Bad Data

I never want to react to the Fraser Institute. The easy ad hominem attack is that they are the Canadian propaganda wing of Koch Brothers enterprises, and their attempts to shift public policy in Canada should raise concern, but the more substantive attack is that they produce terrible reports that would not earn a passing grade if they were handed in as an Economics 101 term paper. They are bad at data, so it is best if we ignore them.

Alas, I was asked by an intrepid local reporter to comment because the City of New Westminster is made to look fiscally irresponsible in their latest fresh-off-the-presses piece of decontextualized tripe, so I did a bit of a dive into the numbers. This turned into several hours of trying to reverse-math their numbers, because like the failing university economics students they resemble, they don’t actually provide raw data or point clearly to what their data sources are, instead providing derived numbers without the benefit of showing their calculations. They are bad at reporting data, and we should probably ignore them.

I dug around in the BC Government website they link to as a data source (this one), and after figuring out how they got all of the population for 2016 wrong (using projected estimates instead of readily-available Census data), I started to dig through the various tables and repeated calculations until I got results mimicking theirs. They primarily used “spending data” from this table, and “revenue data” from this table. But they clearly didn’t know (or didn’t care) that New Westminster’s data includes the financial reporting by our Electrical Utility. They are bad at interpreting the data they have, so it is best we just ignore them.

For context, New Westminster operates its own Electrical Utility. It has since before BC Hydro existed. We hold on to it because it is a great deal for the residents of New Westminster. Using 2016 numbers to be consistent with the Fraser Institute report (See Page 90 of this report for the utility’s 2017 numbers), our Electrical Utility sells about $45,000,000 worth of electricity to residents and businesses in the City, at the same rate (more or less) as those customers would pay BC Hydro if they were in another Municipality. It costs the utility about $33,000,000 to purchase that electricity from BC Hydro at bulk wholesale rates. About half of that difference goes into operating the utility (paying staff, buying wires and building substations) and the other half is paid to the City as a dividend. We are the only Municipality in the lower mainland that does this, so we are the only municipality that includes these numbers in their expenses and revenue tables. This is important context. The Fraser Institute is bad at context, which is why we would all be better off by ignoring them.

Because of this bug in the data, their report suggests that New Westminster has “the second highest municipal spending” per capita, along with “the second highest municipal revenue” per capita. They even have bar charts to prove it:

The problem being, New Westminster’s electrical utility “spends” about $38 Million a year, and it generates about $45 Million in revenue. If you take this into account, those bar charts look very different:

The shorter and more accurate story here is that New Westminster (outside of the electrical utility) spends slightly above the regional average on a per capita basis, and collects slightly less than the regional average in taxation and fee revenue. Think about that for a minute.

“Spending” in the local government context means putting police officers on the street, mowing lawns in our parks, and providing swimming lessons to your kids. The money we spend is providing services to our residents, and we do that at a slightly higher rate than the regional average. At the same time, the revenue we collect from our residents in the form of taxes and fees is lower than the regional average. An alternate Fraser Institute headline may be: New Westminster delivers more for less!

Ironically, part of the reason we deliver more for less is the electrical utility that can buy electricity for wholesale, sell it for retail, and provide a dividend to the City which we can use to provide services that would otherwise need to be paid for through taxes. Arguably, having an electrical utility is the most entrepreneurial thing we do, and is something that the entire “run government more like a business” Fraser Institute crowd would normally celebrate.

There is more in this report, including tables showing the City’s residential taxes are below average for the region (12th highest of 17 municipalities), and our debt servicing costs are average, but that kind of story – “City is about average” – doesn’t make for a very exciting headline.

Alas, New Westminster is just kind of average. And when it comes to managing finances, this is not a bad thing. Every financial decision is about balancing the cost with the priorities our residents and businesses expect us to address. I am proud of the level of service we provide in New Westminster, and our ability to do that while keeping taxes below the regional average.

Ask Pat: DCC, MFA, WTF?

This is not a real “Ask Pat”, but I was recently shown this Facebook Post, and I asked the author if I could answer it at length on my blog. I think it provides a good opportunity to open up a bit of how municipal financing works, from my decidedly non-expert-but-required-to-learn-enough-to-make-decisions viewpoint, and (in a roundabout way) asks what I think is a fundamental question about financing municipal infrastructure.

So here’s a question I’ve been pondering for a while about the housing crisis. I’m not sure exactly when the Local Government Act was amended to change the way municipalities generate revenues to cover the cost of infrastructure to support growth. The current method is called Development Cost Charges (DCC’s).

In conversations with a retired city controller I learned that up to the implementation of DCC’s cities would issue Municipal Bonds to generate the funds needed to cover these costs, build the infrastructure and then taxpayers would collectively pay for the costs through tax payments. In the early 70’s the Province created the Municipal Finance Authority to streamline this process so that hundreds of small communities didn’t have to be floating bonds to generate their infrastructure capital they now have expertise and experience at the MFA.

All this changed with the enactment of provisions in the Local Government Act for DCC’s which are essentially prepaid taxes paid to municipalities to cover the costs of roads, sewer and water installations and parks associated with the new development whether that’s an addition to your house or a 50 storey condo development.

OK so what? Well now the purchase price of that newly developed housing unit comes preloaded with tens of thousands of dollars of prepaid taxes. For arguments sake let’s use $50K as a nice round number, please bear with me for this illustration. So your purchase price includes this $50K, which by the way the developer probably has to finance plus any profit margin the developer might add and so additional costs, but lets work with $50K for now. At 5% mortgage interest that increases monthly payments by about $290 and adds over $37,000 in additional interest to the mortgage. With me so far? Now let’s add property transfer taxes and these days for a lot of people government mandated mortgage insurance as well.
So we’ve transitioned away from publically financed infrastructure growth to growth financed by individual families. What used to be money borrowed at preferential interest rates through government Bonds is now financed by homeowners through their local BANKS, the same ones that continue to report record quarterly profits year after year after year.

So what about the cities. Well since 2008 Canadian Municipalities collectively have managed to sock away over $100BILLION IN CASH while continuing to press Federal and Provincial Governments for cash to help them cover the costs of their suppossed infrastructure deficits. It seems to me that while its easy to blame ‘foreign investors and speculators’, at least some of this crisis needs to be laid at the feet of our governments at every level.

