KENILWORTH – Wellington North council has approved a tentative financing plan to upgrade Arthur’s wastewater treatment plant – with hopes of securing grants to ease pressure on the municipality.
If the $13.5-million project does not receive provincial or federal grants, it will be paid for with township reserves ($6.75 million), a loan (at least $4.7 million) and up-front contributions from developers (about $2 million).
The funding plan was approved during a regular meeting of council on May 5, and though it passed with a unanimous vote, councillors were far from optimistic.
Councillor Sherry Burke expressed “grave concerns about how we’re going to fund this project.”
CAO Brooke Lambert called the financing plan “kind of a back-up plan” if grants from upper levels of government do not come through.
Now that the general framework has been approved, staff are working to fine-tune the financial plan and continuing to apply for grants.
Council directed staff to prepare to tender the project, though director of finance Jerry Idialu said he does not expect tendering to happen until next year.
A suspension of sewage allocation in Arthur has been lifted, and uncommitted wastewater reserve capacity can now be allocated within Arthur’s urban core.
The upgrades are set to increase the Arthur plant’s wastewater treatment capacity from 1,860 to 2,300 square metres per day, which would accommodate about 400 additional residential units, according to a township report.
Reserves, debt, developers, grants
Township reserves used to fund the upgrades would include sanitary working capital reserves ($2 million) and development charges reserves ($4.7 million).
The loan is set to be structured with a 10-year term with an anticipated interest rate of about 3.52%, totalling an estimated annual debt servicing cost (including principal and interest) of $571,725.
“Recognizing the principle that growth should pay for growth, staff recommended setting a target of 15% [of the total project cost] for up-front contributions from developers through negotiated agreements,” the report notes. Staff used examples from other municipalities, including the Town of Erin, having success with similar methods to inform the target.
“Staff will continue to actively identify and pursue additional grant funding opportunities to further offset project costs and minimize reliance on debt financing,” the report states.
Councillor concerns
Burke said while she understands the project is necessary for growth, she is concerned about the amount of debt, noting the township is already paying about $565,000 annually in debt servicing costs for the first phase of upgrades to the Arthur treatment plant.
“How will this debt repayment impact our future budgets?” she asked.
“Our debt obligation in this project is funded by user fees. It is not a property tax funded project,” Idialu said.
Both existing users and future users will contribute to debt repayment, he noted, with existing users paying 15% and future users paying 85% over the 10-year repayment period.
“We’re going to be tying this to our rate study that’s currently ongoing, which looks at all of the capital-related projects that we need for the township for water and wastewater.”
Councillor Penny Renken shared Burke’s concern about debt, as well as depleting the township’s reserves, especially given the uncertainty of the current economic climate.
“You don’t know what is going to happen – are these units going to be sold? Are they going to be filled? Are there going to be taxpayers paying for their sewage monthly?” Renken asked.
Burke also expressed concern about depending on developers for $2 million in up-front contributions, suggesting those contributions should be attained, not just targeted, before moving forward.
She asked about conversations with developers about these contributions.
Lambert said staff members are looking for council’s approval to initiate conversations with developers and create “a legal framework that hopefully is equitable, fair and enforceable and gets us where we need to be.
“That said, we would bring that back to council for final approval,” she noted.
Idialu noted staff is not looking to start the project before securing $2 million in contributions from developers – and is referring to that amount as a “target” with the hopes of raising more.
“I’m not a fan of being beholders to developers,” councillor Steve McCabe said. “I find it kind of a slippery slope.” He asked how the township could be sure developers would front the cost.
“Being able to partner with a development community where it makes sense and within a specified framework with defined criteria is a strategy that other municipalities have used to varying degrees of success,” Lambert said, calling the township’s approach “conservative.”
“We have seen examples, even within our own county, where these types of agreements are in place … with similar infrastructure growth,” Idialu added.
McCabe expressed concerns about the possibility of the provincial government scrapping development charges and how that could impact the financing plan.
“I’m not entirely sure what that would look like, but it would be a challenge for sure and we’d have to look at other ways of covering that shortfall,” Lambert said.
“We’ve all heard the rhetoric and the discussion from other levels of government that development charges are the barrier and that they need to be gotten rid of or drastically reduced,” said Mayor Andy Lennox.
“If you want to draw development to a halt – go ahead and eliminate them. Because that’s what’s going to happen.”
Lennox noted, “Sewage treatment capacity is not the only thing we need to support growth in terms of infrastructure.
“We’ve had significant discussions about a well, a water supply, in Arthur, we’ve had decisions about the expansion of the wastewater treatment in Mount Forest.
“How are we going to be positioned from an ability to raise capital to meet these projects?” he asked.
“Do we need to start looking at staging this over a number of years so that we can manage that pace and still do it within our debt capacity … or are we going to sign ourselves up to a revolving process of developer contributions?”
Idialu said staff is going through a rate study for the township’s 10-year capital and doing a full background study and development charges update next year.
“We’ve been able to have a few years where we had growth and surpluses in our water and sewer, so that has given us buffers in which we were able to beef up the reserves in that environment,” so even after the development charge reserves are depleted by about $4.7 million, “we’re in a position where we still have some buffer left.”
Sewage allocation
“I’m fine with lifting the suspension of sewage allocation as we know that we’ve all received pressure on the development in Arthur and from some of the developers themselves,” Burke noted.
McCabe said he supported keeping those allocations within Arthur’s urban boundary, as the plan states.
Councillor Lisa Hern agreed: “if we don’t provide a framework to do that, we’re going to chip away at the exterior with people that will put in a well and septic and keep hitting us that way.”
Renken said, “I understand the developers are very anxious to get their sewage allocations and it would be great for the township,” but she suggested instead of lifting it for all allocations at once, the township phase it in instead, “so that it’s more … viable economically.”
Municipal service corporation
While staff have considered establishing a municipal service corporation (MSC) to help fund the project, that option has been set aside for now, due to the complex process required to establish one (including administrative costs, operational management requirements and necessary governance structure).
“I really did like the idea the [MSC] kind of similar to what we had with the Wellington North Power,” noted McCabe.
“While it remains a viable financing mechanism for future infrastructure projects, staff believe a simpler, timely and straightforward financing plan is more appropriate for this particular project,” the report states.
Grant applications
“Some of the grants we’ve applied for so far are looking to see that our projects are shovel ready,” Idialu said, and staff will continue applying for grants between now and when tendering starts in a year or so.
“Upper levels of government, as they settle into their new administrations, are going to be putting out grants – opportunities which the township is going to be taking advantage of,” he said.
“Recently the township just applied for a grant in collaboration with Mapleton to kind of buffer the numbers and make it into the realms of what we’re seeing successful applications look like in other municipalities,” he added.
McCabe asked how much grant money the township is applying for, noting upper levels of government seem to prefer bigger investments.
Lambert said staff have been applying for grants to cover the full project cost, plus contingency.
McCabe expressed frustrations with grant allocations: “It seems like the province spends money where it is politically to their advantage, in ridings that aren’t their supporters and then on the federal flip side of things they fund projects that are friendly to them and support the part that is in power.”
Idialu said staff “believe at some point in time we will probably be successful with [a grant application] but we will wait to see what time tells us.”
