Adoption of the sewer budget tonight.

Tonight’s Council meeting will address the long standing inequities relating to the sewer fees. It will not address the unfair treatment utility users suffered from the actions of previous administrations but it will start on the way of charging some portions of the sewer fees based on consumption. For this Council deserves commendation.

This issue was debated for several years. Unlike water rates, sewer rates were imposed on a flat fee basis. Regardless of how much sewage a household contributed they were charged the same rate. Administration argued that it was a simple way of ensuring that the required funds were available to cover the cost of service. Notwithstanding the facts that the City of Vernon has been using consumption based billing for years Coldstream was reluctant to change the system. Families with one or two members subsidized families with multiple numbers.

There are still problems with the system but Council agreed to address those problems in the coming year.

One of the problems is the fact that in order to recover the utility’s reserves spent on extending the sewer system to Aberdeen Road (about $665,000) we are being charged significantly more than what it costs to provide the service. Council is in the process of debating policies relating to future financing of infrastructure replacement. Some argue that we should accumulate significant reserves in advance rather than borrow for the infrastructure replacement. Others support the pay as you go principle. This principle is like a home owner contracting for a mortgage to buy his/her home and pay it off in installments. Both arguments have some merits.

When taxpayers have significant amount of disposable income it might be beneficial to accumulate large reserves so we might be able to pay cash for infrastructure replacement. It may be cheaper on the long run but it also requires hitting up the taxpayers now for taxes that will be spent in the distant future when many of those paying into the reserves might not even be around for the benefit. It also creates the potential for misuse of the reserves for projects for which it was not intended. An excellent example of this is the spending of the utility’s reserves for sewer extension from McClounie Drive to Aberdeen Road. Taxpayers living on a pay cheque or receiving fixed pensions cannot afford this type of expenditure.

Borrowing the money requires significantly less contribution from existing taxpayers. Let’s look at an example of borrowing for the replacement of a major peace of infrastructure such as a lift station costing $500,000.

It would cost about $37,500 annually to service the $500,000 loan. There are roughly 2100 customers (households) in the utility, thus, the annual servicing cost would be about $18 per household or $4.50 per quarter.

Check out the sewer utility budget for 2009 (see attached Table 1). Note the Fee revenue (in blue) at $1,201,158. Also note the operating expenses (Subtotal in blue) at $462,547. This last item is what it costs Coldstream to operate the utility.

The treatment and disposal is a fee for service bill from the City of Vernon. It should be a separate, independent account. In 2008 the budgeted sum for this account was $615,000 but the actual bill was $513,523 (Table 2) a difference of over $100,000. The bill from the City should be passed directly to the utility customers without taking a big cut for the District’s use. Reserves in this account should be modest just to compensate for year to year variation in consumption. This year the budgeted amount is $630,000, a very unrealistic figure.

The utility’s operating budget should be for the cost of operating and maintaining the collection system by Coldstream staff. It should have a reasonable reserve for unforeseen maintenance cost of the system but it certainly should not be in the million plus dollar range. This account was raided by the previous administration for the purpose of buying out the latecomer agreement from Coldstream Meadows. None of the existing users of the utility got any benefit from the transaction yet they collectively lost $250,000 (over $100 per household). Another example of the temptation created by a large surplus!

Table 3 is an illustration of the state of sewer reserves at the end of 2008.

The estimated cost of service for 2009 is $1,092,922. The estimated revenues from fees is $1,209,158 for a potential surplus of $116,236. When you also consider the overestimated cost of the City’s bill for 2009 ($630,000 when it might not be more than $550,000) this surplus may be close to $200,000.

Make sure you provide your input to Council in the coming months to help them make the right decisions for you. It’s your money!

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