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Incorporation: North Salt Spring Waterworks District and Funding Options

    Editorial & Opinions, Governance & Politics    August 15, 2017

The North Salt Spring Waterworks District (“NSSWD”) is, by far, the largest water Improvement District on the island with well over 2,000 connections including commercial properties in Ganges, schools and the hospital. Faced with a major investment program to meet provincial regulations, including new treatment plants at St. Mary Lake and Maxwell Lake and raising the Duck Creek Weir on St. Mary Lake, it has raised its water rates as well as its annual parcel tax rate and began building a Capital Reserve Fund through a surcharge on water bills. Recently, it announced that a contract had been awarded for work to begin on the St. Mary Lake treatment plan, funded by capital reserves and a $7 million loan, approved by ratepayers in 2015.

In October, 2016, the District Board of Trustees considered the challenge of funding the proposed capital program in the event of a no vote to incorporation and concluded that District ratepayers would be unable to support the significant increase in water, parcel tax and surcharge rates needed to support the program. It was noted that “joining with the CRD would be the only other avenue open to the District to help secure grant money, even though there is no guarantee funds would be available for each project.” What resulted from those discussions?

More recently, the Trustees have taken a different, public position of supporting incorporation as their solution to accessing government grants. Yet, as noted above, the District can access grant funding through joining the CRD without imposing the additional financial burden and responsibility of a municipality on its ratepayers, indeed on all SSI taxpayers. So why do they now promote a municipality? All options need to be fully explored by the District and its ratepayers consulted before taking a final public position.

Funding options

At the outset, it should be noted that access to government grants does not guarantee receiving grants in the amount or time requested, given the intense competition for limited funds. Far from it:

  • applications to the Canada 150 Community Infrastructure Program totalled almost 7 times the available funds
  • the Gas Tax Agreement Strategic Priorities Fund has 11 separate criteria for funding; raising a weir and building a conventional water treatment plant meet few of them

 

While current B.C. government policy imposes strict water quality standards on public water suppliers, it does not allow improvement districts to access federal grant funding unless it is through a regional district or municipality. Instead, they must rely on taxation and borrowing to secure capital funding. That is patently unfair. And since there has been no substantial reduction in the number of improvement districts over the past decade, “the government’s policy of shifting these systems to regional districts has largely failed.”(BC Chamber of Commerce). It should also be noted that this policy of forcing improvement districts to convert to a regional district commission or to incorporate as a municipality in order to access federal infrastructure grants is not the case in other provinces, such as Alberta and Ontario, where improvement districts are able to directly access those funds.

So what are the options for the NSSWD?

  1. Accept the current policy and convert NSSWD into a CRD commission as proposed last October. It could proceed with this option now. Six water districts on SSI have converted to CRD Commissions and received financial support in the amount of almost $700,000 since 2007 from the federal Community Works Program. This program (based on a per capita allocation of federal gas tax funds to Salt Spring) is available for a range of local infrastructure improvements and currently provides about $550,000 per year to Salt Spring.

 

  1. Transfer of the NSSWD facilities to the CRD with a new NSSWD non-profit society contracted as the operator. New facilities would be eligible for infrastructure grants through the CRD while keeping the NSSWD local management structure.  There are regional governments all over the province that have contracted out the operations of their sewer or water facilities. In fact, the CRD already contracts out operation of its existing SSI water commissions to NSSWD.

 

  1. Establish an elected Local Community Commission (LCC) to coordinate regional district services on Salt Spring. These could include NSSWD facilities and other water systems transferred to the CRD. This was suggested by provincial Ministry officials in 2010. The LCC option could be combined with option 1 or 2, or the LCC could itself be delegated to operate the former NSSWD facilities using current NSSWD staff. This option would also provide access to infrastructure grants.

 

  1. The least preferred option for grant funding access is municipal incorporation. This inevitably means all taxpayers (not just NSSWD ratepayers) assuming the greater financial burdens and liabilities of taking on the maintenance and repair of the road network, higher policing costs and other expenses. Possible water project grants could be offset by higher property taxes.

