POLICY REPORT UTILITY IMPLEMENTATION Date: July 15, 1996 TO: Vancouver City Council FROM: General Manager of Corporate Services and General Manager of Engineering Services SUBJECT: Solid Waste and Sewer Utilities - Implementation Update RECOMMENDATION A. THAT Council approve January 1, 1997 as the revised implementation date for the Solid Waste Utility on the condition that the applicable amendments to the Vancouver Charter are secured by September 1, 1996. B. THAT the implementation date for the Sewer Utility be deferred by one year from January 1, 1997 to January 1, 1998, on the condition that the applicable amendments to the Vancouver Charter are secured by September 1, 1996. C. THAT, should the proposed utility amendments to the Vancouver Charter not be secured by September 1, 1996, the implementation of both the Solid Waste and Sewer Utilities be deferred until such time as the amendments are secured, and that staff be instructed to report back on a revised utility implementation timetable at that time. COUNCIL POLICY On September 12, 1995, Council approved the creation of a Solid Waste Utility to be implemented on January 1, 1996, and a Sewer Utility to be implemented the following year. Establishing utilities for these services means they will be paid for by fees based on estimated usage rather than by taxes based on assessed values. The general tax levy will be reduced by the amounts to be raised through the utilities. On February 8, 1996, Council passed the following resolution: THAT the implementation of the Solid Waste Utility, previously approved for start up on January 1, 1996, be deferred until the City is able to secure the appropriate Charter amendments from the Provincial Government. The revised implementation date will likely be January 1, 1997. The issue of whether the implementation date for the Sewer Utility should be changed as a result of delaying the Solid Waste Utility was not discussed at that time. PURPOSE The purpose of this report is to update Council on the status of the Charter amendments and to recommend revised implementa-tion dates for the Solid Waste and Sewer Utilities. BACKGROUND Council approved the creation of both a Solid Waste Utility and a Sewer Utility on September 12, 1995. The City already has a Water Utility in place. Through the utility structure, solid waste and sewer costs will be removed from the general levy, with a corresponding decrease in tax rates. These costs will then be placed in separate funds to be recovered through fees based on estimated usage rather than on assessed property values. The new utilities will function as self-sustaining operations, like the existing Water Utility, with fees based on full cost-recovery. Usage-based fees are considered more equitable, as well as more predictable, since they do not vary with market-driven shifts in the value of a property. These fees more clearly reveal the true cost of the services to users, and encourage them to reduce their levels of consumption. Finally, removing solid waste and sewer costs from the general levy will mean that the tax rates will not be skewed by the above-inflation cost increases anticipated from the GVRD s environmental initiatives and from the addition of expanded recycling programs in the City. The Solid Waste Utility report noted that amendments were required to the Vancouver Charter in order to facilitate the billing and collection of the utility user fees. These amendments would bring the Charter in line with existing powers available to every other municipality through the Municipal Act. The report noted that it was not clear whether or not the Province would be able to amend the Charter in time to bill the fees on the tax notice. If the Charter was not amended, the fees would be billed through a separate utility bill. Such a bill would mean additional administrative costs, would have collection problems, and would be further complicated by a mix of tenant and property owner customers. After Council approved the utilities, the Law Department drafted the requisite Charter amendments and forwarded them to the Province for consideration and implementation at the earliest possible date. Staff also began notifying users of the upcoming change in solid waste charges. On February 8, 1996, Council approved a staff recommendation to defer the implementation of the Solid Waste Utility until the City was able to secure the appropriate Charter amendments from the Province. This recommendation was based on the delay expected following the resignation of the Premier and the anticipated Provincial election. The February report also noted that there was a significant business risk to the City in proceeding without the Charter amendment, and that deferral would be a more prudent course of action. January 1, 1997, was given as the likely date for implementation. STATUS OF CHARTER AMENDMENTS Since the February report to Council, the City s legal staff have been reviewing the proposed Charter amendments with the Ministry of Municipal Affairs. At the request of the Province, background material was sent to the Ministry demonstrating that utility fees do not represent a new tax but rather a different means of recovering