POLICY REPORT
FINANCE
Date: August 17, 1995
TO: Vancouver City Council
FROM: General Manager of Corporate Services and
General Manager of Engineering Services
SUBJECT: Sewer Utility
RECOMMENDATIONS
A. THAT Council approve the creation of a Sewer Utility with
charges to be implemented in 1997, and with all sanitary and
storm sewer operations and accounts organized under a separate
fund beginning January 1, 1996.
B. THAT the Sewer Utility be financed through a system of user
fees which recover all costs in a fair and equitable manner
while also minimizing the extra costs required to administer
the billing and collection of the user fees.
C. THAT the portion of the fees related to sanitary sewers be
based on (i) sewage volume (to reflect usage, as measured by
metered water consumption), and (ii) lot size (to reflect
infrastructure costs); and that those users without water
meters (single-family homes and duplexes) be charged a fixed
fee for the usage component of the charge.
D. THAT the portion of the fees related to storm sewers be based
on both the size of the lot and its zoning (to reflect the
potential run-off generated by each lot).
E. THAT the fees to fund the utility be implemented as:
a single charge on the tax notice (combining the usage-
based charge and the lot size-based charge) for single-
family homes and duplexes;
two separate charges on the sewer and water meter bill
(with one charge related to usage/water consumption and
the second related to lot size) for metered users.
F. THAT the lot size-based charges for both sanitary and storm
service be imposed on all properties (including vacant
parcels) which are capable of being drained into the City s
sewer systems, whether or not those properties are connected
to the systems.
G. THAT the usage-based charge also be imposed on all parcels,
but at a reduced rate for vacant properties not connected to
the City s sanitary sewer system.
H. THAT the General Manager of Engineering Services, in
consultation with the General Manager of Corporate Services,
be authorized to adjust certain billings when appropriate in
order to fairly reflect the actual costs incurred by the City.
I. THAT the Director of Legal Services be instructed to request
the Provincial Government to amend the Vancouver Charter to
provide for the collection of sewer charges, and to prepare
the necessary By-law changes.
J. THAT the sewer costs in the general levy be removed
(unburdened) from the residential and non-residential property
classes in the same proportion that the costs are being
charged back to each group through the Sewer Utility
reflecting their estimated usage of the sewer systems.
K. THAT a Sewer Rates Stabilization Reserve be created to
stabilize the annual Sewer User Fees.
GENERAL MANAGERS COMMENTS
The General Managers of Corporate Services and Engineering Services
RECOMMEND approval of recommendations A through K establishing a
Sewer Utility to allow the City to charge for sewer services on a
more equitable basis.
Implementation problems may arise during the transition to the new
utility related to bugs in the computer billing system or to
unusual usage patterns which may require case by case reviews to
determine an appropriate charge. Staff have tried to anticipate
and deal with any potential problems ahead of time. Other issues
which arise will be dealt with as expeditiously as possible. A
public information process to help taxpayers understand the changes
in the billing methodology is planned.
Corporate Services and Engineering Services believe that the Sewer
Utility will be a significant improvement, and that the benefits to
be realized from the new system will outweigh any transitional
problems or tax-shifts.
COUNCIL POLICY
There is no Council policy directly related to this matter. However, on
March 16, 1989, Council passed the following resolution as recommended
in the report of the Municipal Taxation Review Commission:
"THAT Council consider the establishment of the sewers function as
a full cost-recovery utility, with the costs distributed through a
system of user charges."
SUMMARY
This report proposes the creation of a joint Sewer Utility for both
sanitary and storm sewer (drainage) services. A utility would allow the
City to move the costs of operating its sewer systems out of the general
purposes tax rate, and allow these costs to be recovered instead through
separate user fees.
