Note: The Appendices are presented in the previous posting under the title "Appendices for sewer report". I cannot post tables except as "jpeg" images and the appendices are in that format. You could print those images and use them as references when reading the text.
Submission to Council - re: sewer policies.
Executive summary.
A report is presented to Council for their sewer policy discussions.
1. 2008 rates could be reduced to $470.00 annually while still providing over $80,000 for reserves.
2. A case is made for policies to “pay as you go” instead of accumulating large surpluses at current taxpayers’ expense.
3. Two user pay models are presented for Council’s consideration.
4. Policies relating to multi-family dwellings should be revisited.
5. Inclusion of huge costs for building use ($95,227) in calculating base costs is questionable and should be revisited by Council.
Discussions.
There was much debate regarding the cost of the sewer line for Sewer Specified Area 2 (SSA 2). It is unquestionable that the majority of the expenditure of this construction was paid by SSA 1 customers (111%). Regardless to whom the Capital Reserve Funds belonged, it is SSA 1 customers who are forced to pay for the new system by having to replenish the lost reserve funds. Their sewer rates for the past three years reflect these extra costs. Appendix 1 illustrates the surplus collected by the District over the past three years. This is in addition to the pre-existing surplus.
Since 2005 SSA 1 customers paid over $490,000 towards the replacement of the spent reserves (the difference between revenues and costs). This year’s budget intends to produce a further surplus of $316,000, additional money out of the pockets of SSA 1 customers.
Here is where I urge Council to take action and reduce the financial burden on sewer customers. A second look proved successful for the tax reduction, it should work well for the sewer rate reduction as well. There is plenty of room to reduce the rates to $470.00.
Appendix 2 depicts the City of Vernon’s historical budgets and fund requisitions from Coldstream for sewer treatment and disposal. Unit costs for each year ($/m3) are calculated by summing the total treatment and disposal costs (i.e. treatment costs, pump stations, effluent disposal, capital costs and debt costs) and dividing it with the total sewage volume (last year the unit cost was $1.14862772840881). Based on Coldstream’s contribution of 446,864 m3 they requisitioned $513,280.00 in 2007.
Appendix 3 demonstrates the calculation of the District’s fixed costs. All data were taken from the report to Council by the Director of Financial Services. The only alterations made were the removal of $266,654 as that was part of the City’s bill and not a legitimate expense for Coldstream’s basic cost. The City does not bill separately for capital debt. It is included in the total bill which is based on the volume of sewage received from Coldstream by the treatment facility.
The other change is the replacement of the capital replacement/enhancement of $150,000 by more reasonable sum of $85,275 which is 25% of the annual fixed costs. The resulting Annual base cost ($426,475) is divided among the households (2012) connected to the sewer system resulting in $212.00 annual cost per household. In fact, this sum should be paid by all residents along existing sewer lines. The operation and maintenance of the system should be the responsibility of all residents who are eligible to connect. Presently there are probably over 2100 residents along existing sewer lines.
Currently the sewer fees are basically parcel taxes on sewer customers. Every customer pays the same. Calculation of this year’s sewer fees is simple. The budgeted requisition by Vernon from Coldstream is $515,771.00 for 2008. The total of the annual base cost of $426,475 plus the City’s request of $515,771 total $942,246. This sum divided by 2012 (the number of households) results in $470.00. Individual households should only pay $470.00 ($117.50 quarterly) in 2008. This would still provide a healthy surplus of nearly $90,000. Added to the existing reserves of between $500,000-$600,000 we should be well healed for now. The infrastructure for SSA 2 is paid for (from reserves), the OBWB is contributing $17,158.74 and the SSA 2 parcel taxes provide $8,485.98 (a total of $25,644.72) annually to the capital reserve. You can and should reduce the financial burden on the long suffering SSA 1 customers.
***************************************************************************************************** The Director of Finance indicated to me that her philosophy is to set aside significant reserves for the future replacement of infrastructure. I strongly believe that this is the wrong approach. The alternative of borrowing for infrastructure replacement costs and financing through taxation (parcel or general taxation) is much easier and more desirable on taxpayers.The financing costs for every $1,000,000 borrowed is about $75,000 annually. For instance, if we borrowed the $1,390,515.00 for the new sewer system, annual repayment would have been $104,288.63 or about $48.00 per old customer. If we also included the OBWB grant payments of $17,158.74 then the payments would have been reduced to $78,943.91 or about $40.00 per old sewer customer.
