Prospect of Loan requirements for infrastructure work brings concerns and comments to Special Session of Council

What was probably thought to be a short, rubber stamp type of occasion on Thursday, to provide for the passing of the Financial Plan and Tax Rate Bylaw for its first three readings made for sone extensive discussion and commentary on the afternoon.

That coming in response to a Report for Council from Corinne Bomben, the City's Chief Financial Officer who had outlined the path ahead for municipal borrowing towards infrastructure work.

The Report which you can review here, highlighted the city's plan to seek out additional grant money to contribute towards sewer linear repairs that would take place at the same time as the city's water line replacement program for the most critical areas of the water infrastructure.

The key elements of note include:

Subsequent to the direction provided on April 24, 2023, staff were made aware of the opportunity to obtain additional grants to contribute towards the in-tandem sewer linear piping work that is considered a critical risk item in the Infrastructure Replacement Strategy. A condition of qualifying for this grant is for the City to commit to conducting a larger portion of sewer piping replacement in the financial plan. 

The total estimate for replacing water and sewer mains in the critical 26 kilometer section of the City is $205M. This expenditure is now included in the financial plan acknowledging the commitment towards conducting the infrastructure renewal. $5M is engineering and design, $130M is for water works, with the remaining $70M for similar vintage and condition sewer lines. These must be replaced at the same time as the water mains since a failure of the sewer lines could also impact adjacent infrastructure and potentially cause the water system to fail.  It would also be far more costly (and disruptive to the community) to excavate the same road system twice to replace these systems at different times. 

Staff are working on raising funding from the Federal government and securing additional sources of revenues to minimize the financial impact of this critical work on the tax/rate payer. To qualify for the grants staff were made aware of, the budget includes the City contributing $40M in borrowing for sewer main replacement at Table 11 of the attached. Presently, borrowing would be repaid through utility fees, however staff are looking to reduce this debt requirement through new revenue streams. 

Should the attached Five Year Financial Plan bylaw pass, the borrowing bylaw process will begin with more information available for Council and the public to consider. The borrowing bylaw process includes a requirement for public authorization to borrow for the sewer and the design works necessary to proceed with critical infrastructure replacement.

The current of the report that made for twenty minutes of discussion was how the city would raise the money required to pay back the 40 million dollar loan and the impact it would have on residents.

Councillor Cunningham carried the majority of that conversation opening up his remarks on that theme.

"With the amendment we just got about borrowing money to have the 40 million so we can put in for it, what impact will that have, I just got it today"

Prince Rupert City Manager, Dr. Robert Buchan provided some background on the nature of the borrowing and the situation the city finds itself in at the moment.

"I guess, just by way of background we were initially contemplating that the city share would be closer to 70 million, but borrowing capacity has tailored that down. 

And 45 million is in total, it's 40 plus the five million for design, that is a significant amount.

Director Bomben will be able to tell you what the actual impact would be on those numbers but I just want to say in advance of that, we are going to be committed to working as hard as we can to make sure that we're not having the Utilities fund that full amount.

You now, we are thinking that we are going to have a go at being able to raise revenues, or other funds to make up the difference between 30 million and 45 million. So we are contemplating actually actually borrowing around 30 million. 

Now we need to have the full amount identified because we're going to have to justify our Grant Request to the Federal Government, so that's the Long and Short of it"

Towards the path forward CFO Bomben outlined the steps ahead and noted that the information that the Councillor was looking for will be outlined on Monday evening.

"So, this bylaw is for three readings and it brings in the full expenditures for all the works over the next three years because it contemplates what is planned for the next five years.

The Bylaw for borrowing will be brought forward on Monday, it actually will have the information that Councillor Cunningham is asking for and then shows what the worst case scenario is for rate payers.  

As Doctor Buchan has mentioned if we were to borrow and have utility rate payers paying for the whole thing then that amount will be there.  

But staff intends to only borrow in stages in accordance with the works that are going to be done over the three years which is in the five year financial plan, in which case then, we have time to be able to try and get other sources of revenue.

So that we don't have either do all the borrowing or at least the other sources of revenue can contribute to the debt servicing. So that information will actually come forward on Monday."

Ms. Bomben also outlined how the borrowing process will take at least six months to move forward.

"There still needs to be a borrowing process, that is conducted, it takes six months. It does not mean that if you adopt the Financial plan now that you are committing to borrowing because there still has to be an approval process.

This just includes the works in the five year financial plan is being contemplated and the funding sources can flow after that and if we can't get the funding then we have to scale back"

Councillor Cunningham picked up on another element of the presentation, noting of the five million dollar cost for the design work, asking if it would not be better for the City to bring onboard its own engineer towards the proposed project.