Under the proposed utility, the user fee for each property would be
based on the property's estimated impact on the sewer systems, rather
than on its assessed value. This impact would be measured using a
combination of water consumption, total lot size and zoning as proxies
for how much of the City s sewer systems each lot consumes . Water
consumption and lot size were selected as good measures of the impact on
the sanitary system. Lot size, when combined with the property s
zoning, is also a good measure for the impact of a property on the storm
system. The development permitted under each zone affects the ability
of the lot to absorb water (its permeability), which in turn affects how
much storm water run-off each lot has the potential to generate.
These user fees would be collected through the tax notice for non-
metered users and through a sewer and water meter bill for users with
water meters installed. The charge on the tax notice would be shown as
a separate line, similar to the current charge for water. The charge on
the joint sewer and water meter bill would be broken into two separate
fees - one related to water consumption (sanitary) and one related to
lot size (sanitary and storm). The rationale for separating the fees
for metered customers is to make the basis for the charges clearer and
therefore more understandable for the users, and to encourage water
conservation. The revenues from both metered and non-metered customers
would be placed in the same fund and used to finance both sanitary and
storm sewer works.
There are several advantages to establishing a Sewer Utility which are
noted in the report. One key advantage is that the increasing costs
being imposed on the City by the Greater Vancouver Sewerage and Drainage
District (GVS&DD) would not impact on the general purposes property tax
rates. Another important advantage is that the charge based on water
consumption would help to encourage water conservation, which would in
turn reduce the amount of sewage generated for treatment.
Changing from an assessment-based levy would mean that the charge to
each property would be more predictable for taxpayers since it would not
fluctuate with shifts in assessed values. Such a charge would, however,
result in the residential class paying for a higher proportion of the
sewer costs. As a group, residential taxpayers currently pay 41.5% of
the total sewer costs as part of the general levy, and under a Sewer
Utility would pay approximately 64.1% of these costs based on their
estimated usage or consumption of the sewer service.
The recommendation in this report is to remove (unburden) the sewer
costs in the general levy from each of the property classes according to
their estimated consumption. The costs removed would then be charged
back to each property class through the utility user fees in the same
amount that they were removed. This would mean that the total tax
burden (general taxes plus sewer fees) for each property class would
remain the same.
Within each property class, the impact of the utility on the taxes of
individual residences and businesses would vary depending on their
assessed value, lot size and water consumption. For an average home
assessed at $375,000 and a lot size of 33 feet x 120 feet, there would
be no change in the total fees payable.
PURPOSE
This report proposes the creation of a Sewer Utility, and outlines the
supporting reasons and policy issues associated with establishing the
Utility.
BACKGROUND
This section describes the current practice in the City and then
outlines the rationale for changing to a utility structure. The key
findings of two surveys of sewer utility operations are also presented -
one of other local municipalities and one of select cities in Canada and
the U.S.
1. Current Situation
Financing: The total costs related to sewer service in 1994 were
approximately $53 million. Of this, City costs totalled $31 million
and GVS&DD costs totalled $22 million. The cost of the overall system
is currently funded from property tax levies out of the Revenue Fund.
As a result, taxpayers are paying for both sanitary and storm sewer
services based on the assessed value of their properties.
The 1989 Municipal Taxation Commission found that the City could benefit
by increasing diversity in its revenue sources, and identified a self-
funding Sewer Utility as the strongest option for reducing the
dependence on the property tax. Further support for the creation of a
Sewer Utility came from the Task Force on Property Taxation which
presented its report to Council on April 22, 1994. While discussing
options for adjusting the tax burden among property classes, the Task
Force identified user fees for sanitation and sewage services as a main
alternative to funding these activities through property taxes.
Operations: While most local municipalities have separated sewer
systems - one set of pipes for collecting sanitary sewage and a second
set of pipes for storm water - Vancouver s system is only partially
separated with the remainder combined. In a combined system, sanitary
effluent and storm water are both collected through the same set of
pipes and are therefore disposed of together. In a separated system, it
is only the sewage effluent which is treated.
Vancouver is proceeding along a long-term plan to separate its systems.
