Fraser Games – 5: The Larger Agenda

Is there a larger intent behind the referendum the Premier has imposed on the region?  Beyond the obvious discrepancies (why only for Metro Vancouver, why only on TransLink  taxes and not on tolls for new provincial bridges in the region?), is the real agenda to limit local government’s ability to raise taxes at all.

I was struck by an op-ed in The Sun last summer by Hugh MacIn­tyre and Charles Lam­mam of the Fraser Institute: Van­cou­ver city hall has a debt ad­dic­tion 

In the City of Vancouver’s case, the substance is government debt and the city has been addicted for more than a decade. Despite clear signs of an addiction problem, city hall recently proposed an ambitious infrastructure plan that would further increase debt during the next four years. …

In 2012, the latest year of comparable data, Vancouver was in the red with liabilities exceeding financial assets by $ 268 million. In other words, the city was in a net liabilities position. Meanwhile, other Metro municipalities, including nearby Surrey and Burnaby, were collectively $ 2 billion in the black.

Remarkably, Vancouver’s net liabilities quadrupled between 2006 and 2011, from $ 101 million to $ 419 million. To the city’s credit, net liabilities decreased in 2012 and 2013, although the reduction stemmed from an increase in financial assets, not a reduction in gross liabilities. …

And now, with gross liabilities at a record high, city hall is proposing to spend $ 1.1 billion during four years on infrastructure. The plan, which includes new spending on bike lanes and social housing, would be partly funded by adding $ 400 million to the city’s existing debt. So instead of reducing liabilities, the city plans to take on even more debt.

… with the newly proposed infrastructure plan, the City of Vancouver is signalling it’s not ready to kick its debt addiction.

 

There was a flurry of articles by other organizations (they are well coordinated) and columnists (the second-hand dealers in ideas), and then not much.  But it’s certainly conceivable that the referendum was concocted as a way to have the voters deliver the cut without the Premier’s hand having to be on the knife.  If it works well this time around, it will be irresistibly tempting to use it again.  Other cities and regions, take note.

The City of Vancouver responded, of course.   Their release is below.

City of Vancouver

Information Bulletin

July 15, 2014

City of Vancouver’s approach to debt

The City of Vancouver has a dynamic, highly diversified urban economy that is thriving as a result of its global brand, its leading global clusters in the high tech and creative sector, and its role as a global gateway to the Asia Pacific. Visitors from around the world and  residents of the metro region come to the city regularly to enjoy our cultural amenities and  our unique destinations such as Stanley Park, the VanDusen Gardens, Vancouver Art Gallery, our beaches, and walk our Seawall. Adding to that, each day thousands people travel into our City from surrounding municipalities, such as Richmond, Burnaby and Surrey, to work and take advantage of our great public facilities.

Over the last 50 years, the City has responded to increased urbanization and population growth by building important and much valued public amenities across our 23 distinct neighbourhoods – these include community centres, libraries, parks, recreation facilities, civic theatres, social housing and childcare. At the same time the city has invested regularly in maintaining our public works – water, sewer, streets and solid waste infrastructure.

Key points

• Vancouver’s net debt in 2013 at $205M is lower than it was in 2002 and we have always had a balanced operating budget.
• Since 2009, this Council has reduced borrowing by $191M.
• Our overall financial position (our consolidated position) is a $6.13 B surplus as seen on pg.4 of City of Vancouver 2013 financial statements. $180M better than 2012.
• Our capital assets (parks, community/cultural and public safety facilities and all our public works such as roads, bridges and water and sewer infrastructure) have grown significantly over the last ten years.
• In 2009, the City, with permission from the Province of BC, had to borrow $630M to finance the Olympic Village project in Southeast False Creek; in 2011 our net debt peaked at $419M related to the Olympic Village. This year the City of Vancouver paid off the whole Olympic Village debt, and our net debt position is now lower than 2002.
• In 2011, PwC provided us with advice on debt monitoring metrics and since then the City uses best practice benchmarks in the management of debt.
• We are confident in our ability to manage our debt, we have very favorable borrowing rates, strong credit ratings and we are building a bigger, better Vancouver for our citizens in a responsible way.

• We pay off our debt within 10yrs, much quicker than most mortgages. Our capital assets last between 10 -100 years.

Budget and Borrowing

The City’s operating budget is balanced with operating revenues at just over $1B per year. About 2.7% of the revenue goes to paying interest on debt. Rating agencies consider interest payments at <5% of operating revenue as an indicator for a high credit rating.

Credit ratings

The City’s balanced approach to debt management is reflected in the City’s high credit ratings (Aaa/AA) from Moody’s and Standard and Poor, which is as good or better than most other major cities in Canada.

Credit ratings are independent assessments of the City’s ability to repay its debts and the City meets with ratings agencies annually.

Credit rating agencies also look at the level of total borrowing as a percentage of operating revenues. At 61%, the City of Vancouver is well placed among other major cities across Canada:

Winnipeg –60%

Ottawa 70%

Edmonton –95%

Toronto 35%

Montreal –127%

Draft Capital Plan 2015-2018

As the city continues to experience growth, we have to continue to renew and upgrade our existing infrastructure, amenities and facilities to support our residents and businesses.  Thus the 2015-2018 draft Capital Plan focuses 2/3 of the budget on maintenance and renewal, while 1/3 is on new investments.

Like most major cities, in the City of Vancouver, infrastructure is only partly funded through debt. Only 37% of the Vancouver’s draft Capital Plan for 2015-2018 is proposed to be funded by debt.

To learn more about the City’s approach to budgeting and long-term planning please visit: http://vancouver.ca/your-government/budgets.aspx

To learn more about the City’s draft Capital Plan for 2015-2018 please visit: http://vancouver.ca/your-government/capital-plan.aspx

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