Huntsville - Lake of Bays Lakes Council

Greetings

The Huntsville Lakes Council feels that it is important that District hear from as many taxpayers as possible regarding the debt reduction strategies it will be debating over August and into September. We hope to be able to present a draft letter that covers our position and which you may wish to also sign and send in to District. We will post it on our website, www.huntsvillelakescouncil.org, when it is ready. The recommendations regarding the process to reduce the debt will be debated by District's Committee of the Whole on August 15^th, 9:00 a.m. at the Bracebridge Sportsplex, 110 Clearbrook Trail. It is intended to be presented to District Council (in Council Chambers) on September 2^nd. Comments need to be in, preferably before August 15th, but up to September 1^st. Both meetings are open to the public. If you wish to speak at the Committee of the Whole meeting or at the District Council meeting, you need to advise Christine Lees, District Clerk, 48 hours before (645-2100, ext. 239 or ).

A bit of background on the water/sewer download issue:

During the budget process this year, it was shown that the District of Muskoka owed $106 million in debt, with $90 million of this attributable to water and sewer services. Interest charges on $90 million are $4.4 million a year.

Obviously, something had to be done about the debt.

District prepared a Strategic Priorities document which, among other debt-reduction strategies, included the need to "investigate a non-urban tax levy contribution to water and sewer costs". This made the headlines and many rural owners were outraged. However, District's budget system is quite complicated and it turns out to be a far from simple matter.

As a response to debt-reduction, Stephen Cairns, District Commissioner of Finance and Corporate Services, issued Report # CES-6-2008-6 on July 4^th. In it, he provides a series of recommendations together with supporting data on usage, average costs etc. He notes that District will continue to seek funding from senior levels of government but that these funds cannot be relied on to be there when they are needed or in the amounts needed.

As a whole, his recommendations are well thought out and his goal of decreasing the debt possible without undue financial stress on taxpayers. The full report, or a summary, Snap Shot of Debt Reduction Report, can be accessed on District's website, www.muskoka.on.ca/siteengine/activepage.asp?PageID=5.

Comments on the background provided by Mr. Cairns':

- Water and sewer have accounted for 60% of the total capital expenditures over the last 4 years but 90% of the debt burden. This should be looked at another way. Transportation infrastructure (the second largest expense and one we all use) is funded completely through reserves whereas debentures, with their accompanying interest charges, are used for sewer and water. If there were a reverse in this usage of funds, transportation might be seen as much more of a cause of the debt burden.

Regarding water and sewer rates (bullet 4, page 1 of the Snap Shot):

- The Environmental Reserve Fund is financed through the general tax levy and is, therefore, paid into by all residents of Muskoka. This Fund covers 100% of lagoon infrastructure needs and 80% of the operating costs. It also funds a small percent of the total sewer (primarily) and water infrastructure (to a total of 14% lower than lagoon capital and operating costs) with the remaining sewer and water costs coming from the rate supported tax levy which only urban residents pay into. So rural owners are being subsidized here by urban owners.

- Without the interest charges on $4.4 million in debt, users would see a $360.00/year reduction in their water and sewer rates. Water and sewer rates in Muskoka are among the highest in the province at $1,860.00/year.

- Apparently our sewer and water costs are much higher due to the geographical distribution of communities across Muskoka as well as the geology of our land (it's a lot harder to build/connect etc. with rocks than with a soft earth base). At a meeting on July 19^th in Lake of Bays, the Director of Finance for District, Michael Durnan, couldn't give comparisons with similar communities to show whether our infrastructure costs have been out-of-line with costs in other similar communities.

- As noted, water and sewer charges cost each person on services an average of $155.00/month ($1,860.00/year). (Apparently almost all water use in Muskoka is metered so folks only pay for what they use.)

- If one looked at rural annual costs:

new septic, $11,000 to $17,000 (per Mr. Cairns) - average $14,000,

required every 25 yrs = $560.00

septic pump-out every 3 yrs (average-sized system = $200/pump-out) = 70.00

maintenance, pump replacement well/lake line = 150.00

Total $ 780.00/yr

- This is a far cry from $1,860.00/year. However, one of Mr. Cairns' recommendations is to increase lagoon haulage fees (see later). This will increase rural owner's costs but not to the $1,860.00/year level. He is also recommending that attention be put on following the mandatory connection schedule (see later) which will increase dramatically the amount of user fees coming into the water/sewer budget and decrease average costs in the future.

Mr. Cairns' recommendations on how to lower the debt:

1 and 2. Development Charges: Mr. Cairns is recommending that development charges be increased to cover the costs of all necessary infrastructure to accommodate new development (single detached in urban area, present cost $10,404.00 to increase to $19,900.00; rural from $5,459.00 to $5,900.00). Mr. Durnan could not provide any insight into whether the recommended increases might impact development. Apparently, we are one of the most northern areas to apply development charges (started in 1991). Parry Sound has none and North Bay is just beginning to. Mr. Durnan provided figures for Barrie - $30,000/single family home and Innisfil - $35,000. A few folks at the meeting on Saturday cautioned us to think of the contractors that we rely on and how their numbers might be decreased if there is no work

here for them. This should indeed be looked at, as well as how this might affect our already limited supply of affordable housing. Apparently a draft report from consultants on this issue was to be presented to District Council on July 21^st. We have no information yet on the report or how it was received. Historically, there has been strong opposition to any significant development fee increases in Huntsville.

