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Juggling debt and savings: A look at Oshawa’s path to financial sustainability

By Joel Wittnebel/The Oshawa Express

The red flags are popping up suggesting that all is not well with the city’s finances, and if councillors are not careful in the years to come, they may just be waving a flag of their own, a white one.

As it stands, Oshawa residents pay some of the highest taxes in the Greater Toronto Area, and the idea that those taxes will continue to rise in the years ahead will not be welcome news. However, it’s not only speculation, but will more than likely be the unfortunate reality as the city stares down $448 million of projects that need to be completed, but where the money is going to come from remains a question mark.

Now, council has proven themselves creative when it comes to finding solutions to such issues. Last year, additional funds were required to pay for a complete reconstruction of the airport runway. However, the funds weren’t available, and the city didn’t have it in their debt room to take the loan. With that said, council ignored their own policy, pushed their debt limit higher and took the $3.8 million loan anyway.

It fixed the issue, and the runway is now complete and open for business, but these types of decisions are not sustainable, and neither is council’s complete reliance on reserve funds that continue to dwindle on the edge between growth and slipping into decline.

So, what is the solution? Well, city staff have already proposed a few ideas, it could just be a matter of council taking the bone that’s been thrown to them.

A look back at the numbers

The city’s precarious financial situation in the years ahead is not news to councillors, at least it shouldn’t be, as the numbers first started to show themselves publicly during talks on the city’s financial strategy approved in 2015.

Within that document, it states that, like many municipalities in Ontario, Oshawa has been underfunding its infrastructure projects for years, and at that time, it identified the gap at around $212 million. It’s noted that the city’s future asset management plan would “analyze this significant gap and provide a framework for effectively managing the City’s infrastructure assets.”

When the asset management plan came forward a year later, it included no mention of the deficit, and was a document containing the bare minimum of requirements to meet standards set by the provincial government to allow Oshawa to remain eligible for gas tax funding.

However, since then, the infrastructure deficit has more than doubled, with the 2017 budget estimates putting it as high as $464 million before this year’s budget dropped it down to $448 million.

But the pressures are starting to take their toll.

Passing the buck

“The proposed 2018 capital project list is approximately $11 million less than the capital projects proposed in 2017. This is due in part to limited available funding and the capacity of staff to deliver the quantum of projects identified in 2018. These constraints have resulted in an increased number of projects on the deferred list,” the budget report reads.

An “increased number” is an understatement with the number of projects on the list more than doubling in value, with $9.5 million deferred in 2017, to over $20 million slated to be deferred in 2018, the large majority of them being roads, sidewalks and buildings projects. In particular, the amount of road projects being left behind are significantly higher this year, growing from $2.851 million of projects deferred in 2017, to $9.847 million in 2018.

“We are currently able to meet our obligations, but looking forward to the future we have a lot of infrastructure money that is required,” says Stephanie Sinnott, the city’s executive director of finance services and treasurer.

However, this strategy of pushing projects to later years can potentially have serious consequences.

It has even caused some items to be pushed back that may be in clear need of replacement, or have reached the end of their “useful life.”

“While this is technically correct, the prescribed useful life of an asset is based on an estimate of the asset’s lifespan,” the city budget document reads. “Such assets are regularly evaluated and maintained. While they continue to be operational, risk mitigation measures are in place and are considered a low risk for failure.”

However, the concern grows when the item being pushed ahead is a road or sidewalk.

“The road candidates comprising this program are at different points in their life cycle and require appropriate treatment to prolong their life and avoid premature failure,” the budget reads.

So what can be done?

In recent years, the ship has slowly started to turn. A number of the city’s larger debt bills have started to pay off, with more than $20 million being eliminated from the debt registry over the last four budgets, and those dollars are starting to pour into the places that need them, the city reserves.

It is here that the city could potentially build protections to help them weather the infrastructure storm.

In a report released earlier this year, Sinnott noted that while things may be shifting in the right direction, they may not be getting their fast enough.

If left unchecked, the city’s capital reserves could be bleeding somewhere into the neighbourhood of $100 million in debt by 2026.

For that reason, Sinnott called on council to adopt a “disciplined approach” to putting money into reserves. She also explained that the past practice of pulling money from reserves in order to lower the tax levy increase was now a large part of the pressure being placed upon council.

Among her other recommendations are increasing the cap on certain reserves to allow more dollars to flow into them, and while also expanding the cap, also expanding the scope to allow certain reserves to be used for a variety of purposes and projects.  It is also recommended that the one per cent levy applied to the tax increase last year solely for infrastructure be reviewed come budget time.

At first glance, it appears small steps have been taken in this direction. Reserve contributions have increased by $1.7 million in the 2018 budget, and going into budget deliberations in January, a 0.1 per cent increase to the infrastructure levy is proposed.

Is it enough?

For Councillor Dan Carter, the chair of the city’s finance committee, it’s a fine balance.

“I would like to see us get more aggressive on the infrastructure percentage, but I have to look at it as affordability,” he said. “I’m concerned about the amount of pressures on every single household at every level.”

Moving forward, Carter is confident that the 2018 budget is a step in the right direction.

“I think that we’re on the right path on all levels,” he says, noting that the progress needs to continue. “In the long term we have to be very aggressive about continuing to try and build that as much as possible.”

Following the preliminary presentations of both the capital and operating budgets earlier this month, council will get back to the table Jan. 8 for a meeting to hear from the public in regards to the budget.