Guelph considers special 2% levy on top of property tax hike to fund backlog of infrastructure projects
Compounding 2% levy would accumulate $285 million over 10 years

GuelphTribune.ca
Dec. 17, 2015
Doug Hallet

City hall staff are proposing a special levy of two per cent a year be added to property tax bills in Guelph for 10 years to pay for the city’s infrastructure needs.

Such a levy would take in $4.2 million in the first year, but the total sum collected would add up to about $285 million over 10 years, says a staff report prepared for city council’s final budget meetings last week.

Council’s corporate services committee, which next meets on Feb. 1, will consider the staff report, which wasn’t released until very late in the 2016 budget process. The report didn’t become public until it was posted on the city’s website a few days before the Dec. 9 budget meeting in the addendum for that meeting’s agenda.

Surprisingly, the last-minute report suggested that council might even be willing to make a costly special levy for infrastructure part of Guelph’s budget for 2016.

“At this time, if asked, senior management would recommend the implementation of a 2.0% infrastructure levy over a 10-year period” starting next year, it said.

However, at the beginning of council’s Dec. 9 meeting, city finance chair Coun. June Hofland moved that the report be referred to council’s corporate services committee.

The report “needs a meeting all on its own” and requires public input, Hofland told council. Her referral motion was approved unanimously, without any council discussion of the merits of the report.

The suggestion of a two per cent dedicated infrastructure levy came as the report presented an overview of infrastructure funding and described what some other Ontario cities are doing.

The Association of Municipalities of Ontario describes infrastructure – primarily the upgrading of existing facilities and assets and the replacement of aging bridges, roads, and water and wastewater facilities – as the top concern for AMO members, the report says.

“AMO has estimated that if all other municipal revenues remain stable and services are unchanged, property taxes will need to increase by 4.51% for the next 10 years to maintain current standards and service levels,” it says. “Further, to address the estimated $60-billion infrastructure investment gap facing municipalities, an additional annual increase of 3.84% will be required to 2025.”

In anticipation of a potential new source of funding from senior levels of government after the election of Canada’s new Liberal government, city staff have prepared a “comprehensive inventory of projects . . . that could be considered should infrastructure funding become available,” the report says.

It says the “special levy approach” has been used in Ontario for “marquee projects” like the $110-million Economic Development Investment Fund approved by Kitchener in 2003 to transform its downtown around the innovation sectors. But, it adds, dedicated special levies have also been used to address long-term, ongoing infrastructure deficits, such as in Mississauga.

Several possible methods are described in the report to raise money for infrastructure renewal. Among them are: capital surcharges on use of city-owned facilities; setting money from annual assessment growth aside for capital projects, instead of using it to reduce annual property tax increases, as is now done in Guelph; “effective use” of debt; using Guelph Hydro’s annual dividend to the city for infrastructure renewal, instead of using all of it to reduce the city’s annual operating budget and keep taxes down; and special infrastructure levies.

Several municipalities have established special infrastructure levies, the report says. “This option provides for a dedicated source of infrastructure funding,” it says. “This also creates discipline in the budget process, ensuring that contributions are made to capital replacement.”

Mississauga established a special capital and debt levy of 2% of the prior year’s tax levy to help in addressing the city’s infrastructure needs, the report says. “On average, 1% of the levy increase will be allocated to the city’s tax capital reserve, with the other 1% being used to pay for debt servicing costs related to capital replacement projects.”

Thunder Bay’s council approved the Enhanced Infrastructure Renewal Program. Beginning in 2012, this program was “integrated into the budget process to address ongoing capital needs through incremental and dedicated property tax increases,” the report says. “By 2014, the gap between the amount of funding required to implement the city’s asset management plan and annual capital spending is expected to have been reduced by approximately 60%.”

Burlington had a dedicated infrastructure renewal levy of 0.5%, which was increased to 0.75% in 2015, the report says. Over about 10 years, this levy generated $43 million for infrastructure renewal.

“At varying levels, this is the practice in the City of Vaughan, the City of Barrie, the City of Hamilton, the Town of Oakville and the Town of Halton Hills.”

These special levies “typically compound annually, resulting in a significant opportunity to reduce” the infrastructure gap, the report says.

And compounding is why the special infrastructure levy for Guelph being proposed by staff would grow so big in 10 years, Janice Sheehy, the city’s treasurer and general manager of finance, said Tuesday when asked to clarify the city’s numbers.

“The reason that the proposed infrastructure levy collects $285 million over 10 years is that the levy amount becomes part of the next year’s base budget and therefore compounds (forms a larger base in the future),” Sheehy said in an email sent in response to a Tribune query.

As a result, a 2% special levy would accumulate $4.2 million in its first year, $69.1 million after five years and $285.2 million after 10 years.

These totals would be less with smaller levy percentages, the report says.

Thus, an infrastructure levy of 0.5% would raise $1.05 million in the first year, $16.9 million in five years and $68.3 million in 10 years. A levy of 1% would raise $2.1 million in the first year, $34.1 million over five years and $138.5 million in 10 years. And, the report says, a levy of 1.5% would raise over $3.1 million in the first year, $51.5 million over five years and $210.8 million after 10 years.