Friday, July 25, 2014

On Reserve Funds, Theatres, and taxing sustainably

True story:  A number of years ago, I got a phone call from my daughter in Alberta.  “Guess what, dad?”  She was pretty excited.  “We just made the last payment on our car!  Great, eh?”

“Good for you!” I responded.  “Now you’ll have some extra money every month for the household budget.”  

“Actually, dad, we’ve gotten so used to coughing up that $285 a month that we’re just gonna keep setting it aside.  We’re going to put it in the bank so that when the car finally gives out, we’ll have money to buy a mini-van without having to borrow for it.”  Today, about 5 years on, they're driving a mini-van.  And it's paid for. 

Budgeting for the future.  I’m proud to say I raised a pretty smart daughter.  (And my son-in-law is no slouch either.)

The reason I tell this little story is because it relates to municipal budgeting.  I used this illustration back in 2011, when the Island Savings Centre Commission was doing public consultations on the notion of collecting taxes for a reserve fund for the eventual replacement of the building.   

That building is almost 40 years old.  The Vancouver Architectural firm Hughes, Condon, Marler did a report for the British Columbia Parks and Recreation Association some ten years ago assessing recreation infrastructure in the Province, and it's my understanding they used 35 years as a benchmark to look at replacing infrastructure.  Fundamentally, the study found that public buildings like the Island Savings Centre (ISC) are not like houses – they wear out considerably more quickly because they have vastly larger “traffic counts” – the doors open and close on average several thousand times a week, the stairs get infinitely more traffic, etc.  So, according to that study, the average life expectancy of these kinds of buildings is between 35 and 40 years.  

To be clear, I’m not expecting that the ISC will need to be replaced any time soon.  Staff there have done an excellent job of maintaining the facility.  I was at a Rec Centre in Surrey back in January for a kid’s hockey tournament, and that facility was in much, much worse shape than the ISC.  And relatively speaking, it was a new building.  Didn't look to be more than 15 years old.  

But the point of the public consultation meetings where I told the story of my daughter's mini-van was to plan for the future.  To look at what would be involved in replacing the Centre when the time came.  

When it was built, the capital cost was around $20-million dollars.  Last time I looked, it was insured for just under $100-million.  (That would be the estimated replacement cost if it burned to the ground today.)  And, given the fact that we’re maintaining it quite well, the estimate is that in another 20 years or so, the cost to replace it will likely be more than $125-million.   On that basis, staff asked the  Commission whether there was any appetite to start building a reserve fund for the future replacement.  

We weren’t entirely comfortable with the idea, so we decided to go to the community for some feedback.  Initially, the Commission hosted some public meetings.  Those meetings attracted what are euphemistically called “the stakeholders”.  That usually means:  "The people with a vested interest in an issue.In this case, it was the users of the facility.  Minor Hockey.  Gymnastics.  Friends of the Cowichan Theatre.  Elder College.   And, not surprisingly, they were quite enthusiastic about the idea.  They didn’t mind the extra taxes at all.  

But the Commission wasn’t satisfied with the scope of the consultation, and decided to go a little further afield.  We got ourselves invited to meetings with “non-stakeholders.”  Some service clubs.  The Duncan/Cowichan Chamber of Commerce.   The Downtown Duncan Business Improvement Area.  Some parent groups.  We made the same presentation.  And the feedback was, (somewhat surprisingly to me), quite similar.   The bar graph below shows the aggregate of the results from all the consultation meetings:
 
Incidentally, the full staff report with the options for the reserve fund concept is contained in an ISCC meeting agenda, which you can find online here.

But the graph illustrates that people understood the benefits of saving some money now – and getting the compound interest to work for us in that savings account – rather than having to pay interest on a potential debt down the line. 

Put another way, folks accepted the idea that this was kind of like my daughter saving for her mini-van now, rather than paying interest on a loan later.  The fundamental difference, of course, is that her decision was voluntary.  Imposing a tax to establish this savings account is not.   

Notwithstanding that reality, in the end the Commission agreed to levy the tax based, as I recall, on trying to squirrel away about 50% of the estimated replacement cost of the building over the next 17 to 20 years. (And my recollection of the specifics on that may be a little off.) 

But here's the point.  This has now somehow morphed into the notion that taxpayers are funding plans for a “second public theatre in the Cowichan Valley.” (!!)  That’s right.  Apparently, we’re going to build a second theatre – when we’re having enough of a challenge maintaining and filling the seats in the one we already have.  Ludicrous, right?  

But it was a statement made at a public meeting in Crofton on Thursday night.  A new group called “CowichanTaxBusters” is gearing up for this fall’s municipal election, and they’re using the tax increase for the ISC as an illustration of how “out of control” spending has become in our Valley. 

The problem is, there are no plans for a “second public theatre.”  Unless you include the notion that one day, the existing Cowichan Theatre – the one that's located in the Island Savings Centre today – will need replacing.  

