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Billions and more

Nov 25, 2017

The warnings are more severe, the solutions still not apparent, but there is at least a little more explanation of how the city got into this financial mess and why it keeps getting worse. Whether it will result in a serious analysis by city councillors remains to be seen.

“The amount of capital funds available for rehabilitation [of existing infrastructure] is far below what is needed to keep the city’s assets in a sustainable condition,” warn staff in their 2018 capital budget report. “The annual infrastructure deficit for the city is approximately $195 million with a cumulative infrastructure deficit approaching $3.5 billion.”

Hamilton has $23 billion in pipes, roads, buildings and other assets. Close to half of this provides sewer and water services that are financed by water rates – which are going up again this year by nearly five percent. Roads and bridges account for over $6 billion of the remainder. Major projects include $13.5 million to repave the Red Hill Parkway over the next two years, $5.8 million for Rymal east of Garth, and $5.4 million for Waterdown Road.

For the roads alone, the unrepaired backlog is “approximately $1.5 billion” and it continues to worsen. That’s partly because a significant portion of roads spending is being allocated to new ones to service growth. That not only adds to future repair needs but also diverts scarce monies from fixing existing roads and bridges.

“Annually, the city should be investing approximately $150 million on roads and bridges capital improvements,” states the report. “In 2018, the city is spending approximately $68.2 million gross on the roads rehabilitation capital program ($82.4 million less $14.2 million growth).”

For most years in the last decade council has accepted the staff recommendation to increase taxes by half a percent to help address the deficit. The exceptions were 2009 and 2014 when councillors chose lower tax hikes instead.

In earlier years, staff suggested a one percent a year hike would be preferable, but councillors never took that option, and staff seem to have now abandoned even suggesting it. Instead they have a new approach – big new spending has to be covered by debt and the tax hike needs to cover the repayments.

This year the recommended bump is 0.9 percent – the regular 0.5 percent plus an extra piece for new transit debt taken on so the city could meet the matching funds requirement of last year’s one-time $36 million federal transit grant. Staff anticipate a second round of federal monies and are consequently warning councillors that there will be additional and even larger increases required in the next two years.

The budget documents offer some reasons why Hamilton has such a huge deficit in infrastructure maintenance. These include provincial downloading of some operating costs, “reduced industrial/commercial assessment” and cuts made to justify amalgamation.

“In achieving a targeted $25 million in [amalgamation] savings, capital funding imbedded in operating budgets (reserve provisions) were eliminated/reduced,” explains the report. “As a result, the city’s capital levy in 2017 as a percentage of the total levy (12.4 percent) is below comparator municipalities (15-20 percent).”

At Friday’ capital budget meeting, Sam Merulla asked why the infrastructure maintenance deficit continues to get bigger despite the annual tax increases. He also wanted to know how big a property tax hike would be required to stop this escalation.

Finance chief Mike Zegarac had a quick answer to the latter – a jump of 30 percent would be needed – and a longer reply to why the problem is worsening. He took Merulla through several recent budgets and pointed out how council had increased capital spending in each year by a greater amount than the tax hike. He contended that’s why “it’s so important that senior levels of government be part of the solution” but warned that when they do provide monies they come with conditions.

“The federal government and the provincial government have set their priorities – our greatest challenge is they’ve chosen the priorities,” stated Zegarac. “We have very little flexibility in moving forward where we have other specific needs.”

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