A less unfair solution would have been if all households in Coldstream were required to contribute in which case the per household payment would have been about $20.00 annually. In any case, the reserves would have been intact and could be used for lift station replacements and other urgent needs. An example is presented below.
As can be seen a major opportunity was lost of retaining the surplus for other uses (lift stations, etc.) and still maintaining minimal additions to sewer fees (instead of the $60.00 added in 2007 and 2008).
Accumulating large reserves place a heavy burden on present customers who may never see any benefit of such reserves. They also provide unnecessary temptation for future Councils to search for excuses to use these reserves for other than their intended purposes.
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My next comments relate to the user pay method of fee payment Council adopted for implementation in 2009. Council is commended for finally addressing this issue as fees for service should reflect the value of service provided. Those producing more sewage that must be treated and disposed should pay more for the service.
However, a user pay system must be realistic and reflect actual realities. The model must represent the true cost of the service to each customer. Personal feelings have no place in determining the fee structure and implementation time table. Council expressed reservation on introducing the system quickly as being too harsh on customers used to be paying lower fees. Councilors should temper their emotions by the fact that the present system is extremely unfair to customers contributing minimum volumes to the sewer system and paying through the nose.
The City of Vernon is not harbouring such sentiments. Below is the sewer rates used by Vernon.
* Sewer Base Fee of $47.79 per quarter per residence (20 m3)
* Metered Sewer @ $2.39 per cubic meter in excess of 20 m3 (based on Jan-Mar water consumption).
* This rate is adjusted the first quarter each year and remains the same through the fourth quarter billing.
* Flat rate sewer $68.75 in addition to the Sewer Base Fee.
The implications of this schedule is shown in Appendix 4. A single occupant pays $191.16 (if consumption stays at or below 80 m3 per year). A family of 6 might be looking at a fee of up to $1,032.44 annually ($258.11 quarterly). Actual fees depend on water consumption during the first quarter.
We could easily adopt the same system. Appendix 5 is a model based on Vernon’s model but using 2008 data for demonstration purposes (although Council could opt to implement it in 2008). Estimated costs are tabulated based on family sizes.
Our total costs (base costs plus treatment and disposal) estimated at $942,246 (see above). Total anticipated sewage volumes are given as 426,252 m3, thus, unit costs are calculated to be $2.22. Assuming 100 m3 per annuum as the base minimum cost would be $222.00 ($55.50 quarterly). A family of 6 would expect to pay $955.90 ($238 quarterly. Vernon’s rates would be $1,032.44 annually). While it looks quite high I wish to remind Council that water rates already recognize that larger families must pay more.
An alternate model (Appendix 5a) might also be considered but less equitable. Here the base cost of $ 426,475 is divided by all sewer customers, connected or not but paying the parcel taxes and would also pay their share of the base taxes (estimated 2100 households). This sum is estimated to be $203.00. Total sewer volumes multiplied by the unit cost by Vernon ($1.122) plus the calculated base cost of $203.00 provide the annual fee per household. The tabulation estimates annual costs based on family sizes.
Council is reminded that treatment and disposal costs are the same for all sewage. Thus, multiple family units should pay the same fee for the volume of sewage they produce as do single family dwellings. Policies relating to multiple dwelling should be revised.
Although my study accepted most of the data presented by the Director of Finance for the Base costs I do wonder if it is necessary to include some of the building costs in the sewer base costs of $95,227. I would have considered these costs coming from general revenue paid by all of us. However, it is up to Council to decide how they treat this subject. Having been charged for a sewer system from which I have no benefit whatsoever I thought some of these costs included in the base cost calculations are somewhat petty.
I have spent considerable time on this study and I hope Council will treat it as a serious submission for their deliberations.
Respectfully submitted:
Gyula Kiss
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I assume all sewage customers are interested in reducing sewer rates. Those with larger number of dependents must realize that equal rates to all households are unjust. However, if we can convince Council that unrealistically high reserves are not in our interest and providing reasonably priced services is their duty.
Your comments are welcome.
The Eagle
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