A most incredible council

The mayor pronounced it to be “the most incredible council”, and so it proved to be.

It was a week ago at a meeting of the Strategic Priorities and Policy Committee, previously known as Committee of the Whole. Almost all were gathered to receive the 2013 budget prepared by staff, the one that staff had previously informed them required a 3.8% increase just to break even with current services. That had been deemed to be unacceptable to the Fontana 8, and staff had been informed to come back with something better, something that would get them to a zero per cent tax hike.

And things would be different this time around, Fontana informed the council. The last budget had been struck after a messy showdown on the council floor which had left six councillors voting against the budget, unwilling to assent to a raid on the reserve funds or using one-time money to pay for ongoing costs.

Even Sandy White, who had supported the eventual budget, had some bad memories of that effort. She declared it to have been “a disaster” and wanted to know what would be different this time around. What did the mayor mean by having a better process this time around? Would there be a better communications strategy for this budget?

Fontana assured her that all would become clear in due course.

Certainly, the introduction to the budget provided by city treasurer Martin Hayward was straight forward. He reviewed the guiding principles for sound financial management which had stood the city in good stead in the recent past: reducing debt whenever possible, maintaining assets, pay-as-you-go, building up reserves, investing strategically. Then he provided a primer on budgets, explaining for the public—and probably for a number of councillors as well—the difference between operating and capital budgets, identifying the sources of revenues to pay the bills, and providing an overview of the financial  status of the city over time and in comparison with other Ontario municipalities.

In particular, he elaborated on the importance of reserves for paying bills and avoiding debt. 

“Look at Scranton, Pennsylvania,” he warned. It had run out of money, relied on debt and ended up paying everyone, mayor and city treasurer alike, at minimum wage. The city’s reserves, including those of boards and commissions, currently stand at $500M, but that doesn’t include all the projects which have been approved but for which the bills haven’t come in yet. You don’t want to whittle away the reserve funds; otherwise when the bills come in you’ll have to do another capital levy. It had happened before and it wasn’t pretty.

You also need those reserves to do repairs when needed, to replace assets as they reach the end of their useful life, and to take advantage of deals when they come along. If you run down your reserves, you are going to have to come up with a different capital plan, one which allows for less investment in the community, higher borrowing costs, and greater risk. It will play havoc with your cash flow.

He wasn’t mincing his words. Don’t dip into your reserves, he warned. Other municipalities have run into problems with their credit rating. We don’t want to lose our triple A.

He might as well have saved his breath, as far as Dale Henderson was concerned. Henderson was happy that London compared so favourably with other communities in terms of its tax position, but he thought he could do better. After all, didn’t the city have hundreds of millions of dollars in reserves?

“There is a plan for reserve funds. Be cautious,” Hayward advised. But Henderson wasn’t listening. He didn’t see any reason why they needed to have all that money in reserves.

Hayward had some other advice for council as well. Don’t use one time money for ongoing expenses, he pointed out. Covering operating costs by selling off assets only works one year. What are you going to do after that?

Stephen Orser was not impressed; once he had heard the full presentation on the budget his first question was why weren’t they looking at selling off non-productive assets, like the convention centre or Budweiser Gardens?

Hayward replied that an asset review was not part of the budget process; staff would need some direction from council in order to do that. But he reminded Orser that there were contracts and agreements in place with Budweiser Gardens that wouldn’t expire until 2021, and the convention centre does not require any operating costs while attracting visitors to the city. He might have added that convention centres aren’t really a hot item right now; there aren’t a lot of prospective buyers for a bidding war.

It was left to Joni Baechler, however, to point out the significance of the budget that staff had brought in: even with a 2.5% tax increase, money for affordable housing, for accessibility for seniors and persons with disabilities, for capital grants for nonprofits, for fleet life cycle had been slashed. To get to zero would require another $11.5M in cuts in services like snow clearing and recreational programs as well as higher user fees. Not even the most sophisticated communications strategy is likely to make that palatable to most of the public.

But the greatest disconnect occurred much later in the evening, long after I, having discovered that the entire meeting was being live streamed, had returned home to watch the debates on my computer.

The Fontana Faction has largely looked to growth as a way of paying ever increasing bills. Despite the fact that assessment growth from more residential, commercial and industrial properties has remained stubbornly below 1.5% and population growth less than 1% per year, the two Joes, Fontana and Swan, remain convinced that with enough investment in projects that require land and money, people will flock to London, build houses and business that generate megataxes without ever having to raise them. 

