YMCA – Looking At The Bigger Picture

“When a man spends his own money to buy something for himself, he is very careful about how much he spends and how he spends it…when a man spends someone else’s money on someone else, he doesn’t care how much he spends or what he spends it on. And that’s government for you.” Milton Friedman (1912 – 2006), famed American economist and recipient of the Nobel Prize in Economics.

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.