In the meantime, having a combined system makes it more difficult to
determine how the City s total sewer costs should be allocated between
the sanitary and storm components. This allocation is a necessary step
in designing charges for a Sewer Utility.
2. Rationale for a Utility
A utility is a method of restructuring the financial administration of a
service such as sewers to allow for a more accurate tracking of costs
and a more equitable allocation of these costs among user groups. Under
the proposed utility, all costs, revenues and activities associated with
sewers (including an allowance for City-wide overhead) would be moved
from the general accounts, organized under a single business unit, and
placed in a separate fund. This would allow the true cost of providing
the service to be determined and managed.
The City could then recover this true cost from user fees rather than
from the general purposes property taxes. This can be seen as more
equitable since the user fees could then be related to each property's
impact on the sewers rather than on assessed value. The property s
impact could be measured through proxies for usage (such as water
consumption and lot size) which are better indicators of sewer service
consumed than is assessed value. While these proxies are not perfect
indicators of each property s impact on the sewer systems, they do
strike a balance between perfect equity and extra administrative costs.
Implementing a perfectly equitable system would mean using measures of
the actual impervious area on each lot as well as installing sewage
effluent meters. This would mean significant costs to administer the
billing and collection system. The fee structure proposed by staff will
not require any additional long-term resources to administer, although
there will be some minor transitional or start-up costs.
In addition to recovering the sewer costs on a more equitable basis,
another advantage to establishing a Sewer Utility is that these costs
are isolated from the City s other operations. This means that, with a
utility, the increasing levies being imposed on the City by the Greater
Vancouver Sewerage and Drainage District (GVS&DD) would not impact on
the general purposes property tax rates or on Council s efforts to
manage the tax burden between property classes which is being imposed
through these rates. Over the last three to four years, GVS&DD costs
have been increasing at a rate exceeding inflation. These increases are
expected to continue over the next decade as Regional facilities such as
secondary treatment are constructed. Separating the costs would also
help to show City taxpayers the source of these cost increases.
Further advantages of a Sewer Utility are:
the fees are visible to taxpayers, and therefore can be used to help
encourage conservation of resources where appropriate;
a separate charge increases the public s awareness of which services
they are receiving from the City for their tax dollars; and
changing from an assessment-based fee means that the charge to each
property would be more predictable for taxpayers as it would not
fluctuate with shifts in assessed values.
The utility would be structured with fees that fully recover costs so
that the utility fund is completely self-sustaining. A reserve may be
needed to help stabilize the rates from year to year, but subsidies from
general revenue will not be required once the utility is fully
established.
Shifting from a tax based system to a utility system would be revenue-
neutral for the City as a whole (although some of the current costs
could be recovered from tax-exempt properties). Properties which are
exempt from taxation under the Vancouver Charter are still responsible
for paying fees and charges for services outside of the general purposes
property tax. The City currently bills these tax-exempt properties
under its Water Utility for water service. Establishing a Sewer Utility
would allow the City to also charge these properties for the sewer
service they receive.
The assessed value of exempt properties in 1995 was $10.5 billion,
approximately 14% of the total 1995 assessment base. This translated
into $96 million of foregone general purposes taxes ($126 million less
$30 million received for grants and receipts in lieu of taxes from
senior governments and City properties). A portion of these foregone
taxes are related to sewer costs. Establishing a utility would allow a
City to recapture that portion, estimated at $4 million, from such
groups as the School District, the GVRD, the GVHD, BC Transit, private
schools, and charitable and religious institutions. This additional
revenue has been taken into account in calculating the proposed fees for
the Sewer Utility, effectively reducing the total amount currently paid
for sewer services by all existing taxpayer groups.
In order to facilitate the operation of the Sewer Utility, the Province
will have to be asked to amend the Vancouver Charter. This amendment
should be in place in 1996, in time to begin billing in 1997.
