Letter: City's Debt an Important Aspect of Owen Sound Budget Talks
David McLeish highlights concerns over infrastructure funding and city debt
LETTER TO THE EDITOR
As noted in my previous letter, Don’t Forget Capital, Owen Sound’s infrastructure (buildings, roads, pipes) has been chronically underfunded. In other words, the services we rely upon to deliver water, remove and treat our waste, drain stormwater, etc. have not been maintained.
To address our infrastructure deficit Council needs to make some difficult decisions, including:
Exercise extreme care in which projects they choose to fund.
Make decisions based on facts.
Seek grants from Ontario and Canada.
Seek partnerships with community groups.
Increase the dedicated annual increase for the capital budget from 1% to 2%.
Incur more debt.
With respect to exercising extreme care, Council needs to carefully rank their priorities.
For instance, back in 2017, the City spent $3.5 million to run a Trunk Sanitary sewer to the proposed Sydenham Heights development in the hope of attracting more development. That was 7 years ago, and despite the Mayor’s recent assertion that site grading and stormwater work has begun at Flato’s Greystone Village, a recent drive-by revealed no broken ground, no heavy equipment, and no activity on site.
Indeed, the City’s population has not deviated more than +/- 215 from the 30-year mean since 1991, suggesting that developers exercise extreme caution before breaking ground.
The use of partnerships is certainly worth exploring. The recent offer of the Scenic City Order of Good Cheer to cost share ($250,000) the revitalization and enhancement of the playground and splash pad facilities at Kelso Beach at Nawash Park is an excellent example of how community groups can help improve city facilities for all citizens.
Elsewhere, donors are currently being sought to fund the expansion of the Tom Thomson Art Gallery. The March 2024 recommendation for a Fundraising Feasibility Study was conspicuously silent on the proportion of funds that should come from donors, but at approximately $25 million for the project, we are looking at something close to 100 times the Scenic City Order of Good Cheer’s contribution.
Council recently decided to hire a fundraiser for the Gallery. Does the use of a taxpayer-funded fundraising position to solicit funds for a City Department not set a dangerous precedent?
Related:
We now have a situation where the City is competing directly with local charities for donor funds. Based on reports submitted to the Canada Revenue Agency, arts charities in Owen Sound have revenues of about $2 million per year. The local donor base is limited, so there is little doubt that City-solicited donations towards a $25 million project could directly affect local charities.
The 2022 (Core) Asset Management Plan noted that:
“if more money is not put into the capital budget, the City can expect this funding shortfall (annual infrastructure deficit of $22.3 M) to continue to grow and accumulate, putting the City at risk of not being able to provide the current levels of service.”
Despite this dire warning, Council recently voted to defer a decision to increase the dedicated annual capital budget from one percent (1%) to two percent (2%). This means that money is not being set aside for projects that have already been deferred and that the City is yet another step closer to “lowering levels of service.”
Which service would you prefer to be lowered: water, wastewater, or roads?
In addition, the replacement cost of the City’s non-core assets (e.g. buildings, fire hoses, vehicles, computers, arenas) is over $297.2 million. An average annual investment of $10.9 million is required to ensure these assets are adequately maintained. The current status of these assets was rated as “very poor” to “fair,” and like the City’s Core Assets, only 46% ($ 5.0 million) of the recommended investment is expected to be funded.
Incurring more debt may appeal to some, but as we all know, there are limits. In Ontario, municipalities cannot operate at a deficit, but they can incur deficits for major capital projects. This is done through debentures, a formal written obligation to pay specific sums on certain dates. Owen Sound has been issuing debentures for many years.
In 2001, the City’s Long-Term Liabilities were $2,190,147. By 2023, the Total External Debt Balance was $32,541,630—15 times what it was in 2001 and double what it was in 2015. This is what “we” owe on previous capital projects, such as:
the Police Station: renovated in 2009 and expected to be paid off in 2032;
City Hall: renovated from 2016 to 2018 and expected to be paid off in 2040; and
the Waste Water Treatment Plant, upgraded from 2014 to 2017 and expected to be paid off in 2043.
In 2022, the interest paid on this debt was $818,585. To put this debt into perspective, the Net Tax Levy (i.e. how much tax the City needs to collect annually) for 2025 is $36,275,463. In other words, we currently owe an amount that is roughly equal to the amount we collectively pay in taxes each year. Clearly, long-term debt is a finite source of funding.
To be fair, the current Total External Debt Balance is below the debt ceiling imposed by the Province of Ontario and the City’s Tax Funded Debt Management policy (AF003). That said, are you OK with incurring more debt, knowing that this could increase the debt payments to several million dollars per year (up to 10% of the tax levy)?
The total list of projects planned for 2025 equals $17,935,000. This is only 39% of the recommended $45.6 million, and while only a small portion of this amount will be added to the debt, some will end up there. For instance, a renovation and addition to the Fire Hall for $5.4 million “will be completed in spring 2027 and will require debt financing over a period of 10 years in order to secure the required funding.”
It will be interesting to see how Council manages these issues over the coming years.
David McLeish
Owen Sound
Related:
Letters to the Editor do not necessarily reflect the opinions or beliefs of The Owen Sound Current and its editor or publisher.
Prioritise the regeneration of the downtown core as it will be the biggest net contributor to the budget. When the cost of items such as road maintenance, traffic lights, snow removal, sewers, hydro, and landscaping is accounted for, sprawling car-centric developments are terrible for our long term finances. City council needs to halt low density developments such as those seen on the east side of town.
The River District phase 2 budget was cut in half, so now the potentially great development of 1st Ave East is going to be a let down. Nobody is going to to walk down that street if there is nothing to attract them. Meanwhile millions have to spent on sidewalks and sewers along 16th street East.
I welcome a discussion about the City’s debt obligations for existing capital projects. Clearly taxes need to be raised or City expenses lowered. Worse, existing needs for upgrades are not being met. Are we a crumbling City whose decay is not visible?
A specific concern I have is about City liability for the mold and structural instability of the Old Couthouse near my home. The private purchase was conditional upon remediation within a time period now long past. Provincial law requires such premises owned by a City be formally listed as a debt. Who carries that debt?