Water and sewer services need a major overhaul

The news that the City of Ottawa faces a $41-million deficit this year raises serious questions about the city’s ability to forecast expenses and control costs.

While the overall deficit might be a shock, the fact that the water and sewer operation is $6.8 million in the hole is no surprise at all. The city’s utility accounts are a mess and have been for years. Over the last three years, the cumulative revenue shortfall is more than $36 million. The trend is continuing this year and the city keeps blaming the problem on declining water consumption.

There is a lot more to the problem than that. While water use is down 14 per cent over a decade, there has been an increase in water prices of nearly 100 per cent. You don’t need a degree in math to understand that such a big increase in price would offset the volume loss, and then some.

The real issue is a veritable fountain of spending on water and sewer in the last decade, a geyser of such proportions that even the neardoubling of water costs was not enough to cover the bill. In 2006, the city spent $188.7 million on water and sewer services. By 2015, that number had risen to $325.1 million.

Most of the spending increase, nearly $100 million, has taken place since 2010. You’d wonder how it could cost so much more for our water system, when its scope hasn’t changed much during that period. The usual culprits would be growth and higher operating costs, but they play a relatively minor role. Since 2010, operating costs are up $24 million, with just over $3 million of that attributed to growth.

The real issue is a debt-fuelled capital spending program aimed at improving the city’s sewers and water pipes. At the end of 2010, water and sewer debt stood at $150 million. Five years later, it had risen to $461 million.

This wasn’t planned, exactly. The city’s estimation of how much revenue its water and sewer charges would produce has been on the optimistic side, especially in the last few years. The shortfall in cash was made up with more debt, driving up the percentage of your water bill that goes to pay bank interest.

Back in 2010, the city spent $110 million on its water and sewer capital program, with $17 million of that going to service debt. By 2015, capital spending had increased to $169 million, but $33 million of that is debt servicing charges.

In 2012, council set a limit of 15 per cent of water and sewer spending going to debt servicing. That’s double what the city is spending for debt paid for with your taxes. Even that generous 15 per cent limit is now in danger of being exceeded, which is a driving force behind the city’s push to find a new way to charge us more for water.

Facing yet another deficit this year, city staff plan to fix the problem by taking money out of the already inadequate water and sewer capital reserve fund.

It’s impossible for the public to know whether the big increase in spending on water and sewer pipes is necessary and whether the work is being done cost effectively. We pretty much have to accept city staff’s word on that, although their continual inability to properly estimate revenues doesn’t boost their credibility.

What is clear is that when it comes to water and sewer, there is no effective brake on spending. Setting our utility rates is an afterthought for councillors and they consistently go up at a pace that would be completely unacceptable on the tax side. No one would ever be elected mayor promising to increase taxes six or seven per cent a year.

The looming deficit will force councillors to ask if spending is too high or taxes are too low. On the rate side, we have high spending, big increases and a deficit. It’s the first thing councillors should fix.