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Water revenue shortfall prompts call for new billing system
MATTHEW PEARSON, OTTAWA CITIZENMore from Matthew Pearson, Ottawa Citizen
Published on: February 5, 2015Last Updated: February 5, 2015 6:26 PM EST
A $22-million revenue shortfall is prompting calls for a new approach to billing for water and sewer services in Ottawa.
Otherwise, the city will be forced in the coming years to rely heavily on increasing levels of debt to maintain the current system and, at the same time, pay for future growth.
“Things have got to change, we can’t continue billing this way because it’s not sustainable in the long run,” city treasurer Marian Simulik told the Citizen a day after tabling the 2015 budget.
The draft budget, which must still be debated and approved by council, proposes to increase water and sewer rates by six per cent this year. That works out to approximately $48 a year for the average household.
But the budget also highlights a worrisome trend that shows revenue collected from water bills isn’t keeping pace with the actual cost of operating the system.
Drinking water, sanitary and stormwater services combined were to generate $318.5 million in revenue last year, but the forecast Simulik used when putting together the 2015 budget showed that the city collected $296.7 million — a shortfall of $21.8 million.
There was also a shortfall in 2013.
The rate increase proposed for 2015 would have generated about $19 million in additional revenue for water and sewer services based on an earlier forecast, but that has since been downgraded for 2015 to reflect the actual 2014 experience, resulting in an overall increase of $7 million. That’s means a projected $12-million shortfall for this year.
The impact of lost revenue in 2014 and 2015 compounds, meaning the accumulation of more debt down the line, Simulik said.
“If you don’t fix your cash problem, if you don’t bring more cash in, you basically have to use debt if you’re going to keep your investment and your capital assets the same,” she said.
The vast majority — 93 per cent — of annual revenue needed to fund water and sewer operations and capital projects is collected by charging customers a flat rate on the volume of water consumed, which is called volumetric billing.
But neither the volume of water sold nor the number of customers serviced is an exact science because both depend on variables such as new home construction, population and economic changes, weather patterns and consumer behaviour.
Ottawa, like other places in Ontario, has seen a decrease in water sales in recent years due to various conservation efforts — everything from changes to the provincial plumbing code for new construction and retrofitting existing homes to increasing environmental awareness and adoption of new gardening practices.
Water sales are on the slide across the board, Simulik says, but residential customers are the single largest consumer.
In 2012, Ottawans used 87.3 million cubic metres of water. That dropped to 81.8 million cubic metres in 2013 and early indications for 2014 suggest a further decrease.
But whether residents use a cubic metre of water or a hundred cubic metres, the cost of maintaining the pipe infrastructure and water treatment facilities is the same, Simulik said.
It’s a vicious circle. Reduced consumption means less revenue, which in turn means less money to maintain assets, some of which are more than 60 years old and need repair or replacement.
And that’s the predicament that underscores the call for a new billing structure.
Simulik’s staff are already researching the city’s options, which include a model that would have a large fixed component and smaller variable component based on consumption.
The city needs to find a structure that council will be comfortable with — one that bills customers fairly, but ensures less volatility on the revenue side, Simulik said.
The options will likely be presented to the environment committee later this year.
Capital Coun. David Chernushenko, who chairs the committee, agreed the time has come for something new.
“The sooner we have that discussion, the sooner we’re able to start planning and shifting towards a more logical model,” he said.
mpearson@ottawacitizen.com
Twitter.com/mpearson78
MATTHEW PEARSON, OTTAWA CITIZENMore from Matthew Pearson, Ottawa CitizenPublished on: February 5, 2015Last Updated: February 5, 2015 6:26 PM EST
A $22-million revenue shortfall is prompting calls for a new approach to billing for water and sewer services in Ottawa.
Otherwise, the city will be forced in the coming years to rely heavily on increasing levels of debt to maintain the current system and, at the same time, pay for future growth.
“Things have got to change, we can’t continue billing this way because it’s not sustainable in the long run,” city treasurer Marian Simulik told the Citizen a day after tabling the 2015 budget.
The draft budget, which must still be debated and approved by council, proposes to increase water and sewer rates by six per cent this year. That works out to approximately $48 a year for the average household.
But the budget also highlights a worrisome trend that shows revenue collected from water bills isn’t keeping pace with the actual cost of operating the system.
Drinking water, sanitary and stormwater services combined were to generate $318.5 million in revenue last year, but the forecast Simulik used when putting together the 2015 budget showed that the city collected $296.7 million — a shortfall of $21.8 million.
There was also a shortfall in 2013.
The rate increase proposed for 2015 would have generated about $19 million in additional revenue for water and sewer services based on an earlier forecast, but that has since been downgraded for 2015 to reflect the actual 2014 experience, resulting in an overall increase of $7 million. That’s means a projected $12-million shortfall for this year.
The impact of lost revenue in 2014 and 2015 compounds, meaning the accumulation of more debt down the line, Simulik said.
“If you don’t fix your cash problem, if you don’t bring more cash in, you basically have to use debt if you’re going to keep your investment and your capital assets the same,” she said.
The vast majority — 93 per cent — of annual revenue needed to fund water and sewer operations and capital projects is collected by charging customers a flat rate on the volume of water consumed, which is called volumetric billing.
But neither the volume of water sold nor the number of customers serviced is an exact science because both depend on variables such as new home construction, population and economic changes, weather patterns and consumer behaviour.
Ottawa, like other places in Ontario, has seen a decrease in water sales in recent years due to various conservation efforts — everything from changes to the provincial plumbing code for new construction and retrofitting existing homes to increasing environmental awareness and adoption of new gardening practices.
Water sales are on the slide across the board, Simulik says, but residential customers are the single largest consumer.
In 2012, Ottawans used 87.3 million cubic metres of water. That dropped to 81.8 million cubic metres in 2013 and early indications for 2014 suggest a further decrease.
But whether residents use a cubic metre of water or a hundred cubic metres, the cost of maintaining the pipe infrastructure and water treatment facilities is the same, Simulik said.
It’s a vicious circle. Reduced consumption means less revenue, which in turn means less money to maintain assets, some of which are more than 60 years old and need repair or replacement.
And that’s the predicament that underscores the call for a new billing structure.
Simulik’s staff are already researching the city’s options, which include a model that would have a large fixed component and smaller variable component based on consumption.
The city needs to find a structure that council will be comfortable with — one that bills customers fairly, but ensures less volatility on the revenue side, Simulik said.
The options will likely be presented to the environment committee later this year.
Capital Coun. David Chernushenko, who chairs the committee, agreed the time has come for something new.
“The sooner we have that discussion, the sooner we’re able to start planning and shifting towards a more logical model,” he said.
mpearson@ottawacitizen.com
Twitter.com/mpearson78
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