Costs are kept low by neglecting infrastructure
The city of Hamilton can point to a balanced budget and lower debt per household than many other Ontario cities– something that council and staff often cite as proof of a well-run municipality. But like many other Ontario cities the low tax rates have been obtained at a long-term cost: crumbling infrastructure. Hamilton’s infrastructure deficit alone is estimated at $3.3 billion—and is growing. In a capital budget forecast that projects the city finances to 2024 staff warn that many of the city’s urgent capital needs “will remain acutely underfunded.” Furthermore the amount of money the city will be able to spend on vital services like water and wastewater and roads will decline in the coming years because, among other reasons:
- We have borrowed nearly $700 Million in previous years for projects and we are still paying off these projects.
- Infrastructure is aging at an accelerated rate (when infrastructure is allowed to deteriorate beyond a certain point, the pace of deterioration increases and the cost of refurbishment increases exponentially.)
- Declining federal and provincial capital grants.
None of this takes into account future expensive commitments that the city has made or is making. These include:
- LRT. It is unknown how much extra cost the city will bear as a result of LRT construction. Roads running parallel to King Street will need to be upgraded to deal with the diversion of traffic due to LRT construction.
- West harbour park development is slated to cost $55 Million over the next 3 years.
- Rapid Ready Bus enhancement plan needs to be funded to get ready for LRT.
The staff report says it will be impossible for cities like Hamilton to fund their own capital needs—that stable long term funding is needed from the senior governments. Otherwise the report says,” the city’s capital works program over the next 10 years will increasingly consist of emergency repairs.” There is no immediate prospect, however of any relief from senior governments. The Province of Ontario is running a significant deficit and is devoting most of its capital support to transit. The federal government’s infrastructure investments are similarly constrained. Even with a federal election underway, none of the major parties has issued any kind of comprehensive municipal infrastructure plan. There are other long term concerns. The city has budget only $500,000 for social housing despite a massive need to refurbish these units. Add to that the OMERS pension plan to which the city contributes, has been described as having “going concern” challenges—accountant-speak for insolvency.
The city is pending on average $200 Million on capital projects over the next five years,( against the aforementioned deficit of $3.3 Billion) but the amount of money available in the latter years of the plan will be more that $120 million less than the city spent last year. the city report says almost a quarter billion dollars in capital needs will go unaddressed as “unaffordable” over the next five years. This year the city will spend $61 Million to service its debt. The good news is that the cost of borrowing will decrease significantly over the coming years as bonds carrying higher interest rates are replaced by ones carrying low interest rates.
The actual amount of debt will increase sharply between now and 2020 rising to almost $900 million, but is forecast to decline after 2020. Although Hamilton’s debt per household is lower than cities like Toronto and Ottawa which have twice or more debt per household than Hamilton; the city’s credit rating is the same as its more deeply indebted counterparts. Bond rating agencies contacted by the Bay Observer say there are a number of other factors besides total debt that are taken into account, the main one being the overall strength of the local economy, and the perceived ability of a city to pay its debts.
Hamilton is no different from other comparable municipalities. All have sacrificed the state of repair and replacement of their roads and other infrastructure in order to balance budgets and keep taxes low. So great is the infrastructure deficit and level of public debt that governments at all three levels find themselves unable to take advantage of historic low interest rates to implement a comprehensive infrastructure renewal program.