Duane Hicks
Fort Frances has not been putting away enough money to pay to replace its aging assets, and should raise its taxes and water and sewer rates by five percent each year for the next five years to catch up.
This was the financial strategy of the asset management financial plan presented to council by BMA Management Consulting Inc. at Monday night’s regular meeting.
Mayor Roy Avis said the report is important but the recommendations it contains are easier said than done.
“I think it brings to the forefront the condition of our assets and the money that we have to spend on them in the future,” he said in an interview yesterday.
“The report is being referred to our budget meetings, and there will be consideration probably given to that report, but to what extent, I’m not in a position to answer at this time,” the mayor added.
“It’s about affordability,” Mayor Avis remarked. “And you can’t make a wrong right in five years.
“If you’ve been working for the past 20 years and haven’t been putting it away, and all the sudden you want to turn that around, you can’t do it in five years,” he stressed.
Mayor Avis also said he’d like to take a closer look at some of the numbers in the report, which definitely bears further review.
Coun. Ken Perry said tax increases aren’t the answer—council has to find a better way to spend the tax revenue it already gets.
“We have a huge budget in this community, $21 million is a huge budget,” he noted. “We spend this huge budget on uncontrollables and on the soft services.
“Our sports complex is second-to-none, our library is brand new and second-to-none, our museum brand new, refurbished.
“We moved the ‘Hallett,’ we refurbished the waterfront.
“All soft services, all things that we could—I said ‘could’—do without,” Coun. Perry added. “But the will [of council] won’t let it happen that way.
“I’ve been on council now, this is my fourth year, and I have been pushing for more reserves, I’ve been pushing with Mr. [Doug] Brown to get more work done on the sewer and water and the roads, and I know it’s a problem,” Coun. Perry continued.
“We need to redirect the monies that we have to the infrastructure that we need to fix,” he stressed.
Coun. Perry noted the town’s buildings are in good shape and they probably won’t need to spend much money to fix them in the near future.
But while the town has helped pay for “pretty things” like the waterfront, museum, library, etc., there’s seems to be less political will to fix roads and sewers.
“We don’t need to raise taxes, but we need to spend taxes in the right direction and save some money for later on,” Coun. Perry argued.
Coun. John Albanese said Fort Frances is a single-industry town with an uncertain future, as well as an aging population, and council has to be careful about raising taxes.
As such, they should pursue more funding elsewhere.
“My goal is to go and knock at the provincial parliament, or federal, see if they can open the door and get us some funding to do some of the work we need to do in this town,” he remarked.
“We cannot burden the taxpayers of the Town of the Fort Frances over and over with extra tax increases,” he agreed.
From a management point of view, Operations and Facilities manager Doug Brown said it’s time the town put away more money to deal with its infrastructure needs.
For example, in 2002, the town had a lifecycle costing plan done for the replacement of all the town’s roads—and council has never followed through with it.
“Councils change, administration stays,” Brown noted. “We usually have to take care of the stuff that’s there.
“I’ve been preaching this for a few years. [We’re] only as good at the money you give us,” he remarked.
“We don’t follow the road plan from 2002 because we don’t have the money to do it.
“Every time we do a road, it’s because we have a grant or we have [water or sewer] failures,” Brown continued.
“Our capital budget isn’t supporting what we want to do, and . . . you’re the only ones that can generate new revenue or look at different services or different revenue streams.”
Fort Frances CAO Mark McCaig said administration and council have been talking about asset management for too long—and it’s time to do something about it.
“This has to be done now,” he warned. “We are going to leave a legacy of ill-attended infrastructure for the next generation and I don’t want my name [attached] to that, to tell you the truth.
“We have to start being productive.”
McCaig felt the proposed tax increases will be mitigated somewhat when the town starts doing condition appraisals to determine exactly what is at the end of its lifecycle and what is not.
“Some of the stuff we’ve done with some of the buildings—even though they’re of a certain vintage, they’ve have been preserved pretty well,” he noted.
McCaig reiterated the importance of council not resting on its laurels.
“I have three questions: If it isn’t this plan, what? If it’s not us, who? And if it’s not now, when?
“Those are very straight-forward, blunt questions but I don’t think we can put our head in the sand about this anymore,” he stressed.
“I suggest that this is a very well-examined and important topic at our budget table,” said McCaig. “If we need to do special meetings in regards to how we can respond to that, we’ll do it.
“We just don’t put in on a shelf and have it glowing there in the darkness because we know it’s good. We actually do something this time.”
McCaig later added: “Let’s commit something hard, and not deviate from it, at least during the term of this council. . . .
“I encourage you in the strongest terms I’ve ever probably stated at this table—we have to do something now.”
Asset replacement
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 toward 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, 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 dwelling values, good affordability as a place to live, and low-average water and sewer costs.
Based on this, the consultants made recommendations to the town, including the aforementioned financial strategy.
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;
•beginning to eliminate 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 eight percent a year 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.
