Why I voted against Utility Rate hikes.
At the Standing Committee on Finance meeting on Tuesday September 16, 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 three years.
For the three 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 for 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.
Golden Town Councillor