Real Estate making a comeback in Golden

The Kootenay Real Estate Board (KREB), in data released last week, reported that the total value of real estate sales for the East and West Kootenays for the nine months to the end of September, 2013 was $484 million, a decline of six percent (6%) from the same period for 2012. The total number of properties traded in the first nine months of 2013 was reported to be 1834, a decrease from 1942 for the same period last year; a decrease of six percent (6%). The robust recovery in the Kootenay real estate market that started in 2012 appears to have stalled. 

In Golden in 2013, the real estate market is making a comeback. Cumulative residential property sales for the nine month period ending September 30^th 2013 were $8.6 million, an increase of twenty three percent (23%) from total sales of $7 million for the same period in 2012. Thirty seven properties were sold during the first nine months of the year compared to thirty six properties that traded hands in the same period for the previous year. 

The numbers tell a significantly different story in Rural Golden with a much weaker real estate market so far in 2013. Thirty residential properties sold in the first nine months of 2013 compared to thirty-nine properties that sold during the same period in 2012. Total real estate sales for the nine months ending September 30, were $9.7 million in 2013 compared with $12 million in 2012, a decline of nineteen percent (19%). 

Kicking Horse dyke erosion

In response to a question I posed about the erosion of the Kicking Horse dyke by Fisher Road, I received the following response from Jon Wilsgard.

"Staff are well aware of this situation and I have walked the area.  Essentially an approximately 90m section of the dyke in the area of Golden Transfer has eroded to the toe of the dyke.  As recently as 2 weeks ago the area was visited by our staff and those from the Ministry of Environment including an engineer to assess it.  Clearly, work will have to be done to this section and they have stated so; however, in the opinion of the MOE staff, this does not constitute an emergency.  Non emergency dyke works may only occur in the summer months due to fish habitat (window) constraints.  A further assessment has been suggested to occur in the spring after the ice has melted to determine the area’s status and where to go from there.

In the meantime we are awaiting engineering prescriptions on rock volumes and gradation and will be spending some money to stockpile some in preparation for this project.

The eventual work to be done is likely 6 figures.  Notwithstanding the fish window, if we were to undertake the work ourselves the tax payers of Golden would be on the hook for the entire amount.  There are two ways to obtain provincial funding to do this work.  The first is if an emergency is declared by the province – then PEP would pay and we could do the work. But that is the province’s call.   The second is to apply for grant funding  - of which there is no current intake – it will likely be in late 2014 for 2015 works.  We do intend to engage in that process when it becomes available.

Gravel bar scalping may occur only when the bars have reached a certain height and then through application as well.  Again, this is grantable, when there is an intake.

I agree that scalping needs doing, and we have every intention to apply for funding when it becomes available and when DFO/Province deem we are eligible.

In the meantime, we will continue to monitor the area and if we see things worsening we will call the MOE staff back for their thoughts.  Despite their current assessment, I don’t want to take any chances in missing something happening but we are authorized in no way to undertake in-stream works at this time."

New Building Canada Plan

The Golden Star reported in the October 2, 2013 edition that the Town is preparing for the next round of (New Building Canada Plan) grants and that long-term borrowing was suggested by staff as the best option.

I am totally opposed to the Town borrowing for this purpose.

Below is a brief that I made to council during the recent strategic planning session, which explains amongst other things, why increasing debt load for this purpose is not sustainable. This brief was prepared by myself and George Ross, (CA-retired). Mr Ross was the Chief Financial Officer for a major corporation prior to retirement.

Fiscal responsibility

What does it mean to be fiscally responsible?  Does council have appropriate fiscal policies in place? Does council have a clear set of financial goals and priorities that are fiscally responsible? Does the present 5-year plan reflect fiscally responsible policies? As with many concepts, fiscal responsibility means different things to different people. It must also be recognised that because of its nature as a service provider with revenue based on property taxes, responsible fiscal policies for municipal governments are different from the policies of senior levels of government. If council were to agree on a definition of fiscal responsibility, then councillors could measure all its policy decisions against that definition.

