Welcome
to my Web site!
Gyula Kiss
Some letters to the editor and other documents
relating to the saga of the Master Water Plan.
Gyula Kiss
| Email address: gyula1@shaw.ca Phone
No: 250 545-8772
|
Some letters to the editor and other documents
relating to the saga of the Master Water Plan.
Note: This page is best viewed with Mozilla Firefox or Netscape Browser!!!!
Continued from previous site.
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Apologies for the quality of some of the material but my resources were less than adequate in the early days!
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The following
proposal
was submitted to Greater Vernon Services for their consideration.
Proposal
for taxation based financing of the Master Water Plan.
While the final design for Greater
Vernon’s water is still under discussion, it is important to review the
method of financing its infrastructure costs in an equitable and
sensible way. The present system of financing by way of water user fees
is unfair as discussed below.
In a letter to the Editor in the Morning Star Mr. Ted Osborn, then Chairman of the North Okanagan Water Authority responding to my comments wrote the following (Sep. 6, 2002):
He
(Mr. Kiss) states that we should improve the quality (of the water) and
then raise the rates. That sounds great, but how does one do that?
The answer is: taxation to finance the infrastructure costs. If
we
were to start a new water treatment and delivery system the choice for
financing would be obvious: taxation. In fact, facilities, such as the
Performing Arts Centre and the Multiplex which are non essential
services were financed by general taxation. Property owners pay their
share of taxes based on their property values. The justification is
that property values increase proportionally with new assets to the
community.
There are numerous advantages using taxation: 1. All benefiting properties contribute to infrastructure improvements. Under the current financing model only
water customers bear the costs of new infrastructure. Developers only
contribute Development Cost Charges (DCC’s) that is basically the
“initiation fee” to join in the existing infrastructure. While upgrades
add value to their holdings they are not contributing to the costs
since they are not using water. Taxation based financing will remedy
this discrepancy.
2. Water rates reflect cost of treatment and delivery of water. Water rates should only reflect the cost
of treatment and delivery of the water received by the customer. Lower
treatment costs for lesser quality water should reflect that lower
cost. Presently, water rates are composed of three components:
Tc+Dc+IFc+K=Wr,
where: Tc=
treatment
costs
Dc= delivery costs Ifc= infrastructure financing costs K= access fee ($100/yr) Wr= water rates This scenario unfairly forces customers of
lesser quality water to take larger share of infrastructure financing.
Removal of the Ifc component from the equation would allow charging
lower rates to customers of lower quality water mitigating one of the
major concerns of domestic water customers. All customers would be
charged substantially lower water rates.
3. Actual funds required for financing costs are assessed annually. Wr based
financing estimates the annual
funding requirements consequently a large reserve has to be built up in
advance of the actual need of the funds. The fact is that we have been
paying unreasonably high water rates for the past five years in order
to build up the estimated fund requirements.
Taxation
based financing eliminates the
need of building up reserves. The amount required to repay the loans
are known in any given year and the taxes are assessed based on need.
We will not need collecting moneys from customers way in advance of
needs.
4. Upon repayment of loans taxes are eliminated. Wr based
financing offer the enticement
for future politicians to retain the water rates even after the
infrastructure is paid up.
Director
Kanester introduced a motion to
investigate the possibility of changing the financing model last year.
A number of concerns were expressed by some directors concerning tax
based financing. These concerns included:
• Businesses would bear too high a share. • Desire to maintain user pay system. • No incentive to reduce consumption. • It is cumbersome to develop taxation based financing. Business
rate argument.
It
was
argued that businesses would bear
greater burden in infrastructure costs due to higher rates than
residential taxpayers. Business taxation is a separate issue.
Respective Councils must decide what the ratio of business/residential
taxation is acceptable and apply it to all taxes. The Multiuse and the
Theatre infrastructure taxes are born by both business and residential
properties and no objections were raised by Directors. Since water is
used both for indoor and outdoor purposes the total value of the
properties should be taxed. This way all properties, whether the owners
are current water users or not, will bear the cost of infrastructure
improvements and individual businesses and homeowners would carry a
lighter load.
