Looming ‘infrastructure deficit’ evident in Mapleton financial planning review

MAPLETON – A dedicated tax is among the measures the township may have to consider as it struggles to get a handle on a looming “infrastructure deficit.”

Mayor Gregg Davidson mentioned the possibility following a review of the municipality’s long-term financial planning strategy presented by finance director John Morrison.

He told council on Feb. 14 the township currently has “a very healthy financial balance sheet” due to growing revenues, but the longer-term picture looks less rosy due to anticipated asset maintenance and replacement costs.

“Through this last five-year period, we’ve seen a significant growth in our own-source revenue – i.e. we’ve been raising our taxes and we’ve been increasing our fees and rates accordingly – and we are showing a very healthy financial balance sheet as a result of it. That’s a positive story,” said Morrison.

“But there’s some worrying trends,” he continued, noting the township’s asset consumption ratio is concerning.

“It’s indicating that we’re not replacing assets quickly enough and at some point that’s going to catch up with us,” he stated.

Morrison said the township’s asset management plan shows a “significant infrastructure deficit that we’re going to have to address.”

The review focused on a Ministry of Municipal Affairs and Housing (MMAH) analysis of key financial indicators between 2016 and 2021, comparing the township’s performance to a pool of rural lower-tier municipalities in southwestern Ontario.

The township’s position in terms of net financial assets as a percentage of own-source revenue has risen steadily since 2016, reaching over 75 per cent in 2020 before levelling off.

The comparison pool group showed percentages between about 55 and 59% through 2020 and 2021.

According to the ministry, any ratio over 50% can be interpreted to mean that the municipality faces a low challenge in meeting future funding requirements,” Morrison states in a written report.

“The Ministry considers the township to be facing a low challenge in this measure.”

A measure of asset consumption ratio shows the township has held steady between 2016 and 2021, running between about 67% and 65%, while the comparator hovered in the low to mid-40s.

The ratio measures the extent to which depreciable assets have been consumed, by comparing the amount of the assets that have been used up and their cost.

The ministry indicates that a ratio of 50% or lower can be interpreted to mean the municipality faces low challenge level related to the age of its infrastructure.

Moderate and high challenges would be indicated with 51% to 75% and less than 75% respectively.

“For 2021, according to the ministry, the Township of Mapleton face a moderate challenge. MMAH has asked the township if there is a plan to bring this ratio back down to low,” the report states.

The ministry data indicates Mapleton faces a “low challenge” in terms of having adequate reserve funds to meet future needs and contingencies and is in “a strong position” in regard to its ability to cover costs through its owns sources of revenue.

The ministry data also shows the township is at low risk in terms of tax revenue received versus those deemed “uncollectible.”

With debt servicing cost as a percentage of total revenues currently running between 6% and 7%, Mapleton faces a moderate challenge in the ministry’s view.

The ministry has asked the township “if there is a plan to bring this ratio back down to a lower level of risk,” the report states.

“That should be another (element) you need to consider or think about as we’re moving forward with how we’re going to fund the infrastructure deficit,” Morrison told council.

The township’s financial indicators demonstrate its financial strategy for sustainability is adequate to provide for current levels of service and for planned infrastructure renewals “without the need to resort to unplanned increases in rates or disruptive cuts to those services,” the report states.

However, “The township’s asset consumption ratio demonstrates a long-term trend that reveals its 10-year plans for capital infrastructure renewal is not adequate given the age of its infrastructure.”

“All the indicators are showing a very positive message until we look at that asset management plan, the capital plan for the next 10 years, and we’re seeing if we are going to make substantial changes, and that’s something we’re going to have to do probably in the next four years … we could be (having) some significant issues, given what the these trends are saying to us,” Morrison stated.

“Could we raise our revenues or own-source revenues even further? Maybe, but is it going to be enough? I’m not so sure,” the finance director pointed out.

“And we really need to think about how we are going to come up with a funding strategy for that infrastructure deficit.”

The township’s financial vulnerability in terms of dependence on external funding is at a low level of risk given current sustainability measures in place, the report notes.

Morrison said the province’s data shows the township relying on “some form of grant” for about 15.4% of its budget, in line with the other rural municipalities in the comparator group.

However, he noted, “The rest of the province is at almost 25(%).

“That’s also something that’s interesting to note, because we’re not getting our share of the funding.”

“Yes, we are not getting our fair share from the province,” agreed Mayor Gregg Davidson.

“It’s one of the reasons we had a delegation two weeks ago (during the Rural Ontario Municipal Association Conference) to the province to talk about this exact problem that we have in rural Ontario …

“The urban centres, the big urban centres, are getting the bulk of the finances from the province and leaving the rest of us out to dry.”

The mayor also expressed concern about the pending infrastructure deficit.

“We’re in a real difficult position with that … Council, I guess, in the next three-year budget cycle that we’re going to be doing, really has to consider adding a dedicated tax for infrastructure renewal, to offset that $10 million a year,” Davidson stated.

“As Mr. Morrison pointed out, we do have to indicate how we’re going to climb our way out, to the province, of this hole we’re in.

“So, it’s something that council needs to think about.”

Council received the report for information.