne by the development community that caused the need for new water infrastructure.
Whether past Council’s clearly understood this, or not, this policy is simply unfair; is unaffordable; and it’s unsustainable. Residents shouldn’t have to subsidize development by 30%. If the Stave Lake Referendum had been approved by the voters, the Assist Factor would have increased to 90%, while 10% would have been paid by DCC’s – that too is unsustainable.
Following is what is needed:
- DCC program needs to be updated ASAP
- DCC rates need to be increased to take into account the true cost of development – Focus on what projects will cost and less focus on what the DCC rates are in other jurisdictions
- DCC assist factor be reduced back to a range of 1 – 5%
- DCC reserve debt must be repaid ASAP
- Major capital projects and growth overall need to be slowed down while DCC reserves are replenished to a level commensurate with a City of our size.
- Encourage development in the ‘core areas’ (where roads and other infrastructure are already in place), while discouraging growth in the outlining areas, unless developers are prepared to fully fund the cost of infrastructure required to support those developments, including future downstream costs – perhaps a two-tiered DCC rate structure needs to be put in place.