To be clear, I understand the objection to the tax for that reserve fund.  It is, in a sense, an “inter-generational tax.”  As I explained in the consultation meetings – and I said it on every single occasion – “the choice is really about how we want to pay the bill to replace the ISC when that replacement becomes necessary.  We can do what we’ve always done; borrow the money when the time comes, and let our grandkids pay the principle and interest on that mortgage with increased taxes.  To be clear, they are the ones who are going to be benefiting from the new Community Centre; I’m pretty sure that not a single one of us in this room will even be alive by the time that new Centre has to be built.”  (Blunt, I know, but that’s exactly the way I explained it.)  “Or,” I would continue, “we can give our grandkids a ‘leg up’ on the construction by providing them, over the long term, with a fund that they can use to leverage some Federal or Provincial contributions to the new Centre when the time comes without having to borrow the money.”  

So I don’t apologize for the tax.  As Chair of the ISCC at the time, I honestly thought we had good public support for it.  And I still do.  But equally, I respect those who think it was an unwise decision.  However, to quote Winston Churchill, sometimes "a lie gets halfway around the world before the truth has a chance to get its pants on."  So here's an appeal to the TaxBusters:  as you begin to make your case for reduced taxes heading into the fall election, let's please stick to the facts.  To be fair, there is a part of me that understands, in some sense, how this tax ended up being misunderstood and why some people object to it.  But let’s be totally clear about this. 

Nobody is planning on building a “second public theatre.”  

The Crofton meeting also featured a number of other complaints, many of them legitimate, others that may bear some study and investigation.  

For example, there was a complaint that municipal staff are egregiously using Municipal vehicles for personal transportation - using them to take their families out for dinner, etc.  We have a clear policy on this issue which says:
  • All District vehicles are intended for the conduct of District business. Vehicles are not intended for the conduct of personal business such as shopping, transporting family members, etc., except when the employee is specifically on call or on duty.
In other words, generally the only people who are supposed to have a municipal vehicle parked in their driveway are the “on-call” Public Works or perhaps Parks employees, so they can get out to a water main break or other urgent call without first having to drive to the Public Works yard.  (And in those instances, they're supposed to log the miles they put on the vehicles, because having the use of a municipal vehicle is considered a "taxable benefit.")   If that policy is being violated, I’m all for taking some action on this.  But I’m simply not aware that this is being abused on any kind of regular or systemic basis.

The legitimate complaints?  There were many.  The main one was about the fact that the total taxes collected in North Cowichan (from all the “classes”, including industrial, commercial, and residential), have pretty much doubled in the past ten years.  And that rate of increase, the meeting was told, is simply unsustainable. 

I agree.  Wholeheartedly.  Even in the six years that I have been in Council, there has been a long list of spending increases.  In some sense, I can explain away and justify each one on a “micro” level.  There are reasons behind every one of the increased expenditures.  But the reality is that on a “macro” level, the cumulative effect of these increases has put a burden on our taxpayers that simply cannot be explained away. 

Which is why I have voted against every single budget that’s been presented and passed by Council since the spring of 2011.   That's four budgets in a row where I have been in the minority.   And it's been that constant frustration of being in the minority which is, quite honestly, why I’m still not sure if I’m running for re-election this fall – that decision will be made by mid-September.  

However, one thing has become abundantly clear to me.  North Cowichan Council desperately needs an exercise in consensus-building and priority-setting.  Right now, we have all kinds of “good things” as priorities.  But they’re all priorities.  And when everything is a priority, nothing is a true priority.  

Since I came on Council in 2008, we have not engaged in any formal exercise to specifically determine what our collective priorities are.  Admittedly, some of them have become abundantly clear through the voting patterns that have evidenced themselves in the past three years, but they've never been verbalized or formalized.  All we have is the requisite "three-year plan" from staff, which outlines the things we want to accomplish in the upcoming term; a plan which includes about 15 items, and expressly says none of them are more important than any other.  (Illustrating my point above, that "when everything's a priority, nothing's a true priority.") 

The next Council should put their heads together and explicitly decide which things are truly “needed”, which things are “good to do”, and which things are “non-essential.”  Those things can easily be quantified in a group exercise.  And once we determine what the “non-essentials” are, it’s a small step to eliminate those things from the budget and potentially start reducing the tax burden.  

Do I think we are we overtaxed?  Just remember this.  The very first post on this website – in fact, the thing that prompted me to start this blog in the first place – was my “Open letter to North Cowichan Taxpayers” in April of 2012.  In that letter, I warned against what I considered then (and still consider) to be a panicked over-reaction on the part of my Council colleagues to the financial problems at the Crofton mill, a reaction which included a tax shift that led to an increase of more than 30% in a single year on homeowners who could least afford it – folks in lower valued homes, collecting the senior’s grant.  That figure, incidentally, was expressly conceded as “not inaccurate” in a public meeting by none other than our Director of Finance.