3, 4, and 5: Local Improvement Connection Charges and Mandatory Connections: Mr. Cairns is recommending that these charges also reflect the full cost of the service. The Snap Shot shows that these costs will be significantly higher (water - from $3,760 to $4,900; gravity sewer connection from $7,520 to $10,400 and pressure sewer connection from $3,760 to $6,900). One must wonder how some households will be able to afford such a large amount but we believe that Huntsville (at least) has financing it offers, to allow for payment over time. This is essential. It is noted that sales of homes with municipal services will be higher but one also wonders if this will be the case if ongoing service costs remain so high. As well, like waterfront owners, any profit is only realized at the point of sale and owners have to pay the increased assessment charges in the meantime.

6. Fee Charges to Haulers at Lagoons: Presently septic system users are paying only 20% of the operating costs of lagoons through our payments to haulers for pump-outs and none of the costs of the infrastructure (except through our contribution with the remainder of all taxpayers in Muskoka to the Environmental Reserve Fund). Mr. Cairns is recommending that the haulage fees be increased from their 2007 levels of $33.00/1,000 gallons to a level that will support 50% of the costs. According to Mr. Durnan, 100% was felt impractical because it was assumed that nobody would pump-out their septic if costs were $158.00/1,000 gallons (which would cover 100% of the operating costs). Surely, some innovative ideas could be thought of to ensure that septic users pay as they go? (Urban sludge from sewage treatment does go to lagoons but this amount is apparently insignificant.)

Financial:

7. Mr. Cairns is recommending that $2 million be transferred from the General Capital Reserve Fund (which comes from all taxpayers) into a new Debt Reduction Reserve Fund which will be used to pay off debentures when they come due in the short-term and in future be used to internally finance capital projects (i.e without outside interest charges). An excellent idea except that it will see rural owners pay to cover the present debt, mostly attributable to sewer/water, through their contributions to general reserves. (Another aspect of this is that waterfront owners are highly assessed and, because this is a tax, they have paid proportionately more. Assessment is, however, another matter which should not be considered when reviewing District's budget). It also means that all owners will need to top up the General Capital Reserve Fund.

8. The Province, over the next four years, will again take over Ontario Disability Support Program (ODSP) payments which were downloaded to us several years ago. Mr. Cairns is recommending that all these funds (2008 - $685,000; ‘09 - $935,00; ‘10 - $2,342,000; ‘11 - $3,749,000) be placed in the Debt Reduction Reserve (i.e. to pay off the mainly water/sewer debt). We have all paid into ODSP through our taxes (and will continue to do so through provincial taxes) and we should all benefit from these amounts.

Note: We have no comment on items 9 (payments of principal from Debt Reduction Reserve Fund) and 10 (Debt Reduction Reserve to be used to finance capital projects).

Federal Gas Tax Fund

11. Currently, as noted, 60% of budget goes to sewer and water. Nobody has any idea how this might increase or decrease in the future although Mr. Durnan said there is only one sewage treatment plant (in Bracebridge) in the works. Since 2005, we have been receiving Federal Gas Tax Funds (allocated on a per capita basis) that were to be used for "environmentally sustainable infrastructure". The 2007 federal budget committed to extending this until 2014. To date, these have been used almost exclusively to finance sewer related capital projects. Mr. Cairns recommends that this practice continue (2008 - $859,785; ‘09 - $1,719,569) "until such time as the debt levels are stabilized and reserve fund balances are at viable levels". Again, these funds should benefit us all, not just a segment of the population.

Environmental Services

12. Environmental Reserve Fund contributions are a percentage of the general tax levy and have, therefore, not increased at the rate of inflation. Mr. Cairns recommends that they do. This fund will continue to support lagoon capital and operating costs.

Note: We have no comment on items 13 and 14 (roadwork financing), 15 (bridge financin) and 16 (evaluate capital programs).

Ways to think about these recommendations:

There is no question that the present debt-load has to be reduced. Most would say that this should be accomplished in a way that is fair for all. Many would also agree that this means that users of service should pay for what they use. To do otherwise, could be seen by some to pit one segment of the population against another - not a good thing.

That being said however, our immediate concern is to reduce the debt. It seems that Mr. Cairns' recommendations will do this.

It seems fair that his User Fees and Charges be put in place as they are based on the user of the service paying for the service. (The 50% user fee for lagoon services should, on this basis, be increased to 100% and some scheme devised that would track pump-outs.) His financial recommendations will, it appears, decrease the external debt. His figures show that the costs associated with his recommendations, based on a $200,000 home, amount to $28.00/year ($17.00/year from property taxes and $11.00/year from the ODSP rebate) in 2009 and $57.00/year in 2011. They should therefore, it seems to us, be looked at positively - BUT ONLY to get us over this hump. As we are aware, once legislation is in place, it too often remains in place well after any crisis has passed.

Having so many funds which come from a variety of sources and support one segment or the other is very confusing and does not clearly show who is paying for what. It would seem that, to be fair (i.e. users of services pay for those services) a different system is needed. From what has been said above, his system is not user-based, does not provide an easy way of showing that users are indeed paying only for the services they use and do not put "general purpose" monies into general funds for use by all segments. In our opinion, this is where we need to end up. Work on a taxation system that taxes water and sewer users and lagoon users separately for the total outlays for these and shows clearly that this is the case needs to have work begin on it immediately with the start of this to be put in place as soon as the present debt is "stabilized and reserve fund balances are at viable levels".

A resident of Lake of Bays Township, Shane Baker, suggested in a letter to the Forester that a one-time flat rate fee be charged to every one of the 57,552 taxable properties of Muskoka. $100@ = $5,755,200 and $200@ = $11,510,400. (At the $100.00 rate, this could have less impact if taken over a 4-year period: $6.25/each of the 4 tax bills/each of the 4 yrs.) However, apparently the Municipal Act does not allow anything that isn't based on assessments. Surely a way can be found to pay that is not assessment-based? This would greatly relieve the debt problem.

Mary McCulley, Chair

HLC Policy Committee