Paying for the Costs of Growth

Three years ago, following the growth of Barrie’s boundaries, the Council of the day established a principle that “growth should pay for growth”.  With existing Ontario legislation – that’s easier said than done.

In fact, paying for the costs of growth is one of the biggest challenges Barrie has had for decades.  Right now Council is facing this challenge again.  It’s my view that today’s taxpayers should not have to shoulder the costs of growth.

Last week at Development Services Committee there was an update on the plans for growth in Barrie.  First off, growth over the coming years will be fundamentally different than in the past.  Nearly half of new population, and more than half of new jobs, will be housed within the existing urban area through better use of vacant lands and intensification.

This typically has it’s own fiscal benefits, for obvious reasons.  Where existing roads and pipes can handle more development, no new infrastructure need be built (although if existing pipes and roads have to be expanded – that can be very expensive.  Where you intensify is therefore hugely important).

With regards to the new lands, costs for all the infrastructure needed for growth were presented to Committee.  This includes (among others) highway interchanges, expanded arterial roads, community centres, the network of water and sewer pipes, and some some proposed service level improvements for things like additional bike lanes and transit service.

Of course, in addition to growth-related costs, Barrie City Council is committed to doing to more to fix what we’ve already got.  So in addition to growth, add to these costs the substantially larger amounts needed for rehabilitation of existing infrastructure (asset management), such as resurfacing roads and repairing pipes, buildings, and equipment that is at or past the end of it’s useful life.  Add it up and the total costs are substantial.  Highway interchange costs alone were very high, as one example.

Over the past few months, the growth planning team has been working to reduce these costs through a variety of measures – addressing essential needs first, and spreading out costs where possible, while still building the infrastructure we need when we need it.

The short version is a revised scenario would see an annual capital plan of $127M – although the plan is heavier in the first ten years as that is when more of the growth-related infrastructure needs to be built ($140M annually is the forecast for 2012-2021).   This includes water and wastewater capital plans.  Although this may seem like a massive number – it’s worth keeping in mind that Barrie had an annual capital budget of about $100M for many years, until the current Council reduced spending substantially as part of fiscal austerity.

I’ve been working on the numbers as I would like to see this Council adopt a fiscal plan for growth that does not put any of the costs of growth on our current taxpayers, or incurs any long term debt.  This is a stretch goal, but I believe it is achievable.  Here’s what it could look like:

As reported to Development Services, the reduced cost scenario at the moment is:

  • Growth related costs at about $72M per year.
  • Asset management (fixing what we’ve got) costs at about $55M per year.

There could be some shifting between these two categories but this is a reasonable ballpark).  Very roughly, about two-thirds of growth-related costs are eligible for development charges.  In my opinion this should be higher, but there are a series of limits in the Development Charges Act that limit the calculation of DC eligible costs, and some growth related costs are deemed to also have benefits to existing residents.  As a rough number, however, we might expect $48M a year from DCs, ultimately.  This leaves a balance of $24M annually to fund growth-related costs that has to come from elsewhere.

In addition, ALL asset management work must be funded from the tax base or from other sources.  At an additional spend of $55M per year, that’s a total of $79M – call it $80M for argument’s sake – that has to come from sources other than DC’s.

One approach to funding this could be as follows:

  • Transfer from reserves – average $35M annually
  • Powerstream dividends – $6M annually
  • Federal gas tax funding – $11M annually
  • Federal/Provincial grants – $10M annually
  • Water/Wastewater funds – $18M annually

Total – $80M

A few notes on this:

–       Transfer from reserves will need to continue to increase at $1.5M annually for 20 years, from roughly $20M today to $50M by 2031.  This will need to be accommodated in the operating budget, however, the Provincial upload is producing more than this annually in savings – assuming the uploads continue.  It’s my opinion that we need to do more work on a “pay as you go” basis and ultimately we need to the City to be able to fund more asset management work – roads, pipes, building repairs, etc.  This will take 20 years to get to a level of $50M/year.

–       Fed gas tax – the Federal government has recently indexed the gas tax and provided a calculation of future revenues.  We receive about $8.5M today but this will rise to $12.5M by 2031.

–       Fed/Prov Grants – this is admittedly a “finger in the air” amount.  But $10M a year would be less than what we have received annually in recent years, even after the stimulus period.  The Federal government has recently announced a new $53 billion infrastructure program over the next ten years – which on a per capita basis would translate into more than $200M for Barrie (or $20M per year!).  So $10M is probably a safe estimate, given that there is also Provincial funding that will be certainly be available for growth-related costs such as highway interchanges.

–       Water/Wastewater – this would be $6M annually from water and $12M annually from WW, which is an increase, but achievable without substantial pressures on rates, given substantial additional DC funding is also expected within the water and wastewater budgets.

 

The capital numbers and development charge numbers are still in flux.  Much may change as the numbers are finalized over the coming weeks.  However, I wanted to provide you my views on how we will be able to address the substantial costs of growth without impacting current residents and taxpayers.  As always, comments welcome.