User
pay argument.
This argument is bogus.
Water customers have been paying fair rates for their water ever since
the utilities were established. The utilities were solvent and had a
tidy reserve for unforeseen expenses. Each utility charged the rate
they considered justified based on costs. What GVW did was upset
this balance and created an unfair system where customers were forced
to pay more than their water was worth.
We
did not get better quality for doubling the water rates. Thus, this not
a user pay system but an abuse of the water customers. It is patently
unfair to charge the present water users for water that may materialize
sometime in the future. The only benefit now accrue to new developments
(such as the Rise) and those do not contribute to the additional
infrastructure improvements.
The user
pay system is maintained by
charging for the volume of water consumed: the more one uses the more
one pays. An unfortunate fact now is that lower quality water
(former
VID) customers are paying the same price as those receiving
higher quality water (Kal Lake) despite the fact that treatment and
delivery costs are higher for Kal Lake water. Additionally, low water
consumers are paying higher unit cost than those of higher volume users
due to the flat rate of $100 per year. For instance, a customer using
200 m3/year
pays 30 cents (31%) more per m3 than one using 500 m3.
Incentive to reduce consumption argument. The
best way to encourage reduction
of
water consumption (not to be confused with the oft used term of water
saving which is actually a water reallocation) is by introducing
graduated water rates such as Kelowna is using. This rate structure
would partially mitigate the above mentioned inequities of higher rates
for lower volume consumers. Table 1 is a review of the comparative
water rate structure between the city of Kelowna and Greater Vernon.
Table 1.
Comparative residential water rates between the
city of Kelowna and Greater Vernon.
Comparing the above rates to rates
charged by GVW we find significant differences. GVW charges $0.76/m3
regardless of quantities used and $8.52/month flat rate (access fee).
Having done some calculations I find that Kelowna charges $49.02 for
125 m3 of water a month. GVW charges
$103.52 for the same volume of
water. A low volume consumer (30 m3 per month) in Kelowna would pay
$13.12 a month while the same volume in Greater Vernon costs $31.32,
almost 2.5 times more. Using taxation based infrastructure financing we
could have
similar residential rates in Greater Vernon. Excessive consumers using
more than 125 m3 will pay significantly more per m3 in Kelowna than they would here in Greater
Vernon (21% more). That is a real incentive to conserve!
The cumbersome nature of taxation based financing argument. Taxation based financing is an easy system
to develop if political interference is waived. We know the total
assessment for the jurisdictions involved in the water service, we know
the annual commitment for financing charges, thus, the annual mill rate
assessment is very easy to calculate. As new development enters the
assessment area the annual tax burden for individual taxpayers eases.
Table 2. Millrate
calculation for $1 million borrowed, with annual repayment of $100,000.
A
rough calculation regarding mill rates
for taxation purposes reveals that for every $1 million annual
liability (repayment of borrowed money) we would need to raise $0.125
for every $1000 worth of property.
If we borrow $10 million, we expect to make payments on it at about $1 million a year. Using the above calculated mill rate of 0.123 a property worth $100,000 would be assessed at $12.30 annually. Let me demonstrate using a practical example: let us assume that we borrowed $13 million to date which is what GVW website posted. Annual repayment would be $1.3 million. An individual who owns a property worth $500,000 would then be assessed an annual tax load of $79.95 (1.3*12.30*5=$79.95) for the past two years. Instead we were paying huge surcharges on our water rates for the past five years so GVW could build up massive reserves. Water rates could drop to about 30-40 cents on a graduated scale. The reduction in water rates would compensate most, if not all the additional taxes. The major savings would be attributed to the fact that we would not have to amass massive reserves as we do now because of the uncertainty related to unknown factors (such as uncertainty of total water consumption in any given year and the timing of repayment sums) and the fact that all benefitting properties would contribute. <>I would be available for further
discussions of the proposals presented here at our mutual convenience.
We are very free to hire consultants to do simple studies at exorbitant
fees. Here we have an opportunity to appoint a citizens committee to
discuss and advise on these matters free of charge. I hope Greater
Vernon Services will take advantage of this offer.
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