Fiscal Responsibility:  for municipalities means developing financial policies that are consistent with the long term provision of the services required and expected to sustain the community and its assets.

In an attempt to put financial constraints on municipalities and to enforce a level of fiscal responsibility, the Community Charter stipulates that a municipality must adopt a financial plan in which “The total of the proposed expenditures and transfer to other funds for a year must not exceed the total of the proposed funding sources and transfers from other funds for the year”.  A balanced budget!

Municipalities must conform to Generally Accepted Accounting Principles (GAAP) and the PSAB prescriptions. Under GAAP the statement of operations must include as an expense an allowance for depletion, depreciation and amortization (DD&A). This should apply to both reporting in the financial statements and budgeting in the 5-year plan. 

In 2012 the town reported a deficit of $500,517. In 2013 the budget shows an operating surplus of $1.3 million; however this was calculated without allowance for DD&A. When the financial statements are prepared at the end of the year an allowance for DD&A must be included. After applying an estimated DD&A of $2.4, a deficit of $1.1 million will be reported. 

The most powerful number generated by PSAB 3150 practices is the 2012 depreciation of all Tangible Capital Assets (TCA) owned by the town: $2,399,631. This financial term represents the collective asset value lost in a single year of in-service life. For the purposes of Council’s strategic planning, this is the ‘minimum’ annual investment target that should be met to ensure future delivery of services dependent upon these TCA.

If fiscal responsibility for municipalities means developing financial policies that are consistent with the long term provision of the services required and expected to sustain the community and its assets, then in future when constructing the 5-year financial  plan, DD&A should be included as an expense and that budget should not have a deficit. Balancing the budget must be achieved by adjusting either revenues or expenses or both. This will provide the cash flow to ensure future delivery of the services dependent upon these TCA.

Asset Management Plan

Depreciation is only an estimate of the capital investment required to maintain the assets and is rarely sufficient because of inflation. The working life of the asset is only an estimate and/or the asset may not need to be replaced. Senior government grants can also contribute to the capital required for renewal through grants. For these reasons it is important to have a sound and up-to- date asset management plan. 

Reserve Funds

The timing of expenditures on replacements and asset renewal will not match the timing of the charges for depreciation. Hence the need for reserve funds! 

Balancing the budget cannot be achieved by borrowing.

Philosophically; while it is true that capital expenditures on an individual asset should extend its life for the enjoyment of future generations of tax payers, it is also true that today’s taxpayers are enjoying assets that are depreciating and will have to be paid for by next generation taxpayers. 

DD&A (Depletion, Depreciation and Amortization) represents the collective asset value lost in a single year and as a matter of equity the taxpayers should pay for that use in the year it was enjoyed.

Practically; using debt to fund DD&A is unsustainable. Assuming that the town has a borrowing capacity of $10 million and that the DD&A is $2.5 million annually; then after 4 years the town would have reached its debt limit and would no longer have the option to borrow. The assets on the other hand continue to depreciate.

To achieve financial stability, the town must adjust revenues and expenses to create a balanced budget after an allowance for DD&A. In an ideal plan, cash flow from DD&A plus grants would take care of all the town’s capital expenditures.

New Building Canada Fund

The town should be in a position to take advantage of the New Building Canada Fund (NBCF) without resorting to borrowing and has already identified capital projects that were discussed during last year’s budget deliberations. Staff should determine which projects qualify for the NBCF. 

I can identify 3 sources of town funds for matching the NBCF.

·         Capital already allocated in the 2014 budget; $1,809,184

·         Water and sewer reserve funds; $600,000

·         Budgeted expenditure savings; $400,000

Every $1 saved is worth $3 in NBCF projects.

Keith W Hern

2013-08-26

The opinions expressed in this blog are my personal opinions and may not represent the opinions of other councillors nor the opinions of council.