Probing by a new councillor has highlighted a disturbing threat to the city’s financial future and overturned long standing claims that growth pays for itself. Ward one councillor Maureen Wilson’s pointed questions during discussion of the 2019 capital infrastructure budget led finance chief Mike Zegarac to explain that about a third of growth costs are borne by existing residents.
Zegarac who is also the acting city manager stated that “about 70 percent of growth related projects are funded from development charges [and] the balance – thirty percent – are funded from rate and tax payers.” He went on to explain how that fiscal reality increases the risks associated with planned borrowing of over half a billion dollars in the next few years to pay for expanded infrastructure.
“I just want to be careful and expand on the reference to DC-funded debt because for some they may feel that if it’s funded from development charges there’s no risk to existing taxpayers/ratepayers. Well that’s not true for a number of factors. A is growth does not pay for growth, [and] B is that because of our exemptions programs … we don’t necessarily align the budget with Places to Grow.”
While the city’s planning department operates on growth forecasts in the Places to Grow provincial plan that expect steep increases in Hamilton’s population and employment, Zegarac noted those forecasts don’t match the city’s actual growth rates. Hamilton currently is running behind those forecasts by about 800 residential units per year, and is achieving just half of the predicted growth in industrial and commercial expansion.
“We budget according to what we expect we will realize for growth not necessarily what is projected for growth in the Places to Grow,” the finance chief explained. “The risk of doing that, of aligning with Places to Grow, is we could oversize a significant amount of infrastructure and burden existing ratepayers and taxpayers with the servicing of that infrastructure until such time as the development is realized.”
Wilson is also challenging council orthodoxy about the city’s accumulated “infrastructure deficit of $3.7 billion” that is increasing by $195 million each year. While many other councillors contend federal and provincial subsidies plus more expansion are the way out, Wilson argued that “betting the house on some calculation projections that we’re not going to meet” is contradicted by the information in the capital budget report.
“[The budget] suggests that we have grown and developed in such a way that is not sustainable and it says that our future investments are just going to continue that pattern,” she said. “And we’re looking at a whole lot of debt which is going to fall on the backs of my children and yours.”
The budget report says total city debt will more than double in the next two years to over $900 million. And by 2028 it is projected to climb past $1.3 billion with two-thirds being incurred to service future growth and thus defined as “development charge funded”. The biggest part of that is to finance the expansion of the city’s sewage treatment plant on Woodward Avenue.
Final debate on the 2019 capital infrastructure budget is now expected to take place on January 21. The proposed budget calls for spending of $226 million in 2019. The documents include a ten-year forecast but spending beyond 2019 is subject to change in future budgets.
The largest segment of the 2019 budget is for roads, bridges, sidewalks and traffic management. That will consume nearly $97 million. More than a fifth is earmarked for road expansion projects, leaving just over $75 million for replacement and rehabilitation of existing transportation infrastructure – about half the amount that finance staff say is required annually.
If approved, the capital budget will raise property taxes by just over half a percent or about $18 on an average value residential property. That will almost certainly be increased to cover this year’s operating budget which will be debated over the next three months.