3. Local Municipalities
A survey was done of municipalities in the Lower Mainland (attached as
Appendix A). This survey revealed that Vancouver is the only
municipality in the region which has not set up a separate charge for
sanitary sewers. None of the municipalities surveyed had set up a
utility for storm sewers. The survey showed a very wide variety of
methods used in charging for sanitary sewer service, including flat
parcel taxes, parcel taxes based on assessed values, metered user fees
and various combinations of these charges. (The various methods are
described in Appendix C.)
Most of the municipalities have separated sanitary and storm systems
which allow them to keep track of the costs and revenues related to each
of these systems. New Westminster, and to a lesser extent Burnaby, have
systems similar to Vancouver s which are partially combined. Both of
those cities have established a sanitary sewer utility.
4. Canadian and U.S. Cities
A survey was also carried out of select Canadian and U.S. cities
(attached as Appendix B). All of the cities contacted had a separate
utility for sanitary sewer, and all used metered water consumption for a
proxy of impact on the sanitary sewers. (Calgary was the only city
surveyed which did not have all residential users on meters - these non-
metered residences are charged a flat rate based on lot size and
assessed value.) All the U.S. cities had storm sewer utilities while
none of the Canadian cities did. Two of the Canadian cities, Edmonton
and Winnipeg, were considering setting up storm sewer utilities.
5. Current Operation of Water Utility
Vancouver currently has a utility for water. Under the Water Utility,
all commercial, industrial and residential users of over two units are
on meters, with approximately 14,000 metered customers. Single-family
homes and duplexes are charged a flat rate, with approximately 87,000
units on the flat rate.
The rates are calculated by allocating water costs between metered and
non-metered users in proportion to each group s consumption of the total
water purchased from the Greater Vancouver Water District (GVWD). The
share of the costs allocated to non-metered users is then divided by the
number of customer units to derive the flat rate. The share of the
costs attributed to metered water users is divided by the amount of
water sold to this group to derive a per unit charge (one unit is
equivalent to 625 gallons of water).
The City collects the flat fees for water from property owners on the
July tax notice. Metered fees are collected through separate billings,
and may be sent to either the owner or someone else designated by the
owner, such as a tenant. Neither the flat fees nor the metered fees are
deferrable. Water fees may be treated as taxes in arrears if not paid.
The water meters are currently billed every two months for high users
and every four months for low users (this may be changed to every six
months for all users once the new utility computer program is
developed). There is a minimum charge for metered customers of 8 units
per month.
1994 rates were on a declining basis with the rate per unit decreasing
as higher volumes are consumed, but in 1995 a flat rate system was
implemented. All property classes pay the same rate per unit of water
consumed. In addition to the water consumption charges, there is also a
meter service charge which is based on the size and type of meter. This
charge is levied at each reading and is intended to pay for meter
maintenance and meter reading.
Properties which are exempt from taxation still pay the water charges.
This includes schools, community centres, churches and property owned by
the Provincial and Federal Governments. There are a few exceptions to
this policy including fire halls and some Parks Board properties which
do not earn revenue. These properties receive free water , and the
amount of water provided to properties within this category is not
measured.
Vacant parcels which do not receive water service do not pay a fee for
water. (Staff are proposing a charge for sewer service for vacant
properties, and will be revisiting this issue for water service.) Those
which were connected on a meter but then had the service turned off pay
half of the meter service charge. Those properties which were connected
but had their pipe cut off at the City main do not pay any water charges
(but would have to pay a connection fee to reconnect to the City s
service).
Homes with an extra suite must pay an extra charge for that suite (the
charge is less than the single family rate) unless the owners sign an
affidavit swearing that the unit is not being used as separate living
accommodation or, if it is, that it is being used only for immediate
family. The City will not install meters in houses with more than two
units unless the units are legal. There may, however, be some old
illegal units on meters from before this practice was followed.
PROPOSED STRUCTURE FOR THE SEWER UTILITY
The following principles are recommended as the most appropriate for the
operation of the Sewer Utility.
1. Operating Principles
All sanitary and storm sewer operations and accounts would be organized
under a separate fund called the Sewer Utility.
