Collingwood’s municipal debt and 2014 budget

Tuesday, Council got a combined debt-and-budget presentation that set the stage for the upcoming, fuller 2014 budget deliberations starting next week. CAO John Brown gave us a recap of a report (produced by BMA Management Consulting) about the town’s debt situation and financial well-being. It was a mix of good news/bad news.

The good is that it’s not as bad as it seems, certainly not as bad as some other municipalities, but mostly in the middle of the peer group selected for the report. The bad is that it’s not as good as we’d like it to be. But barring a big tax increase to reduce the debt and funnel more into reserves, I don’t see how it could be a lot better.

His report also included a comparison of Collingwood’s financial situation to six other municipalities:

• Innisifil (pop. 34,310)
• Prince Edward County (pop. 25,851)
• Orillia (pop. 32, 427)
• Owen Sound (pop. 22,226)
• Springwater (pop. 18,842)
• Wilmot (pop. 20,164)

I have to wonder why several of these were chosen as comparators by the consultants. The majority are not at all like Collingwood:

• Wilmot Township, according to its own website, is “…approximately 20,000 persons living in small towns, settlements, and on farms.”
• Springwater Township “…consists of both urban and rural communities, with a population of over 18,000 people. There are nine settlement areas, with Midhurst and Elmvale being the largest with a population of 3100 and 1700 respectfully. Other settlement areas include Snow Valley, Centre Vespra, Minesing, Anten Mills, Phelpston, Orr Lake and Hillsdale.”
• Prince Edward County is similarly not one urban centre, but a collection of small, rural communities, the largest of which is under 5,500 population.
• Innisfil is similar: small communities, some bedroom residential development close to Barrie, but mostly rural. Cookstown, one of the largest centres, has a population of about 2,000.

Only Orillia and Owen Sound are similar, small urban centres. Why would we not compare ourselves to Midland or Wasaga Beach? Brockville? Uxbridge? Huntsville? Orangeville? Surely these small urban centres would provide more of the apples-to-apples comparisons.

I’d also like to have seen such data as how  many employees are on the municipal payrolls in each; if they have their own or use OPP police service (and how much their police and fire budgets were – our services for 2014 will consume 22%, or $6.1 million, for policing, and 16%, or $4.4 million, for fire: more than a third of our budget in the combined costs).

I’d like to know their total budget, including operations, capital, how many buses they run, and so on. What are they spending their money on and why? What reserves do they have, what assets? Municipal finance isn’t so simple it can be reduced to a few lines.

Rural communities have very different needs, infrastructure demands, growth issues, etc. that make it difficult to adequately compare them to Collingwood.

We are also a combined retirement and tourist destination centre, which creates different sorts of challenges for services and infrastructure. Our percentage of people 65 and older is about 23% – much higher than the provincial average of 14.6%, and our percentage of people under the age of 55 is lower than the provincial average. That has implications for housing, employers, services, and commercial and industrial growth.

On page 8 of the report, it notes that the average percentage of farmland by assessment value in our comparators was 5.2%, while the amount is only 0.1% in Collingwood. But if you look at the maps, the actual, physical amount of farmland in those four “peers” significantly dwarfs the whole area of the Town of Collingwood. Farmland is the lowest on the assessment ladder, so having less is good for potential tax revenue.

We also have a higher percentage of commercial and industrial assessment, which is equally good for tax revenue.

What we never learned from the report was how much money had any of them invested in major infrastructure projects or municipal facilities over the past decade or more. Collingwood has had an ongoing infrastructure upgrade and replacement program, as reflected by the projects paid for by debentures. Plus we have a fairly modern museum, a new municipal building (library and planning services), a new fire station, upgraded police station, new parks, new recreational facilities, new trails, new works building, an airport, a harbour and a comprehensive municipal transit system. Not many municipalities can boast all of that.

Our CAO explained that debt wasn’t all bad – debt means you are building, upgrading and maintaining infrastructure, erecting new facilities. We maintain our infrastructure constantly else face higher costs when it fails. Debt isn’t operational: it’s used for capital projects.