My first impression is that this discussion conflates a couple of things, and that is leading to a bit of confusion. Here is my understanding of the relationship between DCCs, Municipal Bonds, and the MFA.

The idea behind DCCs is to charge the capital cost of infrastructure expansion to the persons who benefit from that expansion. DCCs are charged when there is growth in residential density (a 3-story building becomes a tower, a house becomes a set of townhouses), and are meant to assure that a fair share of the cost of building bigger sewer pipes, bigger water pipes, buying new parks space, etc. is covered by the new population that fills that density. The City charges a DCC based on the square footage of the new density, and presumably the developer passes that cost onto the purchaser of the property, who is the ultimate beneficiary of the new infrastructure. In New West, we have DCC Bylaws for Transportation, Water Supply, Sanitary Sewer, Drainage, and Parks.

At current rates, a new 1,000 sq ft apartment in Downtown New Westminster would include about $5,140 in DCCs. That would be $1,120 for Transportation, $60 for drainage, $250 for water, $430 for sanitary sewers, and $3,290 for Parks. Note than a brand new 1,000 square foot apartment in New Westminster sells for something over $700,000. If you believe that the cost of new housing is directly correlated to the cost of building it, then DCCs can be said to raise the cost of any single unit by much less than 1%. Although they cumulatively do a lot to reduce the cost of infrastructure upgrades for current residents, I don’t think DCCs are a significant cause of the current housing affordability crisis.

It is important to note DCC money is not thrown into general revenue, but is put into specific reserve funds and earmarked for defined projects under the category for which they are collected. This is fundamental to the DCC regulation – they must be spent on improving infrastructure above and beyond what would have been spent if the density was not permitted.

For obvious reasons, DCC money is not spent the day it is collected. A City is a complicated thing, and we cannot upgrade a section of sewer on a whim. Instead, we need to plan out years, sometimes decades, in advance so that all parts of the system work together. When collected, DCC money mostly goes into a reserve fund and is drawn out when the works happen. Sometimes we can borrow against a reserve fund (if the sewer needs to be upgraded today, but a DCC has not been collected yet and we are confident it will be collected in the near future), but even that is a bit deeper than we need to go here.

DCCs also don’t pay for all infrastructure upgrades. Even if there was no density increase in a City, we would have to replace your water lines every 50 years or so, pave your road every 10 years or so, etc. That money comes from property taxes (in the case of roads and parks) or part of your water/sewer bill (in the case of the pipes). We collect a little more in your water bill than it costs us to run the water system, and set that aside into those same reserves to pay for maintenance and upgrades of the system when they are needed. Alternately, we can pay for the upgrades when they come up by borrowing money, and charge future users that cost (plus interest). As you will see, we do a little of both based on what makes the most financial sense at the time.

That is how we can have both $120 Million in our reserves and $65 Million in debt. I hate using household finances as a model for explaining municipal finance (they are two very different things), but this is similar to having money in an RESP account at the same time as holding mortgage debt: we do it for rational reasons related to how the financial and taxation systems are designed. We didn’t invent global capitalism, but we operate within it. If you have an alternative system that more fairly distributes capital, send me your e-mail and I’ll subscribe to your newsletter!

This does raise what I think is the fundamental question about how we finance public infrastructure. If we want to build, say, a new $100 Million recreation complex, do we save up enough money to pay for it before we build it, or do we build it on debt and pay it off over time? There are compromises to both.

In the first case, everyone pays today into a reserve fund until we hit the number that we need to build the complex. It will take several years, and for all that time, the taxpayers of the City will be paying into the fund but not receiving the benefit of those payments until some point in the future when the complex is completed (if they still live in the City at that time). Is that fair to them?

In the second case, the complex gets built first, and the people who have an opportunity to benefit from that complex pay taxes for it while it is being used. Of course, they have to pay a little more this way because the debt needs to be serviced over the period of time it takes to pay it off. Is that fiscally prudent?

(It sounds to me like you would prefer more of the latter in the case of financing infrastructure related to new growth, as it would result in the City borrowing more from the MFA or Municipal Bonds and spreading the cost evenly among all taxpayers, whereas the former puts more burden on the new home purchaser which they would, presumably, borrow from a bank to finance. Please correct me if I got your argument wrong.)

There are other factors that need to be considered, and this is why most local governments do some combination of both. It matters what interest rate a local gov’t can earn on its reserves vs. what interest they pay servicing the debt. In this low-interest era, we may choose differently than back in the high-interest 70s. These rates are also related to your financial status: a City with $100 Million in the bank can get a lower rate than a City with $100 Million in debt. There are also significant complications local governments have to go through to borrow beyond their 5-year financial plan. Add to this uncertainties like inflation of construction cost and other capital needs that may pop up in the same time period. The practicality is that we sometimes need debt, and we benefit from strong reserves. 

I don’t want to get into the discussion here about us going to senior governments with hats in hand asking for their help in funding public infrastructure (this blog post is already much too long). However, I can summarize by saying local governments are responsible for the maintenance and upkeep of about 60% of public infrastructure in Canada, and we directly receive about 8% of all tax revenues. Without help from senior governments, little of your public infrastructure would be sustainable. The Infrastructure Gap commonly measured across Canada to be more than a hundred billion dollars is measured above our existing reserves; but I digress.

The Municipal Finance Authority is, essentially, a Credit Union. Local Governments can borrow money from the MFA at rates better than we can get from commercial banks, and we can save our reserves with the MFA and receive a pretty good return. Most years, New West makes a little more in interest on our reserves than we spend in interest on our debt (though market fluctuations obviously impact this equation). As you note, the MFA structure has largely replaced Municipal Bonds issued by individual Local Governments. In essence, the MFA issues Bonds on behalf of all its member Local Governments. I am really not an expert on this part of finance, but I would assume that the reason we use the MFA instead of issuing our own Bonds is that the interest rates the MFA can offer (because they are a large, diverse organization) is much lower than we would have to pay to make the Bonds attractive in this razor-thin investment market.

But perhaps more to the point, the Bonds vs. MFA issue is something completely separate from the DCC discussion. DCCs are taxation – they generate revenue for a Local Government. Bonds are simply debt instruments; they are loans which we would have to generate revenue (taxes) to pay back. This takes us right back to the fundamental question that we have already asked – when should a government collect the money to pay for new infrastructure? Before it is built, or after? In reality, we do a little of both, and use the financial instruments available to us under the Local Government Act to hopefully strike a fair and responsible balance between the needs of today and the needs of tomorrow.