This became evident when Peter Christiaans, director of development finance, made his report on development charges. Development charges are what pay for the cost of putting in  services—roads, sewers, watermains—for new development. They are collected when building permits are issued and are paid into the appropriate reserves so that more infrastructure can be installed. To be viable, you have to be putting as much into those reserves as you spend on servicing more land. Unfortunately, that’s not what has been happening. Despite a review of dc’s, as they are affectionately known, and a significant increase in the rates a few years ago, revenues are not keeping up with the costs of council’s approvals for greenfield development. Although there is a growth management plan, this council has been reluctant to abide by it. Anything that anyone wants to put anywhere is seen as evidence that the city is on the move. Staff recommendations and warnings are ignored if a developer wants an approval.

An important part of preparing for development in a new (greenfield) area is to ensure that you can deal with the water runoff in storms. Once you put in all that hard surfacing in buildings and pavements, there is little room to deal with all the water, and you get flooding and land erosion. To cope, the city digs stormwater management (SWM) ponds which you can see in any new subdivision. They hold excess water so that it can be absorbed gradually by the surrounding soil and plant life.

They are not cheap to build, and the more asphalt you lay down, the more you need. The problem is, you need to pay for the work up front, but it may take many years, 20 or more, to sell enough building permits for houses to cover the cost. In the meantime, the city is out the up front money while more developers set their eyes on a new area, thereby getting the jump on someone else.

Christiaans chose his words carefully. It’s what you do when you have a council that doesn’t like to get bad news. And his news was not good. The revenues for SWM reserves were 16% below what had been projected while planning committee has been speeding up development, letting some developers jump the queue and moving projects forward before their time. He suggested that council should consider carefully any acceleration of projects involving SWM ponds.

He was too circumspect for council to grasp his meaning, although, in response to a question from the mayor, he pointed out that “We’re in a bit of a jam, here.”

“Will this tie our hands?” Paul VanMeerbergen wanted to know. He was concerned about encumbering development.

Christiaans didn’t like to say so, but it would of course. After a few more questions, he pointed out that some projects might have to be put off since they had accelerated some others that weren’t in the schedule.

Harold Usher, too, despite his many years on council, didn’t get it. What did he mean about the possible deferrals?

Christiaans became more direct. In a few years, the way they were going, the fund would be out of money. “We’re using a credit card to pay our mortgage,”  he pointed out.

Hayward came to his aid. What Christiaans was saying was “Do not advance SWM ponds. That fund is in trouble. The issue is brewing and brewing fast.”

City engineer John Braam joined the chorus. “If we keep doing this at this pace, we’ll be in trouble.”

Henderson couldn’t support what he was hearing. In the US they were building all kinds of upscale subdivisions without curbs and gutters. Maybe we could be doing that here. Maybe the developers would like to pay for the ponds.

Fontana thought Henderson had some good ideas. Shouldn’t they be looking at alternative financing?

The only one who seemed to grasp the issue was Baechler who pointed out that the issue was the acceleration of development in violation of the Growth Management Implementation Strategy. But she had a suggestion: could they take the money from the developer when the subdivision was registered? That way, the developer would have a greater investment in following through on building out a subdivision rather than starting another project somewhere else.

Her suggestion carried little weight with Swan. There had been a reference to accelerated development in Old Victoria, but he recalled that had been a swap for development that couldn’t go ahead in Riverbend so it broke even. And the other applicant, who had appeared out of the blue, had offered to pay up front just to beat the first guy. Where were the “front ending” agreements to allow development to go ahead and not wait for city funding and timelines?

The front ending agreement policy was still being worked on, Hayward told him. There were staff shortages and workload making it difficult. Besides, even with a front ending agreement, you still had to pay it back which would eventually put you in a cash crunch.

Swan was furious. The whole point of his prosperity committee was wealth creation. How could he create wealth if he didn’t have the policies in front of him to speed things up? He wasn’t interested in resource issues. He didn’t want excuses. He just wanted to get going. To be competitive costs money, he declared. “We gotta pay!”

But how do you pay with a tax freeze?

Council had had a front ending agreement for Fanshawe Park Road, Joni Baechler pointed out. A $9M front ending agreement with a placeholder for paying it back. It tied up all their capital and they couldn’t do things they would have liked things that would have benefitted the community. She wasn’t in favour of tying up all their capital in one industry with the prospect of leaving assets stranded in the ground. The problem was far too complex for a simple solution. She wanted staff to take its time and explore the issues thoroughly.

But Fontana had had enough exploration of the issues. He declared the debate was over and the question called.

Since council was simply being put on notice that there was a problem with a further report back from staff in the New Year, the motion passed easily. But I wonder how many of them could articulate just what they had voted for and why.

And the next item on the agenda was expanding the urban growth boundary to accommodate more  industrial land designations to replace those lost to commercial and residential in the last minute adjustments to the South West Area Plan a few weeks ago.

A most incredible council indeed. And its members' credibility is not likely to be strengthened by tonight's vote on a most incredible mayor.