the cost of existing services. Ministry staff indicated they would attempt to schedule these amendments on the next legislative agenda. The latest advice from Ministry staff is that the Charter amendments have become a lower priority on the agenda for the summer session. This means the consideration of the Charter may be deferred until a fall session (if one is held), next spring or even later. NOTIFICATION OF IMPLEMENTATION The timing of the Charter amendments and a decision about whether to proceed in their absence has implications for plans to notify our customers. We will need to start advising users well before the end of the year about whether or not the Solid Waste and/or the Sewer Utilities will go ahead in 1997. This is particularly relevant for customers such as strata buildings who may choose to go with private waste disposal once the City switches from its current tax funded system to a fee-for-service approach. Good communication is especially important because of the confusion arising from last year s anticipated implementation and subsequent deferral. This means delaying any notification process until we are absolutely certain of whether or not we will be going ahead in 1997. The majority of the strata buildings contacted by the City advised that they set their budgets early in the fall. To fit into this timeframe, we would need to let them know about the City s implementation plans by September 1. SEWER UTILITY The implementation of the Sewer Utility is currently approved for January 1, 1997, which was to be one year after the original start-up date for the Solid Waste Utility. The decision was made to stagger the introduction of the utilities to minimize the tax implications of doing both together, as well as to make it easier for both staff and the public to adjust to the new billing procedures. The following table illustrates some of these tax implications. The analysis is for single-family residences and shows the impact of putting either utility in place on its own as well as the effect of putting both in place during the same year. In each case, the comparison is between the total charges to be paid with the utilities (new user fees and reduced taxes) vs. the taxes which would result if the City did not implement the utilities. Only the impact on general property taxes is examined; all other property tax charges, water fees and the Homeowner Grant are not included in this analysis. % of properties % of properties % of properties average average increasing by increasing by increasing by % $ less than 10% less than $100 less than $200 change change Solid Waste Utility only 90% 100% 3% ($2) Sewer Utility only 57% 62% 98% 8% $38 Both Utilities 51% 52% 89% 11% $36 The analysis reflects estimates of the costs and tax rates for 1997 (based on 1995 figures). These costs include the single-family and multi-family recycling programs, and the anticipated sewage costs for the secondary treatment works being carried out by the GVRD. We note that properties with lower assessed values will tend to face higher increases. This is because the reduction in general taxes for those properties will not be enough to offset the new user fees which will be tied to consumption rather than assessed value. Staff will be reporting back to Council in the Fall with a similar analysis of the tax implications of the utilities for multi-family residences as well as for commercial and industrial properties. The focus of the analysis will be on the Sewer Utility as these property classes are largely unaffected by the Solid Waste Utility. This analysis will be part of a report which discusses options for phasing the impacts of the utilities in gradually through adjustments to the tax levy and/or the utility rates. CONCLUSION Based on an optimistic expectation that the amendments will be received in the summer session, staff recommend planning to proceed with the Solid Waste Utility for 1997 and the Sewer Utility for 1998. This is consistent with the two-step approach to phasing in the utilities as originally approved by Council. We will continue to prepare the billing systems and a notification plan, but will hold off until the Charter amendments are secured. If the Charter amendments are not received by September 1, the recommendation is to defer the implementation of both utilities until the amendments are secured, at which time we will report back to Council with revised implementation dates. As noted in the February report to Council, proceeding with the utilities without the amendments to the Charter in place is not recommended. While the City does have the authority to charge utility fees, the amendments are required to allow the billing to be done through the tax notice and to address collection problems in the event of non-payment. These are powers for administering a utility which are currently available to other municipalities through the Municipal Act. Since the City has been asking for essentially the same powers as other municipalities now have, we did not expect to run up against this series of delays. Further deferring the implementation of the utilities is not desirable, but is recommended as the prudent course of action. * * * * *