"Approval of the Capital Budget in 1997 launched
the Region in a new strategic direction. Previously,
much of the capital funding for maintenance, rehabilitation
and replacement of existing infrastructure was redirected
to large capital projects such as the Freeway and
Homes for the Aged. Redirecting funds in this manner
was necessary because the scope of the capital program
had continued to increase without a commensurate increase
in funding; however, it had a detrimental impact on
the Region's existing infrastructure. In 1997, this
issue was addressed by segmenting the capital budget
into two spending envelopes, one for existing infrastructure,
the second for capital expansion projects."
This
tells us quite a bit. The second sentence admits that
the Linc was paid for (at least partly) with monies
that should have been spent on the maintenance of
existing infrastructure. It is ironic that this document
was issued two days after a major fire raged out of
control because there was no water pressure in the
pipes. This is the "detrimental impact" spoken
of in the third sentence. The "reason" for the redirecting
of funds, as noted in the third sentence, was essentially
that the council marched ahead on their pet projects,
but didn't have the courage to raise taxes to pay
for them, instead "redirecting" the money from postponed
essential maintenance. The final sentence means that
this budget separates maintenance capital spending
from expansion capital spending, such as the expressway.
Approve Expressway, but...
Under
the sub-title "Capital Expansion Projects" on page
3 we read: "The difficult decisions to be made
with respect to the Capital Budget relate to the spending
envelope for capital expansion projects because project
merits must be balanced with the related debt implications.
Expansion projects require significant (emphasis
in original) capital expenditures -- the new capital
expansion projects commencing in 1998 will require
an increase in the operating budgets in the amount
of $3.0 million in 1999, and a further $3.4 million
in the year 2000."
The
next paragraph ends with the following sentence: "It
is recommended that approval of these projects be
given; however, in order to control the level of debt
that these projects generates, consideration of delaying
or eliminating some of the projects may be in order."
What can be said of such a contradictory sentence?
It can be summarized as "we suggest you jump, but
expect you may not survive". An accompanying table
lists the expressway and five other expansion projects
and gives three options "Defer projects. Re-prioritize
projects. Eliminate projects."
Existing
Infrastructure Mess
Pages
5-8 examine the budget for existing infrastructure."The
1997 Capital Budget Business Plan recognized the existing
infrastructure spending envelope as the highest priority
for the capital budget. There was, and remains, an
urgent need to rebuild the funding level for infrastructure
to a sustainable level." It also points out that
"Postponement of maintenance for infrastructure
serves to aggravate existing problems. The repair
and replacement of infrastructure is 5-6 times more
costly than if an investment is made in annual maintenance,
rehabilitation and replacement. Recognizing the need
to address this issue, Regional Council approved annual
contributions to increase the funding of existing
infrastructure to sustainable levels (emphasis
in original) commencing in 1997 and 1998. These
increases, over a 20-year period, serve as an investment
in the future of Hamilton-Wentworth."
The
report referred to came out in December 1996. It found
that ANNUAL maintenance expenditures on existing infrastructure
was $113.4 million BELOW the sustainable levels. It
recommended the sustainable levels be reached within
15 years, but Council apparently decided 20 years
was soon enough! Graphs showed that spending on maintenance
had been below sustainable levels since at least 1990
for both Waterworks and Sanitary Sewers. The combined
deficit on these two in 1997 accounted for $92.7 million
of the total $113.4 million.
Unfortunately
the graphs only go back to 1990, so they don't show
exactly how long the underfunding has been going on.
However, in 1990 spending for each of Waterworks and
Sanitary Sewers was considerably less than half of
the sustainable level. Just in the 1990-1997 period
the TOTAL underfunding was not less than $500 million!
This, of course, is really debt, but it doesn't show
up on the books. Indeed, the accumulated debt may
be 5-6 times this amount if we accept the staff argument
that failing to maintain the system leads to that
much greater costs in the long run.
As
noted, the plan for raising money for existing infrastructure
to "sustainable levels" is a 20-year one and involves
$7.30 in increased taxes or water/sewer fees per average
household in EACH of those years.
Capital
Expansion Projects
The
remainder of the report (pages 9-15) focuses on the
Capital Expansion Projects. (note there are also 41
pages of appendices). These are broken into "Approved
Projects" and "New Projects". Only one project falls
into the "approved" category: "The Linc (E/W Section)"
and $9.0 million is earmarked over the next three
years for that project. This refers to the requirement
to construct a new interchange at the 403.
There
are six "new projects": Red Hill Creek (N/S) $108.3
million; Macassa Lodge Final Phase $20.9 million;
Closed Landfills (fixing 6 of them) $16.1 million;
Corporate Financial Information System $4.7 million;
Human Resources Information System $900,000; Downtown
Initiatives $2 million.
Note
that the total spending on these six (over the next
3 years) is $152.9 million. The expressway accounts
for 71% of this spending. All the projects except
the expressway will be completed by the end of the
year 2000. An additional $32.1 million in expressway
spending is planned for 2001. When this is included,
the expressway spending is 76% of the six projects.
Three
other "new projects" are also listed, but no spending
on these is scheduled for this year. The staff note
in the report that "In reviewing these costs, the
focus should be on the projects which commence in
1998. Future savings can be achieved through deferral
or elimination of specific projects, but the decision
to do so must be made now. If the projects commencing
in 1998 are approved, the related financing costs
will commence in 1999."
The
"new projects" not commencing in 1998 are as follows:
Glanbrook Landfill (new leachate collection system)
$4.0 million; Mountain Police Station $11.0 million
(all spending in 1999); CSO Tanks (Pollution Control
Plan - RAP) $11.7 million (starting in 1999).Wentworth
Lodge phases two and three is also listed as a new
project but NO dollars are allocated during 1998-2000.
The total cost is given as $14.7 million.
Note
that the $108.3 million for the expressway is not
the total remaining cost. This report gives that figure
as $140.4 million. However, the appendix makes clear
that this only includes $8.5 million of the $23-25
million cost of the QEW interchange and none of the
$20 million plus cost of the Burlington Street interchange
reconstruction. The $140.4 million figure is definitely
understated, but even this very low estimate of the
costs of the north-south expressway has generated
dire financial warnings from the staff.
Decision
Time Is Now
The
report's comments on these new projects include: "These
projects represent substantial capital outlays --
if approved, the Region is committed to the related
capital financing costs. It should be noted that the
elimination of any of these "new" projects will not
impact the 1998 Current Budget. However, these projects
must be scrutinized for elimination or deferral if
savings in future net financing costs are to be achieved."
The
report continues: "Currently there are insufficient
capital reserves to finance the proposed expansion
projects. If approved, these projects will require
external debenture financing and burden regional property
taxes and users fees due to increased debt charges.
The deferral or elimination of some of the expansion
projects in order to control the level of external
debt may be a consideration.
"The
critical questions to be answered at this point in
time are as follows:
