Who Pays Whose Debt in Amalgamation?
When municipalities and cities amalgamate
by Roger Stonebanks, citizen reporter
With Saanich and Victoria inching towards considering a new amalgamated city through a Citizens Assembly on Amalgamation, if this was to happen – who pays for whose debts when two municipalities disappear and are replaced by one new city?
Saanich Voice Online asked the Ministry of Municipal Affairs and this is its reply:
“Municipalities take on debt to pay for a wide variety of things, often infrastructure like roads, parks, fire halls etc. All taxpayers in the municipality contribute when the item financed is for the benefit of the whole municipality.
“When the item financed is for the benefit of just one part of the municipality (such as water system or downtown revitalization, or community hall in a larger municipality), the municipality can create a local area service to tax only those property owners who benefit.
“In the case of amalgamation, those same principles apply. When municipalities amalgamate, the Ministry works with municipal staff to identify which debts paid for common goods and should therefore be transferred to the whole of the new municipality, and which debts paid for local goods, and a local area service should be created to finish repaying the costs.
“If the communities were to amalgamate, debts associated with the general fund would become the responsibility of all property owners within the combined municipality through the general municipal property taxation (i.e. debt payments would continue to be funded through a municipal-wide general fund vs. only being funded through a specific geographic area).
“However, debt payments associated with utilities (i.e. water and sewer) would continue to be funded through the specific local area services (i.e. debt payments would not be spread throughout the larger geographic area.”
Dr. Robert Bish, professor emeritus at UVic where he was professor of Public Administration and Economics and former co-director of the Local Government Institute, told SVO:
“The Ministry position on debt (general vs. local depending on beneficiaries) is consistent with the entire local government system in B.C. It is most obvious in the Regional District model where members of a particular service pay for that service, but it carries through in Improvement Districts in rural areas and specified areas within municipalities. It is quite common for there to be different tax rates in different local areas within larger municipalities depending on their history of the use of local areas.”
Dr. Michael Prince, Lansdowne Professor of Social Policies at UVic, told SVO:
“The issue of determining the allocation of existing municipal debts, should an amalgamation of two (or more) municipalities take place, would undoubtedly raise issues of fair shares and real and perceived winners and losers under such a transition.
“The provincial Ministry of Municipal Affairs would play an important role with the affected municipalities in the determination of what would constitute general debt for the new amalgamated municipality and what would be local area service related debt to be assumed by residents in one or other of the former municipalities. The cost of aging downtown infrastructure would be an obvious example of this “debt debate” and, by extension, related financial issues of amalgamation on the tax rates and for businesses in the amalgamating municipalities. Here, too, there will likely be perceived if not actual winners and losers.
“Under the Local Government Act, there is provincial funding for transition assistance in restructuring and implementation due to amalgamation, but, as far as I know there is no such fund for debt relief.”
Victoria and Saanich councils have agreed to hold a joint committee-of-the-whole meeting to determine what question both local governments will place on the ballot for a referendum at the Oct. 20 municipal election for formation of a Victoria-Saanich Citizens Assembly on Amalgamation.
Victoria Mayor Lisa Helps suggested the ballot question could read, “Do you support spending time and resources to explore the costs and benefits of the amalgamation of Saanich and Victoria through a citizens assembly and technical analysis?”
But Victoria Coun. Charlayne Thornton-Joe commented, “I would feel more comfortable if it was costs, benefits and drawbacks or something [like that]. There are pros and cons and we need to explore all of them.”
Editor’s Note
The issue of Victoria and Saanich municipal debt – and who pays for which if an amalgamation occurred – is a large subject. It is complicated and detailed and it will be controversial as indicated in the comments quoted in the story which deals with the general policy framework. Saanich Voice Online urges those interested to seek information and direct questions to Saanich and Victoria councils.
Good article Roger and Saanich Voice Online. ‘Who Pays Whose Debt?’ is an important question that perhaps should be extended to include INFRASTRUCTURE DEFICIT. This article discusses the infrastructure deficit of Victoria – a subsequent article will discuss Saanich. – Bartlett
Infrastructure deficit of Victoria unknown
While residents now have a new bridge ($105 million plus), and are planning for a new Crystal Pool ($69.4 million), plus fire hall and emergency centre ($35.9 million), tax revenue is needed to upgrade other aging City of Victoria infrastructure.
City staff are now developing asset master plans and condition assessments to determine how much capital investment is actually needed – it will likely be hundreds of millions of dollars.“The infrastructure deficit is the difference between what you need to spend to do upgrades and the funding you will have available in the years you need to do those upgrades,” says Susanne Thompson, director of finance.
“The capital budget funding levels have reached sustainable levels for some assets (water), some are close to sustainable levels (storm drains), some projects are shaped through consultation with the community (park upgrades), some require additional analysis to determine the required funding levels (sewer, equipment and surface infrastructure such as street and traffic lights), and some fall short of recommended levels (facilities, roads and fleet),” says Thompson.
Even though the City doesn’t have the exact number, it knows it has an infrastructure deficit and has already started increasing funding levels for infrastructure renewal. For example, for 2017 the planned spending and saving in reserves from property taxes and user fees was about $44 million combined with utilities which follow a pay-as-you-go approach.
“Never before now has careful stewardship of our assets and tax revenue been more important – until all these infrastructure costs are known and addressed, any financial decisions need to be conservative,” says Stephen Ison, board member with Grumpy Taxpayer$.
Nationally, the Canadian Infrastructure Report (2016) puts the dollar replacement value of assets in poor and very poor condition at $10,000 a household (Page 12). In Victoria there are 49,212 private households according to the 2016 census.
That provides a rough estimate of almost $500 million for its infrastructure deficit, although it may be more since Victoria is considered an older city. The report included costs for potable water, wastewater, stormwater, roads, bridges, buildings, sport and rec facilities and transit.
City of Victoria was one of the few major jurisdictions not to participate in the Canadian Infrastructure Report.
Any cost overruns in the sewer treatment project will be the responsibility of core communities including Victoria and Saanich.
RELATED:
Canadian Infrastructure Report Card (2016)
Grumpy Taxpayer$ is a non-profit, unaffiliated, non-partisan, citizen’s advocacy group dedicated to lower taxes, less waste, and more accountable municipal government.