Reality Check Saskatoon, Part I: Our Infrastructure Bill

Saskatoonian’s were seemingly caught off-guard by the recommendations of two reports that were brought before the newly elected City Council last week.

The first report – a rehash of the Roads Report initially tabled way back in August 2011 – recommended that in order to start improving Saskatoon’s roads to a state of good repair that a budget of $25 million per year would be required – an increase of nearly $16 million from the current Operation Budget funding level of $9 million.

The second report – State of the Bridges and Overpasses 2012 – recommended increasing the annual reserve funding be increased from $500 thousand to $ 5 million with additional one-time inputs of $19.2, $7.8, and $20.9 million in 2013, 2018, and 2023.

Should City Council heed the advice of City Administration – bringing funding for roads and bridges up to adequate levels will cost an additional $39.7 million in 2013 alone and $397 million over the next decade, from current funding levels.

Both of these reports are a good starting point to discussing the infrastructure costs the City of Saskatoon (and it’s rate payers) will be facing over the coming decade:

 

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To put the costs that will be discussed into context, you can consider every additional $1 million in spending by the City to represent approximately a 1% mill rate increase.  For example, to fund the additional $16 million per year required to fix our roads, if that entire amount was put on property taxes it would represent a one-year 16% mill rate increase.

There are basically two types of infrastructure expenses to be considered – Capital and Operating.

Capital Expenses

These can be considered as the one-time cost to the City to build a new piece of infrastructure.  Recent capital costs include the South Circle Drive Bridge ($260 million), the Police Station ($120 million), and the Remai Art Gallery ($80+ million).

Typically, Capital expenses rely on one-time investments of funds (City dollars, Prov/Fed dollars, loan, etc…); although, the City can also contribute to a capital fund on a yearly basis – much like you might save up to put a down-payment on a house over the course of several years.

There are a number of Capital Expenses already identified by the City, including:

- New Traffic Bridge  – $30-35 million

- New North Commuter Bridge – $75 million

- North Perimeter Highway – $500 million

- City Yards/Bus Barns – $200 million

- New Interchanges (4) – $200 million

- Community Centres/Civic Facilities – $600 million

In addition, with the growth of Saskatoon comes the cost of land development – in particular the North Downtown and within existing neighbourhooods. While, on paper these develops should generate revenue for the City in the long run (as River Landing was originally intended) their are upfront costs – brown field clean-up, servicing, etc…

It’s estimated that the North Downtown could cost $160 million, while infill development for existing neighbourhoods could push $40 million.

These projects only provide a snapshot of some of the larger capital expenses being planned for over the next decade, there are many more (large and small) omitted.

However, these projects alone represent the need for investments by the City approaching $2 billion.

(How the City will pay for these projects will be discussed in Part III).

 

Operating Expenses

These can be considered the on-going cost of providing and/or maintaining a piece of infrastructure or program.  For example, maintenance of roads, sewers, water mains, and the electrical grid. Other operating costs include – waste management (garbage collection and landfill operation), wastewater collection and treatment, leisure centres and programs, etc…  These are costs that the City incurs yearly and rely on a consist source of funding to be sustained.

As Saskatoon grows, the required operating expenses for our basic services (waste management, water/sewer, road maintenance, leisure facilities, police/fire services, etc…) will increase as well.

While, theoretically, the increased cost of these services should be off-set by the increase in tax revenue – in reality, should Saskatoon continue to expand in the same way we have been expanding the additional costs will actually start to exceed the increase in tax revenue — a reality that our Civic Administration has realized in the past few years.  There is a name for this type of unsustainable expansion – Urban Sprawl.  But we digress….

While road maintenance has been the most discussed Operating Expense that requires additional funds – there are several more of our core services that will also require significant investments:

Roads

While already discussed at the beginning of this post, an additional $16 million per year ($160 million over the next decade) is required to eventually bring our existing road network to a level of good repair.

Saskatoon Light and Power

Much ink has been spent on the consist problems being experienced by SaskPower, which controls power supply in post- 1950s Saskatoon (basically outside of Circle Dr).  The chronic power outages experienced on the far westside are mainly caused by old infrastructure that requires maintenance and replacement.   However, a similar problem is looming for Saskatoon Light and Power service areas (within Circle Dr) as the City is investing insufficient funds to maintain and replace the old and worn-out infrastructure.  It is only a matter of time until similar service problems start to plague the rest of the City as well.

Watermains and Sewers

The pipes that snake underneath our roads, especially in pre 1970s neighbourhoods (i.e. inside Circle Dr), are in need of replacement.  While newer neighbourhoods have plastic pipes, our older neighbourhoods have metal pipes that are rusting away.  Take a drive through older neighbourhoods like Westmount, Mount Royal, Riversdale, Mayfair, etc… and you’ll notice the remnants of watermain breaks (usually characterized by fresh pavement or big gravel patches).  The only long-term solution to the chronic watermain breaks in our older neighbourhoods is the complete replacement of the pipe system.  Patching new onto old is only a temporary fix, as is partial replacements.

While a comprehensive report on the state of our Watermains and Sewers has yet to be published, similar to the recent Road and Bridge reports,  a conservative estimate pegs the need for at least $30 million of additional investment between 2012-2016 (see below for source).

Civic Facilities Maintenance

With growth will come the need for additional civic facilities and increased operating costs – swimming pools, libraries, City Admin offices, police/fire stations, etc…

Recreation/Culture

A good example of future added operating costs is the additional $2-3 million that will be required to operate the new Remai Art Gallery. Estimates peg the additional costs of upwards of $50 million in the coming decade (see below for source)

City Employee Pensions

A recent report from the City indicated that the employees pension fund ran a deficit of $113 million in 2011.  A deficit that could potentially increase substantially over the coming years.

 

Reserve Funds

Added to the Capital and Operating expenses are Reserve Funds. Reserve funds can be contributed to through Capital or Operating investments.  The reserve funds are meant to serve as “rainy day” sources of funding for particular pieces of infrastructure or services.  For example, the City as established a reserve fund for wastewater/sewage and another for Saskatoon Light and Power.

A good number of the Reserve funds remain underfunded or in deficit positions relative to the required withdraws over the coming years (see the 2012 Budget).  A recent example is the Bridge Maintenance fund, which requires an additional $4.5 million per year plus three additional one time cash investments totaling nearly $50 million over the next decade.

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As is evident by the lists of required and future expenditures planned and required by the City – there is a substantial bill coming due to Saskatoon residents.

In Part II of this series we will delve into how Saskatoon arrived at owing such a large bill.  In Part III we’ll compare Saskatoon to other Western Canadian Cities, and in Part IV we’ll look at the potential paths forward financially for the City in dealing with these costs.

 

Documentation:

Future Infrastructure Costs, City Presentation:

Download (PDF, 631KB)

2012 State of  Bridges Report:

Download (PDF, 116KB)

2012 State of Roadways Report:

Download (PDF, 51KB)