Ask Pat: Taxes – the western suburbs edition

westvandude asks—

I read your property tax comparison article as I was looking to compare West Vancouver to City of Vancouver taxes. For instance if we say what is the total tax paid on a $2.5 or $3 million house in either community (so property tax, garbage, sewer, water, etc) as I always thought City of Vancouver was more expensive…. when you compare Vancouver streets potholes and snow removal it seems Vancouverites are getting ripped off. Where would I find a comparison for total taxes for same value houses?

Hey, wait, this isn’t a New West question! It also sounds like you want me to answer one of those questions that a few minutes on Google could answer. That link I just used is a little old, but fresher information is pretty easy to find. For example:

Go to the City of Vancouver Property Taxes webpage, and it gives you a pretty good summary of what your Mil Rates are, and where they go:

taxes1

Unfortunately, no such page exists that I can find on the West Vancouver property taxes webpage.

taxes2

To find the Mil Rates, you need to dig a bit through the Bylaws until you come upon Bylaw No. 4885, 2016, where the Mil Rates Rates are set out:

taxes3

If we can ignore Metro, School, and other property taxes that don’t go to the City and are set provincially or regionally, on a house assessed at $2.5 Million in 2016, you paid $3,700 to West Vancouver (2.5M/1,000 x 1.4758), and $3,900 to Vancouver (2.5/1,000 x 1.56168). Of course, we also have to, just for a moment, put aside the absurdity of the phrase “$2.5 Million house in West Vancouver”.

Utilities are more complicated. West Van charges Quarterly for water and sewer. Water has a $60/qtr base charge, and rates that go from $1.15 to $1.93 per cubic metre of water depending on how much you use. Sewerage further costs you $32/qtr plus another $2 per cubic metre of water you use.

Vancouver bills for water on a Ternary basis, with about a $31 base charge, and rates that go from $0.95 to $1.20 per cubic metre of water based on season. Sewage costs a further $0.87 per cubic metre of water use. So it sure looks like for most users, Vancouver water rates are quite a bit lower, but it depends completely on your use. If you have typical household use, Vancouver is several hundred dollars cheaper per year.

Notably, West Vancouver charges homeowners a “Drainage Levy”, which is $400 per year for a typical home. Vancouver does not have a charge like this. That extra $400 charge easily exceeds the difference in property taxes between the Cities. And also points out how the deeper you dig into the comparisons between how different cities pay for their public services, you discover that simply saying “Vancouver has higher taxes than West Vancouver” is a bit of a meaningless phrase. This is why I tried to compare what cities collect in taxes per capita, using data normalized a bit by the provincial government. West Van looks pretty expensive when you look at it that way.

Finally, about the roads and pothole thing, you can look at the 2016 West Van budget, and see they have about $100M in revenue every year, and spend about $4.5M on all engineering services (about 2/3 of that spent on roads). Vancouver’s 2016 Budget showed $1,260 Million in revenue and spending of about $75 Million in all engineering services – so about a 33% higher proportion of revenues. Of course, the roads that Vancouver spends money fixing are way more likely to be used regularly by a West Vancouver resident than vice versa. Also note that Vancouver has (almost) the most roads by area and the most road lane kilometres per capita than any City in British Columbia, where West Vancouver has relatively sparse roads. So we are, once again, comparing apples to pineapples here.

New West taxes? We are about average per-household in the region, and are well below average on a per-capita basis. And the potholes this year are terrible, despite the $4.5 Million spent on asphalt annually. That December snow event was pretty hard on asphalt, and that is going to cost us.

Ask Pat: $1 Transit?

Terran asked—

Hey Pat,
Hope I’m allowed to still ask questions even though I don’t live in New Westminster anymore. (I’ll be back once affordability comes back)

Translink recently started asking about transit fares again. This was a long time promise for the compass card that we could better manage the system. The survey is quite overly simplistic but that’s not my question more concern.

My question stems for the comments below the Facebook post they have for the survey. The idea of $1 transit fares comes up. Considering only ~35% of the budget comes from transit fares could this actually be a realistic option? I know I would switch from using my car if I could get to work for only a $1. Would the increased ridership even come close to off setting the huge loss in revenue? Is there even a way to know?

Sure, I’ll give you one free question since you used to live in New West. Wait – was that your question?

As you mention (and I talked about a bit a few weeks ago), TransLink is going through a Fare Review process right now. This is likely in response to the integration of the Compass Card as much as to a newfound opportunity for the next stage of system growth, as the Mayor’s Plan for a decade of capital investment may be back on track.

This review is not intended to boost or reduce fare revenues, only to re-jig the system to make it work better; to make it more “fair” or more user-friendly. The working model is that any adjustment would result in about the same revenue from fares, it will just be collected in different ways. The survey therefore was designed to collect people’s feelings about fare structures such as whether people who travel farther should pay more, or the entire system should be a flat fee, but is basically silent on what the actual flat fee or distance charge would be.

What you are suggesting is not just a “flat fee” model, but one that sets the fee quite a bit lower than it is now, in hopes that it will boost ridership. Considering the purpose of the survey, what would that rate have to be?

TransLink receives a little more than 1/3 of its operating revenue from the farebox, or about $510 Million of a $1.4 Billion budget. Aside from roads and bridges and all the other things TranLink does, they annually have about 240 Million journeys on the multi-modal transit system, or 360 million boardings (obviously, some portion of journeys results in more than one boarding, as a person may transfer from SeaBus to the SkyTrain, or from one bus to another on a single journey). So depending on whether you want to issue transfers or not, you would need to charge $2.15 per journey, or $1.45 per boarding.

So a dollar won’t be enough, but would this simple and cheap fare boost ridership enough to make up for it? At current service levels, there would need to be a doubling in the number of journeys on the system, or a 45% increase in boardings. Anyone riding a SkyTrain during rush hour or standing on a 106 recognizes this is not viable without a significant increase in service levels, which would require investments in the capital part of operations (buying more trains and buses), not just increased operational costs.

Perhaps there is some wiggle room in the idea of flat $2 fares per journey, one might speculate that this would provide a 7% increase in ridership to make up for the lost revenue per ride, but that brings us back to the fairness question: should a person riding the 106 from Columbia Street to Uptown pay the same amount as someone riding SkyTrain from Surrey to Downtown Vancouver? Which type of journey are we trying to incentivize more? These are the questions the current review is trying to address, even at a relatively simple level.

