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February
1998 Newsletter
Freeway
to Higher Debt
In
early February the regional council engaged in a bitter
debate over bus fares for senior citizens. It's a scene
that will likely be repeated in the coming weeks.
The Transportation Services Committee was recommending increasing
the seniors bus pass by $20 from $155 to $175. This was
the sixth annual large increase since 1992, when the pass
cost $75. The council ended up adopting an amendment that
reduced the fare increase to $10. The vote was 14-13. Even
if no seniors stop riding the buses, the new total revenue
from this fare hike only amounts to $75,000. This is a drop
in the bucket when you consider that provincial downloading
has eliminated a $10 million annual subsidy to the HSR.
As the 1998 budget deadline of March 31 looms closer, the
desperate financial straits of the region will increasingly
dominate the attention of the council. Of course, the single
largest expenditure is for the north-south expressway through
the Red Hill Valley.
The Region's financial crisis includes the following
elements.
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Regional debt has doubled in the past eight years, from
$66 million in 1988 to $142 million in 1996. Current plans
call for borrowing $225 million by 2002, most of it for
the expressway.
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Regional reserves have fallen by over 30% since 1992,
from $155 million to $110 million. Working fund reserves,
which should equal at least 5% of gross current expenditures
were less than 2% in 1996.
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The ratio of debt to reserves is climbing out of control,
threatening the credit rating of the region. This ratio
should not rise above 1:1 but in 1997 it was expected
to hit 1.4:1 and to remain above that level for the foreseeable
future.
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A highly questionable scheme to borrow $90 million from
private investors collapsed in January. The deal apparently
allowed the private investors to avoid paying large amounts
of federal and provincial taxes. In return, the Region
was to receive the $90 million at a rate of 4% over 16-21
years. Tax authorities at senior levels of government
intervened to quash the scheme.
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The provincial government has downloaded an extra $33
million a year in costs to the Region. This includes the
elimination of the HSR subsidy noted above, and the imposition
of part of the costs of GO Transit. Public housing and
a number of social programmes have also been transferred
to the Region. One of these, Planned Parenthood, was the
focus of another recent bitter split in council. By a
majority of only one vote, funding was continued for three
months until the budget is finalized. Many other social
programs are also on the chopping block.
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While the reserves have been drained and regional debt
has risen sharply, this is only part of the debt burden
that has been imposed on future taxpayers. A much more
insidious method has been used to mortgage our future.
Money has been diverted from the maintenance and rehabilitation
of existing infrastructure and spent instead on big new
capital projects, especially the east-west expressway.
This juggling of the books has allowed the council to
continue these projects without raising the taxes to pay
for them. It has also covered up financial mismanagement
of other types. The senior staff of the region have bluntly
pointed out this sleight of hand. Thus the first paragraph
of a report from senior regional staff in December 1996
baldly states (quoted in full):"The scope of the
capital program has continued to expand over the last
few years; however, there has not been a commensurate
increase in the funding for the program. Maintenance,
rehabilitation and replacement of existing infrastructure
has been deferred as funding has been redirected to special
projects such as the Freeway, PaRCIL, and the Emergency
Communication System. Other large capital expansions are
now being considered in the Capital Budget that would
further widen the gap between the needs and the allocation
of funding for maintenance, rehabilitation and replacement
of existing infrastructure."
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The report goes on to detail the phenomenal shortfall
now existing in the maintenance budgets of our roads,
waterworks, sanitary and storm sewer systems. This shortfall
amounts to $113 million per year. Maintenance budgets
have fallen by over 40% since 1992 and further declines
are projected. None of these four budgets has been operating
in the "sustainable maintenance range" since
at least 1992. The budgets for both sanitary sewers and
waterworks have averaged less than 50% of the required
level since at least 1990 and the storm sewer and road
maintenance budgets were expected to fall into this category
in 1997.
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most of these budgets have been underfunded for several
years, the real amount of the burden this imposes on current
and future taxpayers is much higher than the shortfall
in 1996. As the staff report explains: "Postponement
of maintenance for existing infrastructure, will serve
to aggravate the existing problem resulting in the need
to replace infrastructure sooner than need be. The costs
of repairing and replacing infrastructure will be 5 to
6 times more costly if a commitment is made to invest
in an annual maintenance, rehabilitation and replacement
program."
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To underline their concern, the senior staff noted a historical
example of this kind of deferrment and its consequences:"In
the early 1980's the Region experienced a comparable situation
regarding reductions in provincial funding when subsidies
for road maintenance were substantially reduced. The Region,
however, continued to maintain its policy of matching
provincial funding even though the needs of the roads
program were not being met. By the late 1980's, the Region
was forced to respond to the issue of rapidly deteriorating
road conditions. In 1989, Council approved external financing
of approximately $57 million to address the problem and
return the conditions of the roads to pre-1979 One of
its results of that crisis was to increase regional debt
from $66 million in 1988 to $118 million in 1989. It has
never since fallen below $105 million.
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The staff warnings were borne out in spades in September
when it was revealed that the Western Interceptor main
trunk sewer line is in disastrous condition and will likely
have to be replaced at a cost of $65 million. This sewer
was built in the 1950's and supposed to last 100 years.
Its seriously deteriorated condition is both a surprise
and a severe warning. Other major infrastructure items
have not been inspected, and more such nasty surprises
are probably in the offing.
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Other major crisis spending items include $14 million
for upgrades to Wentworth lodge and $8 million for similar
work at Macassa Lodge; over $8 million to pay off costs
of three lawsuits recently lost by the Region; over $15
million to fix six old leaking landfill sites including
the infamous Upper Ottawa Street Dump. Monies for all
of these items must be borrowed.
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Also on the debt agenda but likely to be postponed are
$224 million for tanks to prevent raw sewage from escaping
into creeks and the harbour; and $32 million in upgrades
required at the Woodward Sewage Treatment Plant.
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Downtown Hamilton is in desperate straits, a situation
that is generating increasingly desperate "solutions",
from chasing casinos to giving Eaton's $1 million to not
close down. The expressway will make the situation much
worse as it siphons customers to the suburban malls and
eliminates possibilities of the kind of public investment
necessary to restore the core.
In this situation, a commitment to spend another $100 million
of local taxdollars on the expressway would be truly outrageous.
The environmental costs are reason enough to stop, but this
financial picture makes the project unthinkable. We must
make every effort to ensure that the councillors and the
public understand this.
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