The Utility would be self-sustaining with non-subsidized user fees based
on true cost-recovery of this fund, including all operating and debt
service costs. A contingency allowance of 5% would be built into the
rates with any proceeds placed in a Sewer Rates Stabilization Reserve to
minimize fluctuations in the annual fees.
These user fees would be based on water consumption, lot size and zoning
as good proxies for the impact of each lot on the sewer systems. The
methodology used to calculate the fees is detailed in the following
section. The fees will be collected as a single charge on the tax
notice for single-family homes and duplexes, and as two separate charges
on a combined sewer and water bill for users on meters.
Operations within the Utility would be accounted for separately from the
Operating Budget, although annual operating budgets for the Utility
would be established in the same manner. Fees would be subject to
annual Council approval, as is currently the case with the fees for the
Water Utility and as is proposed for the Solid Waste Utility.
Management of the Utility (with the exception of costs imposed by the
GVS&DD) would be a joint responsibility shared between the General
Manager of Corporate Services and the General Manager of Engineering
Services. Corporate Services would be responsible for pricing, billing
and collection while Engineering Services would be responsible for
operations, including design, construction and maintenance of the
systems.
GVS&DD costs would be recovered through the Sewer Utility fees.
2. Proposed Fee Structure
The first step in deriving the fees was to allocate the total system
costs between those which are related to the sanitary sewer and those
which are related to the storm sewer. Once that allocation was carried
out, the second step was to determine on what basis each set of costs
should be recovered, and how these would be translated into fees. The
recommended structure and the rationale for these recommendations
follow.
(a) Allocation of Total System Costs
For the proposed Sewer Utility to function as a full cost-recovery
utility it would have had to recover sewer service expenditures
estimated at $53 million in 1995. These expenditures consist of $31
million in City costs and $22 million in GVS&DD costs:
CITY COSTS
Sewer Operating & Maintenance $3 million
Debt Charges (incl. Capital, Design & Admin. Costs) $28 million
Total City Costs $31 million
GVS&DD COSTS (charged to the City)
Operating $11 million
Debt Charges $8 million
Tier II - Secondary Treatment $3 million
Total GVS&DD Costs $22 million
TOTAL SEWER SERVICE COSTS $53 million
Each of the cost items was analyzed to determine that portion of the
costs which could be attributed to either the sanitary sewer system or
the storm sewer system. This analysis, shown in detail in Appendix D,
indicates that the sanitary component is responsible for 59%
($31,250,000) of the total sewer service costs, while the storm
component accounted for 41% ($21,750,000) of the total costs.
(b) Sanitary Costs
The sanitary component of the costs originates from the capital and
operating costs of providing sanitary sewer infrastructure servicing and
the costs of providing treatment. Capital costs of this infrastructure
servicing are largely a function of lot size, and to a lesser extent, a
function of sewage volume. Conversely, operating costs of sanitary
sewer servicing are largely a function of sewage volume, and to a lesser
extent, a function of lot size. Based on these principles, of the
$31,250,000 sanitary cost component for 1995, $19,090,000 (61%) is
attributed to sewage volume and $12,160,000 (39%) is attributed to lot
size. These percentages may fluctuate as the relative costs change, and
should be reviewed annually according to these principles when Council
sets the rates. Further details of this analysis with the underlying
principles are set out in Appendix D.
The rates should fairly reflect the costs which each group of users
imposes on the City's sanitary sewer system. To achieve this, the
sanitary sewer charges should be based on:
sewage volume - to measure usage, and
lot size - to reflect the provision of sewer infrastructure
Sewage volume would be proxied by using each property's water
consumption, as measured by water meters or by averaging for those users
not on meters.
Non-metered users (such as single-family homes and duplexes) would be
charged a fixed fee for the sewage volume portion of their sanitary
sewer cost. This fee would be calculated based on the proportion of
water purchased from the Greater Vancouver Water District by non-metered
users divided by the number of customer units. These non-metered users
would also be charged a fee per square foot of their total lot size.