Calculating an optimum fare, one that incentivizes use but also provides enough ridership to maintain a system, is some difficult calculus, even putting aside the political implications of increasing the various tax subsidies to the system (or the massive tax subsidies to the alternatives). I don’t think we are going to get there through this fare system review.

And seriously, we really need to talk about how much you are spending on your car now. If $1 fares would sway you, perhaps you might want to crunch the numbers and see where $2.15 fares put you, financially. The sad reality is that, regardless of how much we subsidize cars, they are still surprisingly expensive to operate if you do the actual math.

Ask Pat: Anvils and elephants

Duke of Belyea asks—

Hi Pat, perhaps the notion of the Anvil Center being a white elephant could be dispelled if you or the City could show the actual revenue/expense numbers for the facility.

First, on the premise, I disagree with you. Second, on the solution, I wish it was that simple.

I do not think critics of the Anvil Centre (or indeed critics of Council) will ever be convinced that it is anything but a white elephant. Specific residents of Coquitlam will write occasional long-winded factually-challenged screeds to the Record for some time, using the Anvil as an example of New Westminster’s failures, regardless of any success seen around or within the Anvil. That is just political bullshit theatre we need to live with, and facts will not change it, because the Anvil is more than building, it is a totem around which previous elections were fought and lost. Some people never stop fighting yesterday’s battles.

The premise further relies on measuring the success or failure of Anvil on a balance sheet of effort-in & revenue-out. I simply don’t see it that way. To explain that, we need to clarify what the Anvil is, and what a City does.

For one building, The Anvil Centre has purposes to fill a long paragraph (noting, for full disclosure, that I was not on Council when these conversations and decisions were made):

The Office Tower was conceived as an economic driver for Downtown, but since the City sold it off for more than it cost to build (success?), the City no longer had much say in how it is operated. The owners have every right to set their rent and manage their incentives any way they see fit, regardless of whether it serves the larger purposes of the City. The restaurant space is finally leased, and although later than we may have liked, I think we will have an operating restaurant that fills a niche in the City, brings attention to Columbia and 8th, and becomes a revenue driver for the City. I’m not sure how you measure the success of the shift of the Museum, Archives, and Lacrosse Hall of Fame to this venue. They have been relocated from various other locations to a central cultural hub, which also freed up space in those other venues. The New Media Gallery has quickly become one of the region’s most important artistic venues, drawing visitors and raves from around the region. Conference services are on or ahead of target for bookings and revenues, the program at the Theatre is (slowly) coming along, and the numerous arts and culture programs on the 4th floor are similarly starting to fulfill the original vision for activating the Arts in our City. All of these tangible purposes are wrapped up in the larger benefit of turning a windfall (the DAC funding) into a community asset to replace a failing retail strip at the renewed gateway to our central business district.

This brings us to your solution to the inevitable political push-back: a simple spreadsheet that outlines the costs and recoveries from the Anvil. I suppose it is doable, as the City’s Financial Plan and backing documents are openly reported, and every input and output is buried in those spreadsheets somewhere. But it would be really complicated, simply because the Anvil is not a single entity operating separate from the rest of the City.

The museum and archives have always cost money to operate; moving them to the Anvil doesn’t change that. The old Hall of Fame site is now home to a very popular and revenue-generating recreation program: is that success part of the Anvil, though it is located at the Centennial Community Centre? The City’s Arts Programmer works out of the Anvil, but also administers the City’s Public Art program, which is funded through a combination of fees, sales revenues, and taxes – how does that balance sheet overlap with Anvil’s? Even the Conference Services, which are a revenue-generation aspect of the Anvil, share resources with other departments (especially the theatre and our catering contractor), and rely on an integrated operation to be successful. There are staff who spend part of their time doing Anvil-related things, and part of their time working at other facilities, just as the toilet paper and photocopier toner at Anvil are bought as part of City-wide operations. The tax revenue for the office tower is higher than it was when the space was a one-story retail space, but that tax enters general revenue, and needs to be measured against opportunity cost if a private developer had taken over that site… the list goes on.

I guess it sounds like I am creating a list of excuses of why not, instead of addressing your original concern. Lyrical gentlemen from Coquitlam will accuse me of “spinning” the facts here for political reasons – the same way they would accuse any spreadsheet produced of doing the same thing. So if you want a spreadsheet to solve a political problem, I suggest it won’t work. So why spend valuable staff time producing it?

I tend to agree with one idea buried in your premise, and maybe an answer to that last question: we need to find a better way to share our financial information in the City. Although all reporting is “open”, I am afraid our efforts towards “transparency” is a little clouded by the complicated way that Public Service Accounting Standards are regulated and performed. Even as a City Councillor exposed to this stuff all day, I am sometimes challenged to create connections between line items in spreadsheets. There is a lot of Accountant Talk here, and with all due respect to the profession, they are no better than others at explaining to lay people just what the hell they are doing. I’m not sure what the answer is from a public engagement viewpoint, but suspect (hope?) we can do better. I’m just not sure it will ever be enough to satisfy some Letter-to-the-Editor authors, and maybe that shouldn’t be our goal. However, we do need to find ways to translate our financial reporting so residents and businesses can be confident that their money is being spent wisely.

I am pretty sure of one thing: any honest accounting would reveal the City spends more money on operations at the Anvil than it receives in revenue from Anvil operations. Just as it spends more money on the Canada Games Pool than revenue earned, or the all-weather playing field at Queens Park, or the Queensborough Community Centre, or the Library. I suppose there is a discussion that could be had about which of these operations community assets would need to show a financial profit to be considered “successful” in the City, but I don’t think that is where you were going with this question.

I also think there are improvements we can do to make Anvil run better, especially in opening up the first floor to more public use and making the entire centre more inviting. That is an ongoing discussion, and one very much worth having.

Tax time – 2017 edition

Assessments are out, everybody lucky enough to have entered the housing market lottery prior to about 2008 is discovering how much their nest egg has expanded in the last year, and even to the lucky winners, this is at times disconcerting. Strangely enough, people who have just discovered that have an extra couple of hundred thousand dollars in tax-protected equity they didn’t know about are concerned about the impact on their Property Tax. People are funny that way.

