Winnipeg Free Press - PRINT EDITION

Civic water games

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The finances and rates of Manitoba's municipal water and sewer utilities are subject to the oversight of the Public Utilities Board. For all of these important public and monopoly utilities, provincial legislation provides PUB the authority to set rates, that is with the exception of the City of Winnipeg's utilities.

The City of Winnipeg Charter, an act of the provincial legislature, provides an exception for the city; PUB cannot set the water and sewer rates of the City of Winnipeg, city council does.

There are two major problems with the exception. First, there is an element of unfairness in the provincial government making all other municipal water and sewer utilities in Manitoba subject to PUB's rate-making, while the City of Winnipeg enjoys its exemption. Second, and of even more importance, the exemption has allowed city council to use utility revenue to balance its general operations and avoid property tax increases, while all other municipalities must scramble to depend on property taxes with no help from their utilities.

PUB has set a number of objectives for municipal water and sewer utilities, and those objectives include a prohibition, ignored by the City of Winnipeg, of using water and sewer revenue to subsidize other municipal operations. The city of Winnipeg is aware of PUB's policies, as is the provincial government.

Yet, the provincial government has regularly ignored PUB's strong and repeated recommendation that the City of Winnipeg's exemption from PUB rate-setting be removed.

For more than a decade, successive city councils trumpeted their apparent success in freezing the city's property taxes. The perception being sought was one of efficiency and competency. Were the self-accolades truly deserved?

The reality is the city has been regularly subsidizing its general fund (property taxes) by using revenue drawn from its water and sewer utility. And the rates charged for water and sewer service have been regularly increased, and not by small amounts but by increases that have been multiples of the general rate of inflation. Property taxes may have been restrained, but certainly not water and sewer rates.

Absent the transfers from seemingly ever-increasing water and sewer rates and revenue, and property tax hikes would have been necessary long before now. Even now, with property tax increases being employed again, those tax increases would be quite a bit larger if the rules that apply to all other municipalities were applied to Winnipeg.

And, on the other side of the ledger, if those water and sewer revenues had not been redirected to the city's general fund to avoid or hold down property tax increases, the city would have been, and would be, much more able to make a bigger dent in its sizeable water and sewer infrastructure deficit.

In its review of the city's utilities, PUB found the city's utilities to be in "excellent financial health" having combined (accumulated) surpluses over the years of $1.6 billion as of Dec. 31, 2010. The city's water operation had generated operating surpluses of $41 million in 2008, $25 million in 2009 and $21 million in 2010, while its sewer operation had made $73 million in 2008, $64 million in 2009 and $65 million in 2010.

Added all up, $289 million of revenue over expenses over only three years; not bad, in fact much better than either MPI or Manitoba Hydro has managed. Presumably, the good times are still rolling on with more rate increases in the wings for the city's long-suffering utility customers.

PUB concluded that between dividends and other cross-subsidies drawn from the city's utility, the city's general fund has been subsidized to the tune of approximately $45 million a year, an annual subsidy that would not be allowed to arise with any other municipal government in the province. If that money remained with the water and waste utility, joined by federal and provincial grants, and with the city's vaunted excellent financial position, imagine what could be done with the water and sewer infrastructure deficit.

PUB concluded its review in May 2012, with a recommendation the water and sewer dividends and annual subsidies be ended, and, toward securing that end, that legislation be amended to delete the exemption, now granted, solely, to Winnipeg.

The present practice provides an unique opportunity for the city. Council can claim property tax restraint, while voting in higher utility rates, then remove money that is clearly needed by the utilities to upgrade the city's crumbling water and sewer infrastructure, and make it up by increasing utility bills again.

Graham Lane is a retired chartered accountant; he was the chairman of the Public Utilities Board from 2004 to 2012.

Republished from the Winnipeg Free Press print edition November 13, 2013 A9

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