Water rates are set to climb nearly five percent in January and are projected to keep rising faster than inflation for at least another decade. The 2017 budget report for water, sewer and stormwater also warns about sharply rising debt, plunging reserves, significant reliance on growth, and the shaky future of one of the systems biggest customers.
US Steel currently pays $1.6 million a year for water and $200 million for sewer services, but staff note that the company’s future remains uncertain: “Depending on the outcome of the creditor protection proceedings related to US Steel Canada’s Hamilton operations, there is a risk of the loss of consumption and related revenues.”
The industrial, commercial and multi-residential sector consumes just over half of Hamilton’s potable water and like the residential sector has been using less and less – creating revenue challenges for the city.
Operational spending next year is expected to hit $200 million and an additional $187 million would go to capital costs. More than four-fifths of the proposed rate increase is for the operating budget. The proposed 4.85 percent rate hike would add $31 to the average household bill and bring it to just over $660 per year.
Planned capital spending will jump more than $100 million in 2018 as part of a ten-year outlay of $1.75 billion that will require much higher debt projected to climb past $600 million by 2021 – more than two and a half times the current level. Repayment of over half this is contingent on development charges from future growth which may not occur.
“The levels of debt supported by development charges represent a significant risk if future growth does not materialize as planned,” acknowledges the budget report, “however, relative to forecasts prior to 2014, the risk has been deferred as a significant portion of the growth component of the wastewater plant expansion is now planned in the years beyond the next 10 years until after 2026.”
This risk is accompanied by a significant draining of reserves and already large debt repayment requirements. This year those repayments jump 50 percent to $18.7 million. Over the next three years reserves are expected to fall from $121 million to just $30 million while annual debt servicing charges nearly triple to $61 million.
The report acknowledges that water rate increases have averaged 4.79 percent annually since 1997 when a 15-year Strategy was adopted, although it says that’s really been 2.6 percent when inflation is subtracted. It also points out that Hamilton still has one of the cheapest water rates in Ontario – ranking second lowest out of 15 cities and a full $100 a year below the next highest.
“The 2017-2026 Strategy is a continuation of the Strategy which assumes combined annual rate increases ranging from 3.3 to 4.9% over the 10-year period,” says the report going to councillors for approval on November 18. But alongside the US Steel situation, it points to other uncertainties that could change that prediction including “significant reliance on both rate supported debt and growth related debt supported from development charges over the 10-year forecast period.”
The budget includes a $7.4 million allocation to cover exemptions to development charges that are mainly council-directed subsidies to new industrial and commercial development. It also continues the unusual practice of covering stormwater costs from water rates – one of the few cities in Ontario to do so.
Some others pay for this with property taxes while many are now establishing specific fees based on impervious areas that charges owners of large parking lots far more than just what they currently pay for use of water. Changing that is the focus of a “fair fees” campaign being waged by the citizen group Environment Hamilton.
Stormwater capital projects next year will cost $24.4 million while annual operating costs are about $11 million. A large part of the latter is consumed by the controversial $2000 per house subsidy given to property owners to install backflow valves to reduce flooding risks. That ate up nearly three and a half million dollars this year, and is allocated a further $2.5 million next year.