Overlooked Election Issues: Water Infrastructure
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Overlooked Election Issues: Water Infrastructure

Toronto faces a big funding gap for water infrastructure, but you won't hear about it from any of the mayoral candidates.

Photo of the R C  Harris Water Treatment Plant by William Self from the Torontoist Flickr Pool

Photo of the R.C. Harris Water Treatment Plant by William Self from the Torontoist Flickr Pool.

As part of Torontoist’s election coverage, this week we’re focusing on important issues that haven’t received much attention during the campaign. Today, we look at water infrastructure and the funding gap Toronto faces in meeting its needs.

Municipal politicians often speak about the need to get back to basics—to fix potholes, collect garbage on time, and make sure parks are tidy.

These all have their place on the list of municipal services, but nothing is more basic than water infrastructure.

Water infrastructure is often taken for granted. It’s not an issue that moves votes, and it rarely mobilizes people unless a neighbourhood sees a rash of flooded basements.

Yet it’s a significant issue in Toronto, particularly given the growth and age of the city, and the accompanying demands that are being placed on old infrastructure.

Of the $1.6 billion needed to fund the state-of-good-repair projects scheduled between now and 2023, $1 billion is unfunded. And this amount does not include an additional $3 billion in capital-repair needs that have been deferred beyond 2023, and which the next council will have to figure out how to fund.

Since 2005, council has tried to catch up to the city’s water infrastructure needs by implementing what is referred to as the “9 per cent for nine years” plan. That year, council approved annual 9 per cent water-rate increases over nine years to pay for necessary infrastructure improvements.

While the plan helped, it did not meet revenue projections. Despite an increasing population, Torontonians used less water as rates increased, creating a $687 million funding gap due to unrealized revenue.

In response to this problem, council in 2012 deferred $687 million’s worth of capital projects beyond the 2012-2021 capital budget. The City reports that there’s another “$717 million to pay for important capital projects not currently included in the 2014-2023 Capital Plan.” [PDF, p. 7] That makes for over $1.2 billion in water infrastructure projects deferred beyond 2023—and an additional $1.8 billion’s worth of projects has already been planned for that time period. That $3 billion is beyond the $1 billion shortfall the City faces over the next decade.

Water use declined as residents responded to annual 9 per cent water rate increases  The City faces a $687 million funding gap from projected revenue it will not realize  Source: City of Toronto

Water use declined as residents responded to annual 9 per cent water rate increases. The City faces a $687 million funding gap from projected revenue it will not realize. Source: City of Toronto

The pressures on Toronto Water are not the result of mismanagement; operating costs are increasing, on average, by 1 per cent annually, which is below the rate of inflation.

Besides the revenue shortfall, additional pressure is created by extreme weather events, such as the flood in July 2013. Responding to events like these is costly. The basement flooding protection program accounts for $326 million in unbudgeted pressures from 2014-2013, and $674 million beyond that time frame.

Sooner or later, Toronto will have to pay for its significant water infrastructure needs. How to do so is another matter, and City staff will report back with a recommended financing strategy as part of its 2015 budget.

The City could continue sizable annual water-rate increases to make up for the backlog. A 6 per cent annual increase from 2015 to 2021 or an 8 per cent annual increase from 2015-2017 followed by 3 per cent increases from 2018-2021 would raise $952 million or $990 million, respectively.

Another option would be to introduce a dedicated stormwater charge on monthly water bills, which is similar to what Canadian cities such as Calgary, Halifax, and London have already done.

While Toronto has faced 9 per cent water rate increases for each of the past eight years, the cost of its water is comparable to surrounding municipalities. Durham, Richmond Hill, Halton, and Vaughan all pay more than Toronto residents do; Durham pays 12.4 per cent more, while Hamiltonians pay 1.9 per cent less. This suggests that there might be some capacity for Torontonians to pay more—but it may be limited.

Some crucial issues will require funding beyond inflation-based increases—and deserve an honest dialogue illustrating why that’s the case. And more than money, they’ll also require the acknowledgement that they are significant issues worthy of attention and honesty.