At the Standing Committee on Finance meeting on Tuesday
September 16th, it was resolved, with Councillors Hern and Moss
opposed, to recommend to council that water rates be hiked 2.5% per year and
sewer rates be hiked 5% per year for the next 3 years.
For the 3 years 2012-14, the town of Golden council
increased both water and sewer rates by 5% per year based on an intuitive
belief that rates were too low. On Tuesday the committee was presented with a
staff report supporting rate increases based on Asset Management principles; so
why did I vote against the rate increases?
Both water and sewer rates provide sufficient revenue to
cover annual operating expenses with an amount left over to fund future capital
projects. The debate revolves around what is an adequate allowance for future
capital projects.
Accountants calculate an amount of amortization based on the
historical capital cost of the asset divided by the life expectancy of the
asset. Due to inflation this amount may be inadequate and should be considered
the minimum. Based on accounting principles, water and sewer rates are
adequately funded.
Recognising that the amortization calculated by our
accountants may be understating the future capital requirement, Asset Management
tries to calculate the future replacement costs of the asset by estimating
future capital replacement costs based on an assumed inflation rate. In periods
of low inflation, this guesstimate may overstate the future capital
requirements. Based on asset management principles, water and sewer future
capital requirements are grossly under-funded.
The staff report did not take into account the New Building
Canada Fund. Announced in 2014 by the federal government, the NBCF will provide
grants of up to 2/3 of the capital cost for water and sewer projects. On the
assumption that the town is successful in obtaining grants under the NCBF, the
town will only be responsible for a third of the cost of major water and sewer
infrastructure projects. On this basis, the town has more than enough funding
for future asset replacement even under asset management principles.
The New Building Canada Fund will provide grants for water
and sewer infrastructure but NOT road. Unfortunately most water and sewer
infrastructure are located below roads which must be excavated in the process.
Ironically the town has healthy reserve funds for water and sewer estimated to
be $1.4 million by the end of 2014.
The road reserve fund
is empty! Nil! Zero! We need to focus on building the road reserve funds or
we will not be in a position to take advantage of the New Building Canada Fund.
I voted against the rates hikes as I believe the water and
sewer are adequately funded with existing rates and that council needs to focus
on building a reserve fund for roads.
The opinions expressed in this blog are my personal opinions and may not represent the opinions of other councillors nor the opinions of council.
