As Windsor identifies $34M in funding shortfalls, expert thinks the city should start borrowing
According to the Government Finance Officers Association, it's 'not fair to burden current taxpayers'
Maintaining roads, sewers, parks and trees is expensive — and in Windsor, a report has identified $34 million in funding shortfalls for these projects.
The city's assets are rated in "good" condition which is an improvement the 2013 evaluation of "fair." Fleet assets are in a "very good" state, while information technology and corporate equipment rank as "poor."
The condition of city parks is listed as "fair," while the rest of the city's assets — roads, environmental protections, public transit and the riverfront shore wall — are considered to be in good condition.
While "good" overall seems promising, a report to the Corporate Services Standing Committee said $336 million in city assets is estimated to be in poor condition.
Melinda Munro, a consultant who has worked for the City of Windsor, the City of Vancouver and studied law said Windsor is a "leader" compared to other municipalities across Canada when it comes to identifying the condition of the city's assets.
"Windsor has done a good job of figuring out the infrastructure deficit and how to respond to it," said Munro. "They're respected across Canada at being good at that."
Capital planning should use some debt for asset costs
Despite Windsor's success in identifying funding shortfalls, Munro said the city is missing a key part of the puzzle — long-term revenue planning and using debt.
"Most government and even individuals use a couple ways to pay for the assets they own," said Munro. "Cash from savings, regular income or debt."
According to the Government Finance Officers Association (GFOA), it's better for capital planning to use a combination approach, including debt, to pay for asset management. Munro said using debt for assets is similar to how a homeowner pays for their house.
"You borrow the money and then you pay that money back over time to spread the cost out," said Munro. "So if we're building a new road and that road is meant to last for 20 years ... if I pay for the whole road in the first year then all the users on that road for the next 20 years are using it for free."
Munro said Windsor, in not using debt, has essentially given the hypothetical road as a gift to future users.
"If we spread the cost of that road over 20 years then all the people who use it over 20 years are contributing to the cost of that road, and the cost spreads more equally to the population."
While Munro didn't want to criticize the city for making decisions to not use debt in the early 2000s, she said she hoped looking at the $34 million in funding shortfalls might reopen the conversation.
"We have no debt and in a perfect would that would be fantastic," said Munro. "But it's not great because what it means is that I'm paying for things future users won't have to pay for."
Munro wants the city to "responsibly talk about how to use debt" in order to spread out costs and future sources of revenue.
Association says it's 'not fair' to current taxpayers
According to the GFOA, it's "not fair to burden current taxpayers with the cost of assets people will use in the future."
Munro said the association recommends using debt for big capital assets like roads and sewers, as well as develop a set of policies linked to the choice to use debt.
"One of those policies should be what things you're going to allow yourself to buy with debt," said Munro. "Municipalities across Canada have similar policies — I think Vancouver is about nine per cent, so they won't spend more than nine per cent of their operating budget on servicing debt."
Toronto's is higher, but Windsor's is zero said Munro.
"Even if we went to something as low as two per cent, what would that mean in terms of how fast we could repair our current assets? What would it mean in terms of what we could set as a future increase in taxes?"
What costs what?
Roads and alleys cost the city $37 million annually — but average annual funding only tallies at about $19 million. Overall transportation assets are only funded for about half of what they cost, leaving $20 million in annual funding shortfalls for roads, sidewalks, streetlights and traffic signals.
Other assets, like parks, need about $1.5 million more in funding to meet maintenance demands. Corporate facilities alone lack about $7.5 million in annual funding.
Annual shortfalls in funding;
- Roads and alleys: $18 million.
- Sidewalks: $328,000
- Streetlights: $1 million
- Traffic signals: $884,000
- Playgrounds: $1.5 million
- Trees: $1.3 million
- Corporate equipment: $1 million
- Corporate facilities: $7.5 million
Some grants, including expected income from the Disaster Mitigation and Adaptation Funding program, as well as the sewer surcharge finances, might be shifted to drop the overall funding shortfall to about $29 million.
Cost of maintenance projects 'standard' for a city this size
About $77 million of the $123 million capital budget for the City of Windsor is for maintenance-type projects. Melissa Osborne, the city's senior manager of asset planning, said that's pretty standard for a city of this size.
"All cities fluctuate," said Osborne. "Different asset types have different ranges," when it comes to their funding requirements.
According to Osborne, the report is meant to look at all the assets in the city at the same time, so that council can look at them in "totality."
"There's been significant investments in our assets," said Osborne. "Council has made good, strategic investments with [the assets]."
The report was received at the standing committee meeting Monday, but any decisions on funding have been deferred to future budget meetings.