"Would we be better off hiring a full time engineer rather than spending five million dollars on money that's just going to go south, west, east or anywhere but stay here. Because that's a lot of money for engineering and I'm quite sure that we could hire an engineer for more than six months for five million dollars." 

Operations Director Richard Pucci provided his case for the money towards the engineering work.

"The five million dollars is for design and asset management there's a whole bunch of things that's wrapped into  that for the project. There are several different disciplines associated to doing this work ... and no one real engineer can tackle this whole project on their own.

There's equipment, there's survey, there's just a whole bunch of things that goes into this.

So really a design house like a larger consulting company has all of those attributes built into the company ... the number of five million is to tackle everything required associated with the 26.2 kilometres,  and that is also bundled in for water analysis, things of that nature, so it's not just engineering and little bit of design work, it's a full meal deal there"

Mr. Pucci further explained for the Councillor how the design work would be valuable towards the need to replace the failed state of the city's infrastructure.

Councillor Cunningham returned to the theme of the Financial plan and how it could change again by Monday, expressing again his concerns over potential impact on the rates that residents pay on their utilities.

Ms. Bomben again noted how the city is considering borrowing in stages that would allow for taking advantage of better interest rates and take advantage of better revenue streams if they come along.

To that the Councillor noted of the need for the work, but his concern on the impact on residents,.

"I know that this infrastructure has to be done and everything but it's just that I'd hate to see the utilities that are already high, go higher.

 You know that's my concern and if that's next year, we're burdening the taxpayer now with a 12 point something increase and then going to hit them with a double whammy next year with utilities going up and I'm a little queasy about that one"

Councillor Randhawa and Forster also commented on the nature of the report,

For his part, Mayor Pond was putting a lot of his faith on the prospect of improving revenue possibilities.

"The hope is that this is sort of Plan C, or D, or E, that we get an RBA, that we get other grant money. 

Because you think about staging it over three years of construction and let's just pick a number for an RBA of say eight million dollars that would bring it down twice in the first year and the second year and so that could knock sixteen million off of forty right.

And so there are other avenues to bring it down ...  and Council has every right to to do it, I don't want to suggest there is no opportunity to do it.

But if we bring it down we need to understand that we are putting in jeopardy the other grant money that we're currently pursuing. The federal money that we're currently pursuing would be contingent on us demonstrating an intention and an ability to provide those matching funds in our Five Year plan."

The Mayor also observed of the need for caution noting of the situations that could change the plans.

"Council has a right to be cautious about that kind of borrowing, you would be irresponsible not to be. 

But I think that it's also fair to say that in approving it there are many, many off roads before we would get to before borrowing that money and many, many departure points at which Council could make a decision.

For example if we don't get the Federal grant we aren't obliged to borrow anything, you might be talking about a different process"

Councillor Nick Adey weighed in on the discussion and noted of one option that Council could choose, that of deciding that they just can't do the work and instead cherry pick just the most critical portions of the water infrastructure needing attention.

"It seems to me that ultimately there is one other way to bring it down and it's probably the worst of the ways and that is to simply declare that we just can't do this work ... what would be the impact on our big picture with regard to infrastructure, if we found ourselves in a position to not be able to do 26 kilometres, to have to cherry pick the most critical portions and leave it at that. 

I don't think that's what we're aiming at, but I would suggest that's the other kind of end point you could find yourself at"

The City Manager was offered the final word on that theme, with Mr. Buchan providing his overview of the consequences that could come from that approach.

"I would suggest that there's quite a number of consequences that could fall from essentially leaving our infrastructure in a state of failure.  And a state of failure  for the water infrastructure the outcome is basically we lose our water system,  That's the risk that we face in not addressing this.

But we may also drive away investment because there's no confidence that the city is looking after its assets, we may lose confidence of the funding authorities in that we're not prepared to step up  for our share. 

We could lose the system, with the potential of a system wide cavitation of our water distribution system would be catastrophic, that is what we must avoid"

Mayor Pond recapped some of the scenarios that faces the city as Council considers their options.

Dr. Buchan observed of the risks of just taking an approach of selected work as opposed to a major works as well as to reinforce staff's plans to explore all options to reduce any burden on taxpayers.

"We are laser focused as we said, on increasing the other sources of revenues, new revenues so that the burden of this does not fall on taxpayer through property taxes or utilities"

Council will have a chance to see the preliminary tallies of the financial plans towards the plans, including any worst case scenarios for increased utility fees as part of their upcoming Regular Council Session on Monday.

The full discussion on the report takes up the first twenty minutes of their thirty one minute session of Thursday, you can review it from the video below:

More notes on the City's Financial planning and Budget process can be reviewed through our archive pages below

Budget Planning

Taxation themes

A look at other themes covered from Thursday's Special Session is available here.

A wider overview of past Council Discussion themes can be found from our archive.