The two fees would be combined into a single new line on the tax notice.
For metered users, the portion of the fee related to water consumption
will be calculated in a similar manner to the current water rates.
There will be a flat rate structure (the rate per unit of water will not
vary with the amount of water purchased), all types of metered users
will be charged the same rate, and there will be a minimum monthly
charge consistent with the minimum for water service. These users will
also be charged a rate per square foot of their total lot size.
In calculating the lot size-based charges, a cost adjustment of 20% was
added to commercial and industrial properties. This adjustment reflects
the additional costs associated with installing, replacing or repairing
sewer infrastructure in these areas.
(c) Storm Costs
The storm sewer component of the charge should reflect the cost impact,
or potential impact, of each property on the City's storm sewer. The
majority of the storm component costs can be attributed to capital or
infrastructure, while only a small amount of the costs are related to
operating and maintenance items. Therefore, storm charges should be
based primarily as a function of the storm sewer infrastructure or
capital costs, as measured by lot size. To a lesser extent, these
charges should be a function of the designed amount of impervious area
for each lot, as measured by zoning.
The City's storm sewer infrastructure is designed based on an impervious
ratio obtained from existing sewer design guidelines. These guidelines
come from the City of Vancouver s Sewer Design Manual which is based on
the design standards of other Canadian municipalities. The rationale in
developing these guidelines was reviewed in 1991 by the Canadian
Technical Committee on Urban Infrastructure which supported the
methodology used by the City.
The design ratio indicates the amount of impervious area on each lot,
such as buildings and paved areas, which is likely to create storm water
run-off. The zoning of each property determines its impervious ratio.
Therefore, a practical and fair storm sewer user fee can be established
using lot size, zoning and the property's impervious ratio.
Based on the City s sewer design guidelines and impervious ratios, staff
have identified three categories of properties, as follows:
Impervious Ratio Type of Property % of City Land Base
75% Single-Family, Duplexes 65%
85% Multi-Family 10%
95% Commercial, Industrial 25%
The cost of providing storm sewers for those properties exempt from
sewer charges, such as City streets and parks, are distributed
proportionally over these property categories. As with the sanitary
sewer infrastructure costs, a 20% cost adjustment was made to the
commercial and industrial groups to reflect the extra costs associated
with installing, replacing or repairing sewer infrastructure in these
areas.
Using these principles, of the $21,750,000 storm cost component for
1995, $11,943,698 (54.9%) is attributed to the single-family and duplex
category, $2,104,621 (9.7%) to the multi-family category, and $7,701,412
(35.4%) to the commercial/industrial category. This analysis can be
found in detail in Appendix D.
These lot-based charges will be combined with the lot-based charges for
sanitary sewer service and will be billed in the same manner, i.e. on
the tax notice for non-metered users and on a combined sewer and water
utility bill for metered users.
3. Proposed Rates
The following are the rates proposed for each of the user groups.
(a) Usage-based charges:
Unmetered:
Cost per Customer Unit:
Single-family $93.00
Vacant/Turned-off $53.00
Extra unit $33.00
Duplex $63.00
Metered:
Cost per Unit of Water $0.48
(b) Lot size-based charges:
Cost per Sq. Ft.:
Single-family residential $0.0429
Multi-family residential $0.0465
Commercial and Industrial $0.0651
These rates are based on 1995 estimated costs, and will need to be
inflated to reflect current cost estimates in the year of
implementation.
OPERATIONAL ISSUES
1. Vacant
Vacant properties and those without water and sewer service will pay the
full lot size-based charge. The rationale for applying this charge to
vacant properties is that the City has already designed and provided the
infrastructure based on the future connection of these properties.
Vacant properties will also pay the usage-based charge for sewage
volume, but will receive a 40% reduction to reflect the fact that they
are not imposing any operating costs on the sanitary sewer system. They
pay the remaining 60% of this sewage volume charge since the sanitary
treatment facilities have already been built with capacity to
accommodate those properties upon connection.