 

In addition to the above funding options, a more creative way of supplementing the challenge of planning for District infrastructure upgrades would be for NSSWD to offer financial incentives to its ratepayers to encourage water conservation while augmenting water supply through rainwater catchment. Both would reduce demands on the NSSWD system and extend the period and perhaps the scale for upgrading facilities. It would also free up system capacity to allow some new connections.

Conclusion

The NSSWD Newsletter of July 2017 does not “fully inform” its ratepayers about governance changes. Accordingly, it is inappropriate for the Board of Trustees to take a public position at this time without a full review of all available options.

By recommending incorporation as “the best option for the long-term viability of the NSSWD and its accountability to ratepayers”, it has not adequately demonstrated that joining the CRD in some capacity will also provide similar access to senior government grant programs while avoiding the additional financial burdens and liabilities of a municipality on all taxpayers.

All options need to be fully explored by the District and its ratepayers consulted before taking a final public position. A vote to incorporate closes any other option for the District while a no vote retains the option of joining the CRD in some acceptable capacity.

Background

Improvement Districts and Funding options

Improvement Districts across B.C. operate as a form of local government under the Local Government Act. There are 211 improvement districts in BC, mostly providing domestic water supplies and on Salt Spring Island, there are four water improvement districts and the Fire Protection District. A further six SSI water districts have become regional district commissions in order to secure major grant funding for water treatment and system upgrades. All Improvement Districts must comply with provincial regulations, including the Drinking Water Protection Act.

Current government policy does not allow improvement districts to access grant funding to meet rising infrastructure demands placed on them through the Act, unless it is through a regional districts or municipality. Provincial government policy then requires shifting ownership of improvement district systems to the regional districts upon successful completion of the project. As a result of this policy, improvement districts cannot access federal and provincial funding that would allow them to meet rising infrastructure demands. Instead, they must rely on taxation to secure capital funding. The burden this policy places on the residential and business tax base within improvement districts is of increasing concern and creates unnecessary regulatory burdens.

History

Improvement Districts were first established in the 1920s as a means to publicly manage several large irrigation systems in the Okanagan Valley and provide access to provincial borrowing programs. In 1965 the B.C. government began forming an additional layer of local government called Regional Districts to provide broader services to larger regions.

In 1979, in recognition that Improvement Districts had more in common with local governments than they had with private water utilities, the legislative provisions relating to Improvement Districts were removed from the Water Act and responsibility for all Improvement Districts was transferred from the Ministry of Environment to the Ministry of Municipal Affairs. Ten years later, a ministry Task Force on Rural Services and Governance, created a report with the first mention of what would later become government policy. “Regional districts have access to grant programs for study and capital cost purposes,” the report noted, and “improvement districts do not have direct access to these grants.” While this report was never published, these recommendations have guided ministry policy ever since.

In 2006, the then Ministry of Community Services created the Improvement District Governance Policy, which directly references the 20-year old practice of restricting access to funding as a means of shifting ownership of Improvement Districts to the Regional Districts. However, there were 240 Improvement Districts in the province when that report was written over a decade ago and in 2015 there were still 216 Improvement Districts, all struggling with rapidly increasing capital cost demands.

In 2015, the BC Chamber of Commerce considered this issue and concluded that, with no substantial reduction in the number of improvement districts over the past decade, “the government’s policy of shifting these systems to regional districts has largely failed.” Furthermore, improvement districts, “with their volunteer structure and high level of business representation on the boards, do not form an additional costly bureaucratic layer of government. In fact, they are an efficient means to deliver a critical infrastructure service that supports local economies.”

Amending the existing policy to allow improvement districts equal and direct access to senior government funding need not require new funding sources. In fact, all 211 improvement districts operating in B.C. today would be immediately able to begin grant applications. The Chamber recommended that the Provincial and Federal Governments:

  1. Remove all barriers to improvement districts receiving equal and direct access to federal and provincial grant funding; and,
  2. Enable improvement districts to access capital funding without ownership of their systems shifting to regional districts.

Perhaps the new government will be more open to considering this policy shift.

Source: BC Chamber of Commerce, 2015-2016 Policy and Positions Manual, 2015

BC Government-Improvement District Governance: Policy Statement. 2006

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