Duane Hicks
Council may have to raise taxes and water and sewer rates by five percent each year for the next five years if it wants to be able to replace the town’s aging assets in future, according to a report presented at last night’s meeting.
BMA Management Consulting Inc. unveiled the town’s asset management financial plan, which indicated the town has not been saving enough money for the future.
In simplest terms, the consultants reviewed the town’s asset inventories (i.e., everything the town owns) and added up historical costs (how much it cost to buy the assets when they were first paid for) and replacement costs (how much it will cost to replace the asset at the end of its lifecycle).
The report indicated the town has tax-supported assets (assets bought with tax dollars) valued at a historical cost of $80,740,000, but with a replacement cost of $182,605,000, and water and sewer assets (assets bought with water and sewer funds) valued at a historical cost of $45,762,000, but with a replacement cost of $149,718,000.
It also indicated the town is nowhere near where it should be contributing towards the replacement of its assets.
For example, the town made a contribution of $1,535,800 to its capital reserves in 2010 to replace tax-related assets. But based on an annual amortization of $5,137,900, it should be setting aside another $3,602,100 each year.
Meanwhile, the town made a contribution of $1,611,700 to its water and sewer reserves in 2010. But based on the replacement costs, it should be adding another $857,000.
The consultants also looked at socio-economic and financial indicators, which noted the town has higher-than-average incomes amongst families, lower-than-average housing values, good affordability as a place to live, and low to average water and sewer costs.
In his report, consultant Jim Bruzzese indicated the five percent annual levy increase takes into consideration increases in operating expenditures and the increase in capital contributions, and, if implemented, would result in:
•annual contributions to replace assets equal to the historical annual amortization;
•elimination of the annual funding gap based on replacement cost in 2014, estimated to be completed by 2020;
•improving reserve position, making an additional $2.5 million available in the first five years to increase the capital program;
•gradually moving towards a pay-as-you-go approach to asset management; and
•taxes as a percentage of the average income remaining below the affordability threshold.
However, at a five percent annual increase, the plan does not address the backlog that exists for the replacement of assets beyond their useful life.
As such, the plan suggests approaching the federal and provincial governments for grant funding.
Meanwhile, the five percent
annual water and sewer rate increase would result in:
•annual contributions to replace assets equal to the annual amortization using replacement cost by 2015 in the five percent scenario, and 2013 in the eight percent scenario;
•generating an additional $2 million over five years which could be used for either debt reliance or capital programs;
•gradually moving towards a pay-as-you-go approach to asset management; and
•rates remaining below the affordability threshold based on average household income.
The report noted that if sewer and water rates were hiked to eight percent instead of five, the town could address some of the infrastructure backlog as well as generate an additional $4.4 million over five years, which could be used for either debt reliance or capital programs.
As for next steps, the report recommends the town:
•gain an understanding of the optimum time to replace assets based on risk and lifecycle cost analysis;
•undertake an asset condition assessment for all tangible capital assets;
•priorize its capital needs;
•prepare information to present to the provincial/federal governments to seek funding to address the significant infrastructure backlog; and
•update the asset management financial plan annually.
Council accepted the report, and will be referring back to it for discussion in the near future.
