Is York Region's debt too high?

With the highest debt per capita in GTA, York is reassessing its repayment plan and delaying infrastructure projects.

Thestar.com
Feb. 16, 2015
By Noor Javed


York Region is starting to feel the burden of carrying the highest per capita debt load in the GTA, and is pulling back on infrastructure projects to rein in borrowing costs.

York’s debt has climbed to $2.54 billion and is expected to peak at $3.7 billion by 2020.

For years, the region’s debt repayment plan has been dependent on development charges from current and future construction of homes in booming cities such as Markham, Vaughan and Richmond Hill. (Levies collected help cover the cost of money borrowed to build infrastructure such as water and sewage pipes.)

But the plan isn’t working quite as expected.

Despite fast-tracking projects and a relatively strong housing market, development charges aren’t keeping up with debt repayment. Almost 85 per cent of York's debt is based on what it hopes to recover from development fees.

We assumed higher growth in the early years, followed by slower growth in the later years,” said Edward Hankins, director of the Treasury Office for York. “But because of the economic recession, some of that growth has not occurred as quickly as we thought.”

Officials admit the development charge collection plan is volatile and largely dependent on how the economy fares. Heavy reliance on such fees could leave York taxpayers facing two unfavourable options down the road to cover debt: higher taxes, or more sprawl to keep the development fees coming in.

According to a 2013 report, development levies collected over the past decade amounted to an average of $173 million a year. In 2014, the region reset the rates and collected $250 million, Hankins said. The region is anticipating $330 million annually in 2015 and 2016 - even though such numbers have never been met.

But he is optimistic.

“York is going to grow. It’s one of the fastest growing municipalities in Canada. It’s just a question of how quickly it will grow,” he said.

Yet there have already been consequences to the region’s aggressive build plan and high debt, according to the 2015 proposed budget document, which is up for discussion this month.
S&P recently downgraded the region’s credit rating from AAA to AA+, over concerns the region was spending too much and taking on too much debt. To slow down spending, York Region Council decided to delay certain projects, including the Upper York water reclamation centre and water and sewage projects in Vaughan.

The projects could be restarted if growth proves to be faster than expected, or development charge funds improve.

So, the region’s new focus is building up its reserve funds, Hankins said.

The $1.7 billion currently held in reserves, second in the region only to Toronto’s, is being spent faster than the revenues coming in. By 2017, the depletion trend is expected to reverse, said Hankins.

Critics warn that York’s strategy will put it in much the same straits Peel Region now faces.

“Mississauga was able to collect development fees and use them to subsidize tax freezes,” said Sony Rai, a member of the environmental group Sustainable Vaughan. “Fast-forward 30 years and now Peel Region’s infrastructure replacement and repair bill is causing tax increases.”

Paul Bottomley, York Region’s manager for growth management, believes the growth anticipated in the region by 2031 will surpass what is needed to pay off the debt.

According to a land assessment report from 2009, the region anticipates some 1.5 million people will move in over the next two decades. It also expects to add 229,300 housing units over that period, almost 40 per cent of those single-family homes - the most lucrative type when it comes to development fees.

A single or semi-detached home brings in $37,720 in development charges. A condo of less than 700 square feet brings in almost $15,865.

But some environmentalists worry that York’s debt repayment policy is not sustainable and is a model destined to fuel sprawl.

“They are so far exposed in terms of debt and paying for that with development charges ... and the only way they can see forward is to keep doing more of it,” said Tim Gray, executive director with the advocacy group Environmental Defence.

He believes that as the region builds out, there will eventually be pressure on the protected Greenbelt lands, where new development is forbidden.

Gray believes that with the provincial Greenbelt review taking place this year, the region could contemplate actively moving toward a high-density model, instead of “simply digging itself deeper into the hole.”

“They need to figure out how we can modify development charges so that revenue can be obtained from denser development,” he said. “And if you aren’t building new infrastructure that extends far into the countryside, then your costs are lower,” he said.“So you can transition to a new funding model.

“But in the short term, and with so much debt on them, it’s a hard sell.”