2. Wells/City Water Usage Lower than Sewer
For some properties, the amount of water purchased from the City is not
a good indicator of the amount of waste water discharged into the City s
sewers. Examples of this are properties with their own wells or those
with groundwater collection systems used for cooling systems. Any user
with a well will be charged a sewage volume charge for discharging into
either the storm or sanitary sewer systems. Heavier users will be
required to have sewage effluent meters to monitor their discharges.
3. Large Lots
There are cost-savings which result from economies of scale in
servicing larger properties, i.e. less underground congestion. As a
result, any lot greater than 1/2 an acre will receive a 50% break on the
lot size-based charge for that portion of the lot above 1/2 an acre.
4. Limited Agricultural Lands (RA-1)
These properties are a special category due to their large lots, low
impervious ratios, and unique storm and sanitary infrastructure. If
properties in this area were not considered separately, they would face
extremely high lot size-based charges which would result in some
properties paying sewer fees as large as their general purposes tax
levy.
In addition to the above-mentioned break for lots larger than 1/2 an
acre, properties within this zone will also receive a further 50% break
on their entire lot for their sanitary lot-size based charges related to
sewer infrastructure costs. The reason for this reduction is that the
shallow (force main) infrastructure in this area costs significantly
less than that provided in the rest of the City. Further, because of
this area s actual low impervious ratios and the fact that the drainage
system is based on ditches, the lot size-based charge for storm
infrastructure costs is also reduced. A 25% impervious ratio or 1/3
that used for other residential areas will be used for calculating the
storm infrastructure component of the charge.
These properties will still be required to pay the standard usage-based
charge for sanitary sewage volume. The exception to this is if they are
on their own septic system, in which case they will receive the same 40%
reduction to the fixed fee sewage volume charge as vacant properties
receive.
5. Strength Charges
The strength of the sanitary sewage is being considered as an additional
factor in setting the rates. This added factor would be applied to
properties contributing sewage containing high levels of suspended
solids and/or high levels of biological or chemical oxygen demand. The
application of this factor is currently being examined.
6. Abatement
There are some users with high water consumption who do not have a
correspondingly high impact on the sanitary sewer system. Examples of
this would be companies who use water in product preparation (e.g.
breweries) or those who use water for irrigation (e.g. golf courses).
These users could receive an abatement on their sewer bill, however the
burden of proof will be on the user. At the discretion of the General
Manager of Engineering Services, they can either provide a report from
an engineering consultant to justify a reduction, or they may install a
sewage effluent meter or a second water meter.
7. Utility Companies/GVS&DD Volume Cost Allocation Issues
Utility companies now pay either a property tax or a fee for their
infrastructure in City streets. There are some anomalies with the
various utility company agreements however, which require further study
and a report back to Council.
In addition, under the Sewer Utility a mechanism is being developed
which will allow the City to either charge for or reduce the dry-weather
combined or sanitary sewer flows from such users as utility companies
(manhole/vault drains) or groundwater treatment facilities. These
charges would be incorporated into the Sewer Utility Rates Bylaw. 8.
Transitional Costs
There will be some transitional start-up costs associated with moving to
a Sewer Utility. These will be in the order of $50,000 and include
temporary staff and refinements to the City s computer systems. These
costs will be funded from the Sewer Utility.
TAX IMPLICATIONS
1. Tax Burden - Inter-class Shifts
Since sewer costs are financed out of the general purposes tax levy, the
current tax burden for allocating these costs is 41.5% residential and
58.5% non-residential. The proposed rate structure based on impact on
the sewer systems results in a tax burden within the Sewer Utility of
64.1% residential and 35.9% non-residential.
If the $53 million sewer costs are unburdened from the general levy
according to the current tax burden and then applied according to the
64.1%/35.9% sewer burden, the average residence (valued at $375,000 with
a 33 foot X 120 foot lot) would face a 9.1% increase over the 1995
general levy. These increases would become larger in future years with
the GVS&DD secondary treatment costs.