(Equally, in hindsight, I have come to realize that some of the things I said in that open letter were written in considerable anger, and ascribed some unfair motivations to certain individuals, which is why I ultimately removed the post from this blog about six months after it went up.)  

But the central tenet of that letter included the following line, within a context of trying to do things around the Council table by consensus:  

The notion of ‘teamwork’ must involve the entire team, it cannot be applied selectively.  And the way this decision (the tax increase at the time) was reached was anything but ‘consensus-building.’ 
All of which is to say that the stage may have been set for rocky times ahead at the North Cowichan Council table.

Two and a half years after I wrote those words, I absolutely stand by them.  This Council has been badly divided on just about every major issue it has faced.  And that has to stop.  

It’ll be interesting to see what happens in November. 

8 comments:

  1. Received the following comment (by email) from Nick Caumanns, who's associated with the TaxBuster's group. (Apparently, there's a problem with posting comments to this post.)

    ------------

    Tried posting this as one and then two response to your blog post. Even though i checked and i have less it insists i have too many characters.

    Al,


    Good post. Interesting points.
    First the CVRD theatre tax. I objected in the newspaper when they published an article about this a year or two ago. And I still object now.
    I'll use your own analogy to make the point.
    Your daughter seems like a wonderful person and saving for her next minivan is a good idea. I sometimes save for things. No objection there.
    Now, I'll point out that I'm of an age when I'll probably have grandkids in a few years. And about sixteen years after that they will turn their thoughts to personal transportation, about 20 years from now.
    Your daughter doesn't know me, and obviously won't know my grandkids, and likely lives far away from where they will, but do you think she would mind terribly taking a bit of her hard earned money and sending it to me.
    I PROMISE I'll keep the money in an account 'reserved' just for that car with the caveat that if I want I can spend it on something else in the meantime, after filling out some forms. Now I can't guarantee that I'll have grandchildren, that they will want a car (maybe we'll all be on hover buses) , or that I won't use the money in the meantime.
    Seem fair? You'll ask and let me know?
    Isn't that a better analogy? You are asking me to pay a tax for a rec centre that I won't be around to use, will be used by people a generation removed, and likely not my progeny as they will be living elsewhere for work. You are asking me to fund the next generations' rec centre.
    You graduated from Cow High in 75, me in '80. There was a library and pool and rink there then. Since, they've rebuilt it all and our generation has paid for that..
    Now you are asking us to fund the rec centre for people born today who will begin paying tax about then. In effect I'm paying for TWO rec centres, or portions thereof. Does that really seem fair to you?
    We have a rec centre and we're buying another on lay away. that equals TWO from my taxes, but I only ever get the one.
    I bet you'd argue that we should not leave debt to the next generation for our lifestyle choices; why then are you ok with charging me for what will be their lifestyle choice, or for that matter telling them what their choice might me.
    I think that's wrong and no amount of special interests that you consulted is as good as a referendum. That would have been better. The right thing would have been to trash this unfair idea before it even got that far. As it is you are taxing me for a service that i have already paid for once and you didn't even have the courtesy to ask me.
    In closing on this issue, when my daughter was very young she asked me if she could lend her friend a loonie, I said sure but get the money back So she came back with 50 cents saying her friend paid her back and I said she'd have to get the rest. She replied that she had been paid back because her friend only used 50 cents and she got back 50 cents. Took YEARS before she understood the error on her part.
    I'm feeling the same way now. You owe me the 50 cents on this decision.

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    1. My response to the above:

      Nick: I understand your objection to the tax for the reserve fund. The "inter-generational tax", as I called it in my post. And I tried to fairly represent that position.
      I guess we fundamentally disagree on the purposes of (some) taxation. Your analogy about my daughter paying for your grandkids' vehicle is good. But it could be extended to the notion that, since neither of us have kids in the school system, neither of us should pay school taxes. And since neither of us have had a fire or any huge drug parties at our house(s), we shouldn't have to pay for fire and police protection. (OK.. I know that's stretching the point.)
      But what I'm trying to get at is that ultimately, there is an element of a "social contract" to the notion of taxation... ie.. we all pay for things like police, fire protection, and education for the broader notion of "the public good."
      Where we have an honest disagreement is how that is defined. Is putting a down-payment on a piece of infrastructure to be build in the future a legitimate extension of that definition of "public good"?
      Please don't misunderstand me. I spent as much time as I did describing the background of the "reserve fund tax" not because I wanted to get on a soap box and "defend" it, but rather because I needed to provide some context to the discussion. The central theme I was trying to get at was an appeal for your group to stop spreading, (even unintentionally or inadvertently), false information about plans to "build a second Theatre."
      That part of the presentation on Thursday was simply wrong.
      But these rumours have a way of "getting legs" in the community unless someone counters them with facts. And that couldn't be properly done without a fulsome explanation of what the tax was actually for.
      As for the 50 cents, I'll buy you a coffee next time I see you. By the time I pay for that, you'll owe me 50 cents. :)

      Delete
  2. Herewith, the rest of Nick's original post submitted by email.

