Hell to Pay

Ron Bolin: August 28, 2012

At its meeting of August 27, 2012, our Nanaimo City Council was notified by Staff of the process for the preparation of the 2013-2017 Financial Plan.  Here is what was said in the agenda about the process:

“City staff have been installing a new budgeting program, which means that the preparation of the 2013- 2017 Financial Plan will be completed slightly later than usual. The current plan is for the staff review to be done in November, with the budget to be presented to Council at the Committee of the Whole meeting on 2012-NOV-26.

Thereafter, there will be an opportunity at each Council Meeting and Committee of the Whole Meeting for Council get information, discuss the budget and make amendments. Staff will bring forward a bylaw to adopt the financial plan in January.

The Community Charter requires municipalities to have a process to consult with the community regarding the financial plan.  (emphesis mine) In keeping with the new agenda format, when the budget is on the agenda for discussion by Council, there will be an opportunity for the public to address Council (or COW) just prior to the agenda item. As in the past, budget information will be available on the City’s website and the previous budget forum will be modified to a new question and answer format.

With the adoption of the 2012 to 2015 Corporate Strategic Plan, staff preparing budgets will be directed to ensure that their budget submissions consider and respond to the new strategic plan and are consistent with the four pillars of sustainability: economic health; environmental responsibility; social equity; and cultural vitality.

Any new initiatives and projects should support one of the six strategic priorities which were approved in the plan:

  • 1. water;
  • 2. waterfront enhancement;
  • 3. Asset management;
  • 4. community building partnerships
  • 5. transportation and mobility; or
  • 6. taking responsibility.

The City is currently engaged in a process of setting priorities in relation to initiatives within these six strategic priorities, although many activities within the priorities are already underway and should continue on their existing schedule. The City Manager’s direction to staff in preparing the 2013 – 2017 Financial Plan is that maintaining and preserving our existing assets and functions is the priority over expansion of services.”

 

Before discussing some specific questions about  the upcoming budget, it should be noted that upon presentation of this report, Council did discuss the order in which the six strategic priorities were presented, noting that the priorities were not provided as an ordered set, but that their relative significance was at random.  That being said, there was no substantial discussion of any parameters which were to be given to Staff in preparing the budget.  Rather the ball was left for Staff to serve into whatever quarter of the court they might choose.   I believe that Council’s continuing failure to provide any sincere advice to Staff regarding taxpayers’ ability to pay is a major failure.

This situation has usually meant that Staff takes what they are doing and spending now, adding a project or two and then adding some general pay increases for Staff which leads to a tax increase of some 3 or 6 percent.  This year may be substantially different.

This year a flock of our chickens may be coming home to roost.  The City has undertaken a long delayed (or overlooked) Asset Management review of our infrastructure, i.e. roads, water services, sewer services, etc.  and their maintenance costs.  While the final report is not yet out, it is due to hit sometime before the budget is released and we have seen some hints of the costs which will hit us if we wish to maintain the level of services which we currently have.

The estimated value of our existing infrastructure has been set at $1.8 Billion (with a B) dollars and with new waterworks, a dam, etc. this figure is estimated to continue to rise rapidly.  It has been estimated by experts in the area of asset management that the cost of maintaining such infrastructure is about 2% per annum, i.e. an average replacement period of 50 years.  The arithmetic to get from these figures to an annual rate of expenditure is simple and one arrives at a figure for maintaining our existing Nanaimo infrastructure of $38 Million (with an M) per year.  $38 million dollars represents a bit over 45% of all the annual property tax money taken in by the City of Nanaimo.  It can also be noted that this figure is repetitive each year, i.e. if nothing is done in year one, the figure needed in year two will be $76 million: the burn continues and if not paid, creates a bigger and bigger hole each year.

While Nanaimo has not, of course, totally ignored maintenance, it remains to be seen when various infrastructure was introduced, its individual estimated life (2%, e.g. a 50 year life cycle, is an estimated average), the extent to which it has been maintained over the years, etc.. This is the gist of the upcoming report which will identify these factors and the deficit as it currently exists.  It has been variously, if not finally, reported to be between $11 million and $15 million dollars per year: in and of itself, a 13% to 18% tax increase (where 840,000 equals one percent of tax revenues).  That is a huge increase and I don’t expect it to happen all at once, but we will have to pay close attention to how the problem is handled.  This also means that when Council votes on future infrastructure projects they need to include the annual maintenance costs at the same time.  For example, the circa $12 million dollar Bowen road and bridge upgrade requires approximately $240,000 per year to be allocated annually to its upkeep.

Another chicken can lie in the Municipal Employee Pension Plan (a province wide plan) which in 2009 was underfunded by $1 billion (with a B).  While we won’t know that value until next year as an actuarial review is only done every three years, we can anticipate that it hasn’t been reduced over the last three and that municipal pensioners will soon come calling for the difference. It has been estimated that 51% of all exempt Staff in the City of Nanaimo will be eligible for a full pension by 2016.  (How we got there is another question.)

Neither has a review of our Development Cost Charges for new development been undertake in over three years.  This places increasing costs on existing property holders to subsidize new developments.  How much should existing taxpayers pay to subsidize newcomers?  A discussion is badly needed and it should take place with the upcoming budget, but it appears that it will be postponed.

Nor is there a coordinated report on the amount of money which is distributed at Council’s discretion in permissive tax exemption, grants, allowances, etc.  The total amount is unknown but I would estimate it to be on the order of at least 2-3% of annual taxes, i.e. $1.6 to 2.4 million dollars a year.

Do yourself a favour.  Pay particular attention regarding this year’s budget and plan. The price of ignorance and/or inattention can be very high at any time, but particularly in the world in which we currently find ourselves.  A short and interesting video clip on asset management which was provided to me by Jim Kipp who, in turn,  credits Wally Wells with providing it to him, can be found at:

http://www.youtube.com/watch?v=iR_BJKAo0dA&feature=plcp

A video of Monday’s (August 27, 2012) COW meeting can be seen at:

http://www.nanaimo.ca/meetings/VideoPlayer/Index/COW120827V

Council’s discussion of the budget can be found under item 7(c), and Questions with the answers received can be found under item 14, Question Period.

Your comments are welcome and your questions to Council expressing your interest are important.  Let’s not let another budget slide by without careful scrutiny.  Someone needs to watch the watchers…

 

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