Deputy Mayor Stephen Chase wrote a great article that appeared in today’s Telegraph Journal, check it out below!
In its most recent presentation to Saint John Common Council, the chairman of Saint John’s economic development agency identified the implementation of a modern water treatment and delivery system as an economic development initiative: it will encourage people to choose Saint John as a place to live and do business. This claim is an endorsement of council identifying water treatment as its No. 1 priority.
While this is an important quality-of-life issue that must be achieved, water needs to be affordable or we not only risk losing any competitive advantage that an otherwise quality system would provide but also place on the ratepayers an onerous burden of parsimonious consumption even for the bare necessity of use. This would create a situation that would be the exact opposite of what we wanted to achieve.
Water costs are rising
The city’s general operating and capital borrowing program (which is distinct from the water utility operating and capital borrowing program) provides an opportunity for council to implement some fiscal policy measures that will dampen the rising cost of water rates, which is expected to increase by more than 20 per cent by 2012 from the 2009 rate. This will further push Saint John’s water rate, which is already the highest in Canada, a good distance past those of other Canadian municipalities.
This is not good. It will be a determent to attracting new residents and commercial enterprise, and will also result in a financial water hammer that will be untenable for those already hooked up to our pipes. Moreover, this rate does not yet account for the cost to build and operate the much-needed water treatment plant, which is estimated to cost $257 million, and the $100 million waste water treatment system currently under construction.
To truly make this council’s priority, water rates need to be wrestled down so that growth – both residential and commercial – is encouraged along with quality of life. This strategic fiscal reform can be achieved by way of policies and legislative changes that skilfully link the operating and capital budget programs together in support of achieving water treatment at affordable measures.
The solution
I believe the water utility’s operating funding and the repayment of debt incurred by the water utility’s capital costs should be proportionally shared from the general tax fund. At present this is not the case, because the water utility budget must be built on a user pay, cost-recovery basis. All operating expenses and debt payments for water and sewer capital investment must be recovered in water rates.
Although ideally user pay is a good management practice, the difficulty is that Saint John has large fixed costs and demanding infrastructure needs with a relatively small customer base, to create rates that would be affordable and sustainable on a user pay system alone.
This proposal would need to be considered in the context of balancing the city’s overall finances with service needs. The collateral impact would mean lowering spending in the general capital program if payments to the water utility were to be made without adding further pressure to an already high tax rate; there’s no logical sense in turning down the dial on one rate only to increase another rate.
Instead of using general operating funds to make debt payments on capital projects not deemed a priority, those funds could used to maximize the funds allowed to be transferred to the water utility. This is premised on water treatment being council’s top priority – this priority being formed on quality of life and economic development.
To effect this proposed fiscal policy, council would have to consider wisely which infrastructure projects requiring capital borrowing are the most beneficial to growth and service delivery. Some projects may not make the cut.
Why the city should pay
Critics of this plan generally offer three arguments:
*Water and sewerage is a utility and therefore should be self-supporting on its service and consumption charges.
This typically a good management practice and a reasonable argument to an extent; however, in Saint John’s particular circumstance wherein literally vast century-old systems must be replaced, this approach creates a debt burden that is unwieldy. Moreover, provincial and federal governments provide grant money for water projects. This grant money comes from the taxpayers’ coffers, establishing the principle of subsidizing a water utility from general tax funds. The city’s own general tax fund should not be treated any differently under this practice, when it is the most directly connected.
*The use of water meters will bring down rates by controlling the amount of water used.
Don’t take this argument to the bank. Saint John water meter rates currently are higher than the flat rate. Based on conservative data from Statistics Canada, a 2.5 person household would be paying $1,062 per year if they had a water meter in their Saint John home. Compare that to the $864 flat rate currently paid by most households and you should get my point. I would also suggest that many households in Saint John are double the average household size that Statistics Canada uses for its data.
Saint John’s metered pricing structure is so high that even to meet the current lower cost flat rate, each household would have to reduce its water consumption by at least one half – a worthy cause in terms of water stewardship yet a mighty challenge for any household.
*Some households in Saint John do not use municipal water, so it would unfair to provide greater support to the water utility through the general tax base.
Any program that would advance the overall good of the city should be supported by all taxpayers because, both directly and indirectly, all households will benefit. Further, consider that the city already provides services that do not serve all residents – for example, public transit.
I find it difficult to accept that we can provide funds to subsidize public transit (operated by a commission) which not everyone needs or uses, yet we cannot provide funds to the water utility that the majority of residents both need and use. However, if this were to be a show stopper, the city could use a sanctioned measure to ensure these neighbourhoods are not taxed unfairly. Council could implement “tax zones” which is permitted under the Municipalities Act. These zones would reflect taxes set in regard to whether the neighbourhood is serviced by water or not.
Council needs to take measures to avoid the rate shock facing Saint John citizens. These measures go beyond the dependence of federal and provincial largesse for water service projects in Saint John and the principle of wise water use by consumers. At two-thirds funding for water projects, the support of the federal and provincial governments has been significant. But given the magnitude of investments required, the city’s share of these capital-intensive projects will create a cost surge that will flood the water rates.
In addition to prudent management of the utility’s operations and not over building capital projects, Saint John Common Council must explore and implement fiscal changes that will allow the general tax fund to support the water utility.
Stephen Chase is deputy mayor of Saint John, representing voters at large.