I wrote a piece several years ago about how property tax relates to your assessment increase, and last year provided a handy graph showing how your assessment increase vs. the average city-wide assessment increase results in different increases in your taxes.

This year, the Mayor of Coquitlam used Facebook to send essentially the same message, and New West blogger and noted Hawaiian star-coder Canspice wrote another piece with a slightly more updated example of how the system works compared my older one. So I won’t tread over all that again, but short version is your Municipal taxes won’t go up nearly as much as your assessment.

My incredibly average house’s value went up 30% this year, and the average for New Westminster was 28.5%, so my property tax bill will go up 2.5% plus whatever increase Council decides is required to pay the bills in 2017 (now looking to be just under 3%, but not yet confirmed). If your home went up 25.5% in value, your taxes would be exactly the same as last year. If your home went up less than 25%, your taxes are going down.

However (and here is another important point people often miss), this only relates to your Municipal taxes. When Council decides it needs to collect 3% more tax revenue to balance the budget, we adjust the mill rate to increase our revenue by 3%. However, Municipal taxes are only a little more than half of your Property Tax bill. You may remember these line items from last time you paid your taxes:tabletax

In New West (and this varies between Cities for reasons that will soon become obvious), about 60% of your Property Tax goes to the City, the other 40% goes to other agencies, and the City has no control over what the rates are for those taxes.

Your 2016 property tax in New West broke down into these categories, with the Mil rates shown. Only about 60% goes to the City
Your 2016 property tax in New West broke down into these categories, with the Mil rates shown. Only about 60% (the blue bit) goes to the City.

The School Taxes (for a New West residential property, this is about 30% of the total you pay) are set by the Provincial government. They are based on a Mil rate, like your Municipal taxes, and like them, the rate is different in every City. Generally cities with higher land values have lower mil rates (West Vancouver is 1.026, Quesnel is 3.698), and the rates are adjusted every year. After that, I honestly have no idea what formula they use or what their goals are towards equity across the Province. According to the Ministry, they are raised every year “based on the previous year’s provincial inflation rate”, but I am not really able to confirm or refute that idea. I have never seen a letter written to the newspaper complaining to the province that School Taxes are going up.

There are also two regional charges attached to your Property Tax bill, again not directly controlled by the Municipality: those to support the operation of Metro Vancouver (GVRD) and TransLink (GVTA).

The Metro tax (Mil rate 0.0563) is solely for regional government operation, and is separate from the utility charges that makes up most of Metro Vancouver’s revenue. The Metro Vancouver board (which is every mayor in the region) negotiates that rate every year based on needs, and it is the same Mil rate across the region, so people in West Vancouver pay much more per household than people in New West, as their property values are higher.

The TransLink Mil rate (currently 0.2834) is determined by the TransLink board, with approval from the provincial government and within the confines of the provincial regulation that governs them. This rate is , again, flat across the region, meaning West Vancouver and Vancouver pay more than New West and Langley per household. This provides about 20% of TransLink’s revenue, and this is the heart of the long battle between the provincial government and the mayors of the region – the Province would prefer that new TransLink revenue to come from increases here, the Mayors have a long list of alternate sources they would prefer, from sales taxes to road pricing to carbon tax. But let’s not go down that rabbit hole just now.

There are also two small charges controlled by the provincial government for the benefit of local governments. The BC Assessment Authority (BCAA), who determines your land value, is funded wholly through Property taxes, and the Municipal Finance Authority (MFA) gains some operational funds through a very small Property Tax charge (20 cents for a $1,000,000 house). Both of these are collected with Mil rates flat across the province, so the average West Vancouver resident pays much more than the average Quesnel resident, with New West somewhere in the middle.

Finally, the City’s new Property Tax Estimator gives you an idea of what your actual assessment means to your tax bill, assuming that Council approves a 2.98% tax increase. It also provides an interesting break-down of how the City’s revenues are distributed between departments, giving you an idea of what you are buying with your Property Tax, and how much you are paying for each.

Taxes & the CPI

We are through the annual budgeting cycle at City Hall, our 2016-2020 Financial Plan passed, our tax increase bylaw adopted with a 2.73% increase for 2016.

I tried during this and previous tax seasons to talk about the hows and whys of our Property Tax system, but there is one topic I didn’t really touch on. It is a topic raised commonly by local contrarian, cyclist, and generally good guy, Ed. I am paraphrasing a collection of Twitter missives a bit, but my understanding of Ed’s position is that property tax increases should be limited to CPI increases, or matched to inflation. In this post where I compared New Westminster’s tax increases to the inflation rate, you can see that we are, and have been for more than a decade, above the CPI rate (which is projected by the Province of BC to be 1.9% in 2016), as is every other City in the Lower Mainland. Why?

It shouldn’t be too much of a surprise. Every year as a part of the budgeting process, staff bring recommendations to Council about new spending, and provide us (and the public) a pretty clear picture of how much each new staff position, program, or service will cost Taxpayers, right down to the percentage of tax increases. Some of those positions, programs or services come with offsetting cost savings or revenue potential, but in the end it always seems that taxes need to go up, it is just a question of how much.

I’m going to skip a little bit past the easy political talking points: downloading, deindustrialization, and economic bleeds caused by decades of neo-liberal economic policy. That’s not to say these factors should be blithely dismissed; indeed they are real pressures on local governments, and may be the biggest factor in ongoing tax increases. Maybe in another blog post I’ll try to explain what is wrong with the entire world economy (better if you just go read Umair Haque), but for now I am going to keep this local, because we are asking what we in Local Government can do about this.

There are many drivers that push up the cost of running a City the same way they push up the cost of running of your business or household. Just as you pay more every year for food, utilities, banking charges, transportation, and taxes, the City pays more for wages, equipment, supplies, banking charges, utilities, etc. As Ed astutely observes, those increase is (more or less) related to the Consumer Price Index.

There may be long-range factors that impact how closely our operational costs match CPI year-to-year. For example, a long period of ignoring our infrastructure means it will be more expensive to repair when the situation becomes critical. Similarly, if we have extended periods where wages are not keeping up with inflation, that will come back to haunt us.

There is a third factor, however, that is completely in control of local governments and the electorate that empower them. Every year, people want more from their local government, and more never comes for free. To give examples of this, I think I can divide that “more” into three general categories (recognizing there is a lot of overlap between the three): new needs, new programs, and new approaches.