But, the CAO cautioned, it’s important to manage that debt wisely. Which this council has been doing. And, he said, we can’t continue the status quo; we don’t want to push our debt capacity to its limit.

First, of course, we have to manage our spending. The initial overview of the budget has a projected 2.1% increase (about $67 per average household). However, in light of the CAO’s sobering presentation, I would not be surprised if department heads were told to come back with lower budgets, even in the negative area. I will certainly argue for a lower amount in many areas.

Personally, I’d rather see an overall increase in taxes no more than 1.2%, but even better would be a small reduction, say -1% or even -2%.

Of course, it may mean a reduction of non-essential service in some areas. You cannot continue to provide certain levels of service without paying for them – and costs always increase. Utility costs, inflation, fuel costs, food, wages, benefit costs, materials – they all go up. So to maintain even a zero-increase-based budget, you need to cut something or someone. Essential services won’t be affected.

Therein lies the rub. Quality of life is measured by some of those services. Taxpayers pay for a good life – and we do have a good life here in Collingwood. So what, if anything, are they willing to forego in order to avoid any increase? Or would they rather pay a little more to retain these services?

What can council or staff find in the budget that is non-essential and can be removed or reduced without affecting that perceived quality of life?  We need to find more opportunities for shared and contracted services.

Then there’s the debt itself, always an uncomfortable thing to raise. No one likes to be in debt. But sometimes you get there because the advantages of doing so outweigh the disadvantages. Like agreeing to fund infrastructure projects when you are offered equal or greater funding from other levels of government (getting 66-cent or even 33-cent dollars on a big project is too good to ignore). Or, like with our new fire station, you really don’t have an option unless you want to face legal action to comply with certain provincial regulations.

The CAO’s report stated our debt plus “items committed” was “approximately $44.2 million” at the end of 2013. That’s incorrect and out of date.

This figure apparently includes potential, but unapproved debentures (which, even if approved, may not be added to the debt this term), but did not, apparently, include any amounts paid over 2013 against existing debentures.

The actual amount of outstanding debt is considerably less. This error was mentioned during the meeting by members of council and the deputy mayor.

Let’s first look at the history of the debt. The previous council that was elected in 2006 inherited a debt under $19 million. By the end of its term, the amount outstanding as of December 31, 2010 was almost two-and-a-half times that: $45,517,436. That’s an increase of more than $27 million.

The current council, elected in 2010, has repaid the following amounts:

• 2011 $3,831,089
• 2012 $3,723,990
• 2013 $3,812,580
• Total $11,367,659

That means the $45,517,436 debt this council inherited, minus the repayments of $11,367,659 (almost 25% of the debt!), leaves a total of $34,149,777 for that outstanding amount, at the end of 2013.

This council had to debenture a sewer rehabilitation project that had been initiated in 2009-2010. It was roughly 60% complete when this council came to office. The remaining debenture for that project was $2,252,500.

According to the Treasurer’s budget document, presented to Council on Tuesday (page 2-15), the outstanding debenture (debt) on January 1, 2014, was $36,151,020, or roughly $8 million less than what the CAO’s report erroneously stated.

Of that, $21 million is tax-supported, and $15.15 million will come from other sources – sewer and water rate charges, for example.

We will issue new debentures in 2014 for projects that were initiated and completed previously during this term of office, including:

• Raglan Street North: $1,500,000
• New Fire Station: $3,300,000

Payments made in 2014 will total $3,207,069. That will leave an outstanding debt balance at the end of this term of $37,743,951 (Budget: page 2-15).

Which means that, even including these projects, the debt will have been reduced by $7,773,485 this term.

So in brief: the previous council increased the debt roughly 236%. This council decreased it approximately 17% – without significant tax increases, yet still maintaining services, and infrastructure.

So it’s not all doom and gloom; we just need to continue to watch our spending carefully. We will also continue our practice of prudent debt reduction and reserve building without adding significantly to the tax burden.