    ...(Continued....)

    As to your comment about vehicle use, it seems your response is no different than the one people tell me they get from municipal staff and officials. "we have a policy and i'd be shocked if it was being broken".
    I don't pay attention to municipal vehicles but i do see them around out of working hours. I don't personally care.
    The issue is perception. Enough people care and enough people see what they think is "out of service' use. They report it, they feel they get the run around, and the feeling festers.
    If there is no abuse then you guys at the muni are doing a really really terrible job of managing the optics. And that really isn't that hard, if you try, unless there is abuse.
    Heres' a solution for you:
    Permanent signage on each vehicle that says " this vehicle is being improperly used please cal 748-xxxx with the Mayors or CAO home number.
    Each vehicle has a magnetic sign affixed over that message when being used that says" this vehicle is on official business. If you suspect abuse please call 748-xxxx and report time,place and this unit #xyz. The line can be recorded and staff can report back to the citizen (taxpayer) who called it in.
    This will prevent abuse, make citizens happy to have an avenue of reporting suspected abuse, will allow vigilance by managers, and will cause conformational attitude change by any employee who may abuse it. Water dept vehicles could have a different sign if that makes it easier.
    People feel like the staff has fobbed them off with fake excuses and platitudes about "we have a policy and we'll look into it"
    Failure to communicate is not the fault of the listener. So those folks aren't wrong.

    Nick Caumanns.

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    Replies
    1. On the use of municipal vehicles, I'm not going to get defensive about this. Your ideas for accountability are good ones.
      As I said, if there is abuse of the vehicle policy, as a Councillor, I would want to know about it.

      But I note you only responded to two points in a very lengthy blog post, in which you focus with pretty laser-like precision on our two points of potential disagreement.

      Frankly, Nick, as one of only two (sometimes 3) incumbents on this Council who have been banging our heads against a brick wall in efforts to keep taxes down, the purported central mission of your "TaxBusters" group, I feel a little bit under attack from folks who I would think might be my allies.

      Just sayin'.

      Delete
    2. Without doubt is was a lengthy post. Unless i missed something there were three points of principle; explanation and defense of the CVRD theatre tax, explanation of vehicle use policy, and an explanation of how you would like a priority setting exercise to streamline decision making and hopefully reduce taxes.

      The latter point I would say is the obvious and only path to reducing taxes. I don't think it's anything more than an outgrowth of how you would logically have to approach the problem of overspending. Its necessarily about priorities. I didn't think I could add much to the very thorough description of that.

      If you choose to defend the general record of council, wherein many of the decisions you may have raised objection to or voted in the minority against, that is your choice. It's not a good strategy, though it displays loyalty to those who would not equally defend you.

      You personally have a great record. THe council as a group, including the Mayor, does not. Let your record speak for itself, don't defend the majority record.

      I think you might stop using loaded language like purported.

      Finally we would have been your allies had any councilor, in defense of our tax dollars, had formed a group, initiated protest, and taken action with and for us.

      Instead, since citizens have had to stand up, without the benefit of the easy access to financial and other municipal information and inside knowlwdge that councilors have, to analyze, ferret out, obtain, and otherwise get the information about the tax situation, We've decided to take the lead because no one has championed this cause, so perhaps we should consider whom should be the ally of whom. And while facts can and should be corrected, in this context lecturing should not be the approach.

      Good discussion requires frequent disagreement ! When our ideas are challenged we should discuss, and while we should be hard on the problem, we should not be hard on the people.

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    3. Nick:

      Thanks for the clarification.

      No, I'm not defending the record of this Council.

      But equally, I couldn't just sit by and let misinformation on "a second theatre" pass without comment and clarification.

      And, as I think I'm proving, with this blog, I don't mind discussing ideas - and even having people disagreeing with me.

      As I often like to say, "everyone's entitled to be wrong." :)

      (Even me, sometimes.)

      ALS

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    4. Just re-read your comment. Why do you still insist on calling it a "theatre tax?"
      That's completely wrong. The Cowichan Theatre is only a small part of the ISC. In fact, even its funding model is different from the rest of the Centre in terms of which CVRD areas contribute toward it. It's not a "theatre tax"!!!! It's a tax to establish a capital reserve fund for eventual replacement of the Centre. Not just the Theatre.
      Why is that so hard to understand?

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    5. Good point ! We'll call it the Recreation Center Tax..or something more generic.

      Not insisting it's just that we all use conventionally understood handles for things but I personally hate abrevs.! ;)

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