New Needs are things we have to do now, that we didn’t really have to do in the past. There is some aspect of “downloading” to this, but most of it is just a result of changing times. We currently train a group of our NWFD force to respond to Hazardous Materials incidents, in case one happens at the railyards in the City. This was partly a response to the tragedy at Lac Magantic, partly an increased awareness of the hazards that exist in our community and a demand from the public that we do all was can to address those concerns. Another example is the new policy that every single sidewalk corner will have a “let down” to make all of our sidewalks accessible for those on wheels, those pushing children in a stroller, and those with other mobility limitations. We are similarly spending money upgrading all of our bus stops to meet accessibility standards. These are just a couple of examples of things we now do that we did not do in the past, and they all cost money – more money than we collected in the past.

New Programs are things that we have chosen to do because people want them, but are (arguably) not “needs”. I was at the Youth Awards held last week at Century House, and was reminded about the programming we offer in our (still brand new) Youth Centre, a facility used by literally thousands of local youth every year. We have recently been discussing infrastructure upgrades at the Library, and I am learning how they provide the only access to the internet for a significant portion of our community. Everything from interacting to government agencies to applying for jobs is impossible in 2016 without internet access, and the needs of the community are outstripping the computer terminals we have. We are currently replacing one of our all-weather fields for the princely sum of $1.5Million, because it is past its service life. We do this because a plastic turf field is about 5x more used than a grass field, and we can offer much more programming on a limited amount of space available in the City. Our Police Department has officers specially trained to determine when a person is suffering from a mental health issue, and manage their approach in a way that is less likely to result in violence or self-harm for the member of the public. Again, new, modern problems all around, not things we did 20 years ago, but things that our community expects in 2016.

New Approaches are things we have always done, but do very differently now, often in ways that are more staff or resource intensive. I am sitting in on the Public Engagement Taskforce, a group of staff and public volunteers looking at better ways for the City to reach out to the public they serve, both so we can keep the public more informed and so we can get more meaningful feedback from the public when we need to make decisions. The way we, as a City, have turned the Official Community Plan update into a two-year-long public conversation about the future of the City, instead of just a small collection of staff and a few councillors attempting to dictate the future, is an example of how resource-intensive true engagement is, and how important it can be to a community. Again, it seems obvious to us now, but not something we expected 20 years ago.

This is not to say there is nothing we can stop doing or paying for as times change: we save a bunch of money on pesticides with the new approaches to weed management in the City; our fleet fuel budget is going down as we upgrade to a more efficient vehicle pool; the cost of running our solid waste program is definitely increasing at a rate less than inflation as efficiencies are found. Our mental health officers will likely result in lower crime levels, better supports for marginalized people, and law enforcement savings down the road. Building pedestrian-friendly streets will reduce the use of cars in our city saving us money in road maintenance, emergency response, and health care costs. There are also efficiencies of scale as population increases and density makes provision of services more convenient. But the reality is that pipes in the ground and mowing lawns are costs that track along with the CPI, and no-one is lining up to propose which programs they want to see cut in the City. New approaches to new problems are inevitably added to the bottom line.

Every election, people come along saying they will freeze or lower taxes, but do any of them provide details of how they will do it? I still fondly remember former Mayor Wayne Wright in the 2011 election shutting a rather vitriolic opponent down at an all candidates’ meeting by calmly saying “Cutting taxes is easy. It’s the easiest thing for us to do. Just tell us which programs you want to cut to make it happen”. There was no retort, because he put a lie to the “find efficiencies” and “set priorities” memes that neo-liberals use when their real goal is to undermine public services at every scale, from public transit to schools to health care.

It is also telling that even the most strident of anti-tax crusaders find that in Local Government, the bills are always coming due because we have to answer the phone when someone loses a service or program important to their lives.

As a Council, the toughest part is setting priorities. You get elected hoping to do a lot of great stuff, and run up against limited resources and an over-burdened agenda of 7 Council Members. I would love for us to develop the Gas Works site into a public art curator and public park, to complete the Sapperton Landing to Pier Park greenway connection, to build an architectural wonder for a Q2Q bridge and a energy efficient family-friendly and competition-supporting Canada Games Pool. While we are at it, I want to fill the funding gap of senior governments that is threatening the very existence of our supported Co-op housing sector, build a fully integrated and interconnected bikeway network, and plant 10,000 trees to bring our urban forest back to the national average for tree canopy. These are all important things, and they all cost money, and they would all result, eventually, in tax increases above that of inflation. We can probably avoid significant tax increases if we do none of them, along with not doing a list of other things that would make our community better.

So every year at tax time, and actually throughout the year, when new programs or better services are presented to Council, we evaluate them. We try our best to understand the long-term budget implications, ask how or if these ideas can offset costs other areas (“find efficiencies”), and determine if this is something needed right now, or if it can be put off (“set priorities”), and we hear from the public about how critically important, wonderfully visionary, or economically savvy each new idea is. And we make those tough choices, and often we say no. That’s the job.

When people say “The City should…”, I so often want to respond with “Let’s do it!”, but instead end up saying “I wonder how we could…”. That (along with no longer fully enjoying the Letters to the Editor section) is probably the biggest dose of reality going from being a community rabble-rouser to an elected official. I agree with Ed, with former Mayor Wright, and (though I shouldn’t speak for them) with my Council colleagues, that we need to be diligent at finding ways to save money, find efficiencies, and keep our taxes as low as possible. But much like Jordan Bateman, I agree that we have a responsibility to the present and future residents of the City “to build the infrastructure that will keep them safe and healthy… we must balance both present and future needs

Utilities 2016

As we are deep in to budget times at the City, I wrote a couple of previous posts comparing the amount of tax collected by New Westminster, and the rate of tax increases in New Westminster relative to the other Cities in the Lower Mainland.

If you are a homeowner in New West, you also paid your annual utility bill recently, and you may have noticed the rates for utilities are going up faster than your taxes. So it is worthwhile comparing between municipalities, as the way they manage their utilities has an impact on the taxes you pay, and the cost of living in your community.

First off, I removed the very rural municipalities from this analysis, mostly because the comparison of apples to apples is difficult. Anmore, for example, has no municipal sewer service, so every resident has their own septic field. Water services on Bowen Island are limited to parts of the community, and the level of service provided to Lions Bay and Belcarra is very different than in major communities.

Even within the “bigger” communities, there is variety. The Township of Langley provides about half of its water through its own groundwater wells, White Rock has its own groundwater supply for 100% of its needs, where pretty much everyone else who charges for water gets it from he GVRD. Large numbers of Langley residents and smaller numbers of Richmond, Pitt Meadows or Maple Ridge residents still use septic fields. Trash collection services vary widely across the region.

I have done my best to compare the cities based on the numbers they made available on their websites (as of March 1, 2016 – yes I wrote this pose a few weeks ago and just haven’t had a chance to put the graphics together). All the numbers shown are the published 2015 rates, except for two Cities that have already published their 2016 rates and purged their 2015 rates from their respective web sites, which I label in the diagrams below. So the numbers you see don’t reflect the numbers on your bill this year because I am comparing 2015 values, because that is the data available.

To start with Water Services, it is important to note that some municipalities meter their water, some charge a flat fee. If there is a flat fee available, I listed that. If only a metered rate is available, I calculated the amount they would pay if the household consumes the Lower Mainland average of 350 cubic metres of water per year.

water
Average household water bill per municipality. Flat Rate for Single Family Home or metered rate for 350 cubic metres.

As you can see, New Westminster is about the middle of the pack, and slightly less than the regional average of $519. Surrey is especially high as their flat rate is somewhat punitive to encourage voluntary metering, whereas West Van is fully metered and charges pretty high rates (all of those single family homes on large lots, high slopes, and hard rock result in significant infrastructure cost for their utility).

The sewer utility comparison tells another story. New Westminster is the second most expensive city in Greater Vancouver for sewer rates:

sewer
Sewer rates for Single Family Detached homes, including drainage rates if run as a separate utility. For metered municipalities, 350 cubic metres consumption was presumed.

This can be partially blamed on the age of our infrastructure (we need to put more into reserves sooner to plan replacement/upgrade) and a large amount on us still having a large proportion of our sewers not source-separated. We send a lot of storm water to the treatment plant, and that is really, really expensive way to deal with it. The alternate is to accelerate our source separation program, which also happens to be very, very, expensive. There is a whole blog post to be written on this point alone, so I’ll leave it be for now.

Finally, garbage and recycling programs vary probably the most between municipalities. As some Cities have bi-weekly trash collection, and vary greatly in the volume of different waste types they collect, I tried my best to compare to the “baseline” in New Westminster, which is 120L trash and green bins, unlimited recycling bins.

waste
Municipal solid waste / organics / recycling rates per household, assuming 120L bins where options exist.

As you can see, New West is slightly below the middle of the pack for solid waste services. This reflects two competing trends. Our city is compact, which should reduce the cost for trash collection, but we have one of the largest percentages of residents not living in the Single Family Detached, where trash is collected commercially and not by the City, which hurts our economy of scale somewhat.

Put these all together, and here is where all Municipalities compare on utility rates:

allute

We are the 5th most expensive Municipality out of 17, firmly in the top third, almost completely driven by our higher sewer rates. As there is a complex interplay between tax rates and utility rates, it is interesting to add our average residential tax per household number from this old post to the amount we pay in utilities, to show a closer approximation of real costs between Cities:

combo

Not surprisingly, West Vancouver with the highest taxes and the highest utility rates, is standing tall compared to all others. It is more interesting to see Surrey with its very low taxes jump up to the middle of the pack because of higher utility rates (driven in this analysis, by the punitive “non-metered” water rates, a Surrey resident can probably save $250 a year by getting a meter, which would put it down around Pitt Meadows overall). New Westminster, as expected, is somewhere down on the low side of average, 11th of 17 municipalities.

So what does this all mean? Not much, especially as this is a bit of a jumble of data – a combination of sources with great citations, but combined in a way that would get me laughed out of accounting school. Overall, though, it does suggest that New Westminster is not running its City anomalously less or more efficiently than any other city in the region. New Westminster does not have the costs or services of West Vancouver, but spends more than Langley City. Outside the few anomalies at the ends of the charts, it is probably not surprising that similar cost drivers overwhelm wildly varying political philosophies, and most Cities in the region have found a way to balance the needs and desires of their residents within very similar funding envelopes.

Ask Pat: tax increases

RA asks—

This past year the assessed value of my property has increased by $150,000. Approximately a 30% increase. Using the property tax estimator, entering a rate increase of 0% results in an increase of my tax payment of 18% due to assessed value increase alone. Therefore this more than covers the 2.67% the city proposes. I understand that many homes faced similar increases this past year. For these reasons, I am not in favor of the tax increase proposed.

Can you tell me how the city has factored in the large assessed value increases into its budget and resulting proposed tax increase?

Wow. 30% in one year is crazy. It would be nice to think you made $150K this year just sleeping in your bed, but that doesn’t do you much good if you can’t sell – you have to put that bed somewhere. However, the short answer to your question is: it hasn’t. The longer answer is below.

Your assessed increase was significantly above the average increase in property values for the City over the last year, which was 11.7%. This means you are going to get dinged by the property tax system more than most. However, that doesn’t mean the City is getting extra money, it means someone out there in New West must have got an assessment increase less than the average, and they will see a relative tax savings this year.

The better way to answer your question is by going through a quick example of how the Assessment/Mil rate tax math works.

First off, the City has not yet settled on a tax increase this year. The current draft of the 5-Year Financial Plan that needs to be done by May (the “budget”) is built around a 2.73% increase. That is (more likely than not) the number that is going to come to council in the form of a Bylaw sometime in April. This means the City plans to collect about $1.8M more this year than we did last year in order to balance the budget. About $1.3M (1.97%) of that is “base budget” increases – inflationary increases that, if not approved, would result in a reduction in existing programs and services. The other approximately $0.5M (0.76%) is new departmental requests: things like additional staff to enforce and administer the Tree Bylaw.

Using the City’s handy tax estimate calculator, you can enter 2.73% and your assessed values from 2015 and 2016, and get an idea how much your taxes are likely to rise this year. For the fun demonstrative value of it, I entered several values for property assessment increases and City tax increases, and plotted out the results:

grahp

On the Y-axis (vertical) is the property value increase from BC Assessment. I don’t think many properties went down in value, and your 30% is the highest increase I have heard of, so this should cover most of the range of residents in the City. The average increase City-wide was 11.7%, which I show with the thick grey line. On the x-axis (horizontal) is the amount your tax bill will increase based on the three scenarios represented by the green line (City tax increase of 0%), the blue line (the City’s proposed 2.73% increase) and just for comparison, a 5% tax increase shown with a red line.

You can see that for the average assessment increase (11.7%) the tax increase is equal to the City’s set increase. As your assessment increase is an astounding 30%, your tax increase is going to go up much more than this, and the relationship is linear: if we raise taxes 0%, you will pay 18.3% more, raise taxes 2.73% and you will pay 21% more, raise them by 5% you would pay 23.3% more. My assessment went up about 17%, so my numbers would be 5.3%, 8.0% and 10.3% respectively.

However, 11.7% is the average increase for the City, so for every property that increased more than 11.7% there is one that increased less than 11.7%. For the owner of a property that went up 10% in value, the proposed tax increase is about 1% (less than inflation), and any property that increased by less than 8.7% in 2016 will see their taxes go down. I know you are sitting on a 30% increase and the regional real estate numbers are crazy, but by the virtue that your property went up almost 3x the average, there must be a large number of properties in the City whose increase was less than the average, and even below that 8.7% threshold.

To sum up, the big point here is that the City does not look at the assessed property value increases when calculating the tax increase required for the year. We look at our budget and determine what our need is to deliver the services required. This year it looks like about $1.8Million, so for every $100 we took in from property taxes last year, we need to take in (about) $102.73 to deliver those services and balance the budget. If the average property assessment was 1% above last year or 100% above last year, it does not change that 2.73%, and the only thing that increases or decreases your tax burden is the amount your property increased or decreased in value relative to the city-wide average.

If you think a 30% increase is not realistic, then you are able to appeal it. Too late now for 2016, but 2017 is just around the corner. The BC Assessment office doesn’t work for the City, so we have no say in how they do their work, but there is an appeal mechanism, and if you think your out-of-scale assessment is wrong, you can appeal. If you were to get your 30% increase appealed down to 20%, you will cut in half the amount of tax increase you experience. As a City, we have no skin in that game (because every one of your neighbours’ taxes will go up slightly to offset your reduction), but as homeowner whose assessed value went up 17% last year, I’ll be sharing your pain.

More taxes – with colour!

My main argument last post was that New Westminster’s property taxes, on a per capita basis, are not out of line with the rest of the region, and are actually significantly enough below the average that the difference works out to a pretty nice chunk of money.

However, it was noted to me that we don’t actually pay property taxes on a per-capita basis, we pay per household. So I took the same sets of statistics from the BC Government site to see how much each City was collecting in taxes from Residential properties only (not business or industry), and compared it to the number of Households in each community, which is a statistic collected by Metro Vancouver for their own purposes.

table1crop
Total residential taxes collected by Municipality per Household (BC Gov’t and Metro Vancouver data)

As you can see in this colourful chart, New Westminster slips down into one of the lowest-taxed communities in the Lower Mainland in this comparison. We have a relatively low number of residents per household (2.28, compared to a regional average of 2.73) likely because of the larger number of rental suites and apartments in New Westminster than other Municipalities.

Although the presence of taxes irritates some people, the issue really arises whenever taxes are raised, so how do we measure up in the constantly-increasing-taxes department? Every year Council discusses a potential tax increase to keep up with inflation, growth, wage increases and paying for new programs. Again, the Province’s annual reporting is a useful dataset for comparing these increases between Municipalities, in this case the table called Schedule 703, which lists the annual “Total Property Taxes and Charges” for all Municipalities. I calculated the % increase every year for all 21 Municipalities, and to facilitate comparison between Belcarra’s $2M budget and Vancouver’s $1.4B budget, I indexed all of the taxes to the 2005 baseline, which I arbitrarily set at $100.

table 2
Taxes and fees collected by Municipalities, 2005 to 2015, as a percentage of the baseline amount collected in 2005.

As you can see, between 2005 and 2015, New Westminster’s taxes went up about 65%, which puts us right about the middle of the pack regionally. Anmore was off the scale in their increases, and Vancouver was (perhaps surprisingly to some) one of the most conservative in their tax hikes. To answer your question, I have no idea why Langley Township has that big jog in 2014, except to say that’s what the stats report, and it was an election year in Jordan Bateman’s riding!

These numbers, however, mask that over those 10 years, there was a lot of regional population growth, so as taxes went up, so did the number of taxpayers. Your individual tax increase as a resident of one of these Cities is not represented here, so I took data from Schedule 201 to track the rate of population growth with the same set-2005-as-100 indexing, and the same line colours:

table 3crop
Municipal population, as a percentage of the 2005 baseline population.

The data here is, unfortunately, a little choppy, as the BC Government does estimates between census years, and the 2014 Census leaves something to be desired. Why they reported no changes in population in 2013 or 2015, you will have to ask them. Perhaps most surprising are the 6 Municipalities that saw their population shrink since 2005 (we need to sit down and talk about the Regional Growth Strategy here, folks). As you can see, New Westminster was one of the fastest-growing communities, behind Surrey and Port Moody, and quite a bit faster than all of the municipalities to the north and west of us, even those with similar dense urban cores and rapid transit access.

So combining those two charts together, I calculated the “Total Property Taxes and Charges” (from Schedule 703) and divided by population (from Schedule 201), then again indexed the resultant taxes per capita to the 2005 rate, which I arbitrarily set at 100:

Taxes and fees per capita, as a percentage of the 2005 value.
Taxes and fees per capita, as a percentage of the 2005 value.

Not surprisingly, taxes didn’t go down per capita in any Municipality over the last decade, but Vancouver’s rapid growth combined with its relatively conservative tax increases make them look pretty good, and they were the only Municipality whose tax increases were (at least until 2014) on pace with the National Inflation Rate, which I added as a dashed line, mostly for Ed’s benefit. Notably, only 4 municipalities (Vancouver, North Vancouver City, Langley City and Surrey) have increased their taxes at a lower rate than New Westminster. It is interesting that these are amongst the most “urbanized” municipalities, and that taxes are increasing fastest in more rural/suburban municipalities, a correlation I have no theories to explain.

As a summary, New Westminster is far from the most-taxed municipality, and are trending towards being one of the lowest-taxed. Based on BC Government data, I am confident that our taxes, no matter how you count them, are comparatively low, and our increases to date are low relative to the other municipalities in the Lower Mainland.