The recommended approach is to remove the $53 million of sewer costs
from the general levy according to the projected sewer burden - that is
taking 64.1% of the costs off of the residential classes and 35.9% of
the costs off of the non-residential classes. The average residence
will not experience any increase in total charges payable under this
unburdening option.
Using this approach would mean that there would be no burden shift
between the classes for the combined general levy and sewer costs as is
shown in the following graph.
The resulting tax burden for the costs remaining in the general levy
will be 37.0%/63.0%. This new ratio for the general levy will only
result in the year that the sewer costs are removed. The ratio will be
re-examined in subsequent years.
2. Intra-class Shifts
Implementing a Sewer Utility will result in shifts within each class
because properties will no longer be paying for sewer services according
to the value of the property, but will instead be paying according to
the estimated impact on the sewer systems. While usage or impact-based
charges can be considered a more equitable way of distributing costs,
those properties with relatively higher assessed values will experience
a greater reduction in their general purposes taxes. Whether or not
their total tax and sewer bill increases or decreases will also depend
on the amount of water used(for metered users) and on the lot size.
If the sewer costs are unburdened using the current tax burden, for two
homes valued at $300,000 and $500,000 on the same size lot (33 X 120 ),
the lower value house will see a 15.6% increase while the higher value
house will experience a 2.7% increase. If the recommendation to remove
the sewer costs from the general levy according to the projected sewer
burden is adopted, the same properties will experience a 6.5% increase
and a 6.3% decrease.
3. Potential Customer Concerns
In addition to the tax implications, there are also some potential
customer concerns which arise from the creation of the Sewer Utility.
As with the establishment of the Solid Waste Utility, a new charge on
the tax notice may be perceived as an additional tax rather than a
replacement of an existing charge in the general purposes tax rate.
This is more likely to be a concern when the total tax bill rises as a
result of implementing the Utility.
Further, using the same fixed fee for the usage-based charge for all
single-family homes is not perfectly equitable. Properties which have
fewer residents, which do not sprinkle their lawns or which otherwise
conserve water will be charged the same fee as high-occupancy properties
using more water. If the City chose to install water meters in all
residences it would be simple to adjust this fixed fee to a fee based on
actual water consumption. However, there would be significant
administrative and capital costs involved in installing the meters,
taking meter readings and handling the billing and collection of the
charges. While this may achieve perfect equity, it would also lead to
additional costs for all users.
A similar argument applies to the calculation of storm infrastructure
costs based on impervious area. Within each of the three property
classes selected there will be wide discrepancies in the actual amount
of permeable vs. impervious area on each lot. The approach taken in the
proposed rates relies on averaging for each class rather than on
measuring the actual impervious area on each lot in the City. Again,
while this is not perfectly equitable it does provide a good estimate of
impact without requiring additional staffing or data collection to
administer.
4. Loss of Deferrals
Only those charges based on assessed value are considered a tax by the
Provincial Government. Therefore only those charges which are based on
a property s assessed value may be deferred under the Land Tax Deferment
Act (available to homeowners over 60 years of age and the disabled).
This means that the lot size and usage-based charges levied under the
proposed Sewer Utility will not be
deferrable. The City s current water fees are also not deferrable.
Removing the sewer costs from the deferrable general tax and adding them
as separate charges will affect approximately 1,200 out of the 121,000
parcels (1%) of the parcels in the City and result in approximately
$315,000 in extra revenue for the City.
SOCIAL IMPLICATIONS
This report proposes billing sewer costs based on user fees tied to
impact on the systems rather than through property taxation based on
assessed values. User fees can be considered a regressive form of
taxation and therefore may be viewed as having some adverse social
implications. However, since the fees will now be based on measures of
actual usage and impact on the City s systems, they will be more
equitable and will encourage metered users to conserve water, and
therefore reduce sewer costs.
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