Justification for using taxation for water infrastructure or pay true user pay.

Taxation for repaying taxpayers approved loans to finance various infrastructure projects is the commonly used method by all local governments. We have used this method to finance, among others, the Performing Arts Centre, the Kal Tire Centre and more recently the new playing fields by Okanagan College. 

The process begins by identifying the infrastructure project, determining the cost, informing the electorate and calling a referendum. All taxpayers of the area who meet the eligibility requirements can vote on the issue and if the referendum passes all taxpayers pay the taxes. In the case of the water infrastructure loan repayment by properties outside the  water service area would be exempt from such tax even though they are eligible to vote on the issue.

While taxation for water infrastructure borrowing is allowed by the pertinent legislation Greater Vernon Water chose to use water rates to pay for all water related expenses, including infrastructure costs.

In fact, water infrastructure costs are more legitimate for taxation than the earlier mentioned projects. Water infrastructure of a home is directly connected to the municipal infrastructure. It is more like the transportation infrastructure (roads, bridges, etc.) that connects to your driveway and is financed by taxes.

Borrowed funds are repaid by calculating mill rates and each property contributes based on the value of the property. This is how we pay for sports facilities, cultural facilities, etc., which are not even connected directly to the properties. The current debt would require a mill rate between 0.25 to 0.3 approximately.

The arguments against this method of financing is that higher valued properties are contributing more to the cost of the infrastructure than those of lower values. The same arguments could be used for all other taxation financed infrastructure yet that seems to be tolerated by those who argue against taxation for water infrastructure costs. No one argues for financing these facilities through user pay as user pay system would never cover the cost of financing. In fact, most facilities require taxation to cover operating and maintenance expenses.

The prevailing argument for using water rates to cover all costs is that this system will make everyone pay their fair share. Unfortunately, the system we are using does not do that. Since our base fees are extremely high (covers 62% of total revenue requirements) low water consumers pay higher percentage contribution.

Distribution of water consumption was calculated for the first quarter of Coldstream customers on depicted on the table below.

A proposal to use true user pay system is demonstrated below using an interactive calculator. It also compares rates adopted by GVAC and potential rates proposed by the true user pay system. The unit cost per cubic meter was calculated by dividing the total revenue required to meet the budget by the anticipated volume of water ($3.18/m3). Base fee was determined by multiplying 20 (quarter minimum usage) by the $3.18 unit cost. All customers pay this base fee. All additional volume would be charged at the calculated rate of $3.18.

Using this system all customers would be paying fair rates. Currently any customer using over 50 m3 per quarter is getting a subsidy. Industrial customers are Paying $1.50 per m3, less than half the true cost yet they are using the same water as domestic customers do.

The GVAC proposal would collect 63% of revenues from flat fees. The user pay system would reverse this trend: 35% of revenues would be paid by base fees and 65% by user fees. You be the judge which you think is more fair.

I am sure this proposal will again be defeated as there is no political will to increase rates for high water consumers although it is their high daily demand that requires the huge infrastructure and it is not unfair that they pay fair rates.

The issue will be on the Agenda of the next GVAC meeting on March 6, 2014 at the RDNO Board Room starting at 8:00 AM.

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