Municipal Property Taxes and Water Rates in Ontario: A Comparison

 

As we continue to journey through  the 2023 municipal budget year, it is time to update some of the property tax and water rate comparisons I have done over a number of years.  This time, I would like to do the comparison for the top 30 municipalities in Ontario by population which essentially amounts to all the cities with over 100,000 people with the exception of Niagara Fall which is almost there at 96,000.  These cities together account for 75 percent of Ontario’s population.  The data for comparison is from the 2021 BMA Municipal report and two indicators are compared: 1) Annual property taxes for a detached bungalow and 2) Annual residential and Wastewater Costs per 200 cubic meters.  While much of the focus in municipal budgets this year is on the rather large increases in the tax levy, it remains that water charges are also another hefty amount on top of property taxes. In all the figures, I also highlight the amounts for Thunder Bay and Sudbury, which are the two northern Ontario members of the top 30.

 

Figure 1 ranks these municipalities by the property taxes for a detached bungalow in 2021 and they range from highs of $6,643 and $6,500 for Markham and Richmond Hill to lows of $3,444 and $$3,262 for Windsor and Chatham-Kent with an average of $4,323 and a median of $4,049.  It should be noted that the top ten property tax amounts are all in the GTA where of course property values are also the highest.  Thunder Bay is essentially mid-ranked in this comparison with its property tax figure  of $3,955 below both the average and the median.  Greater Sudbury, is much lower than Thunder Bay and at $3,453 has the third lowest property taxes for an average detached bungalow in Ontario’s top 30 municipalities.

 

 

 

Figure 2 now does the ranking by  residential water and wastewater(sewer) costs per 200 cubic metres of water.  The top three are Greater Sudbury, Windsor and Thunder Bay at $1,409, $1,306 and $1,278 respectively.  At the bottom are Hamilton, Mississauga and Brampton with Hamilton at $781, and the last two tied at $590.  The average was $976 while the median was $929.  The two northern Ontario cities both are amongst the highest when it comes to water rates in the province.  One suspects that water rates for some of the cities at the bottom are likely to go up substantially in the near future given urban growth and other issues.  Hamilton for example, is likely facing some expensive issues with respect to its water infrastructure given recent developments with respect to sewer discharges. 

 

 

 

Of course, for the average municipal residential ratepayer, what really matters is the total package when it comes to property taxes and water charges  and this is provided in Figure 3 where the two items are summed up and ranked by municipality.  When the two totals are summed up they range from highs of $7,537 and $$7,478 for Markham and Richmond Hill to lows of $4,482 and $4,457 for Waterloo and Chatham-Kent.  The average is $5,299 and the median is $5,099.  At $5,233 Thunder Bay is slightly below average and slightly above the median for the totals of property tax and water rate.  However, it does have the 11^th highest total coming right after the ten GTA municipalities ahead of it and just before Hamilton.  With those types of numbers, when it comes to municipal finance, Thunder Bay is definitely GTA class in terms of property and taxes and water rates.  Greater Sudbury on the other hand is in the top of the bottom third with a total of $4,856.

 

 

 

The more interesting question is what the numbers will look like for 2022 once complete as well as where they are going to be headed in 2023.  Municipalities have been hit with escalating costs for labour, materials, supplies and energy as well and one can expect that there will be a lot of upward pressure to bring in property tax and water rate increases that reflect the inflation rate.  These increases will come at the same time as rising interests will put financial pressure on the mortgages of home owners and the pressure that inflation has been generating on family budgets.  Given that in Ontario, municipal elections in October have put in place a council for the next four years, one suspects that most councils will eventually  front end fairly large tax increases at the start of their terms and ease off midway through their terms in the run up to the next election.  Sad, but very likely to be the outcome in many cities across Ontario.  It will be the rare council with the foresight, fortitude and ability to rein in their costs sufficiently to prevent large tax increases this year.

 

Why Incentives Matter: An Example from Thunder Bay City Council

 

It is going to be a busy month at Thunder Bay City Council as the 2021 budget deliberations get underway.  The agenda for the meetings on the 19^th of January is quite lengthy with a raft of difficult to read budget documents.  However, there is also a meeting on the 11^th and that meeting also has a somewhat lengthy agenda with many items.  There is so much going on and little time to digest and comment so one has to be selective. 

 

An interesting item worth looking at for Monday’s meeting is a memorandum from the Manager – Central Support dated November 26^th “containing a motion recommending that City Council establish a loan envelope of up to $1,350,000 to support the Private Lead Water Service Replacement program.” This is a follow-up to the $50,000 in funding in 2020 that was supposed to be a grant program to help replace lead pipes but then transitioned to a loan program because it was deemed “not appropriate to continue to budget an annual contribution from the Stabilization Reserve Fund where the cost to administer the program is lost interest and administrative costs.”  Instead, the proposal is for an interest free loan program.

 

This is all part of Thunder Bay’s complicated 25-year ongoing water infrastructure saga which has seen the move to one source water supply in the wake of the giardia saga on the south side, the rapid increase in water rates to fund all the new infrastructure and maintain the old, the flooding of the new water treatment plant – and surrounding neighbours - the introduction of sodium hydroxide to reduce lead in pipes on the cheap, and the removal of sodium hydroxide in the wake of numerous reports of pinhole leaks and more flooding   All of this has also generated several major lawsuits – for flooding in 2012 and pinhole leaks in 2020.   

 

The City has remained tight-lipped on what it is going to do to address the epidemic of pinhole leaks but the connection to sodium hydroxide has not prevented it from once again embarking on the lead connection pipe problem.  The memorandum is an interesting example of policy making at Thunder Bay City Hall.  The $50,000 program has generated 24 applications which at $3000 per loan has generated a demand for loans totalling $72000.  So obviously, more loan money is needed, and the city has set $1,350,000 as the pool of loanable funds which at $3000 per loan means the city can issue 450 loans.  How clever.  The interest income foregone given current rates over the next ten years is low (apparently $100,000 in the estimate in the memo) and the City can even generate additional revenues by jacking up the fees from turning water on and off when the pipes are replaced.  Indeed, I am surprised the city has not yet thought of the latter.

 

So, here is the thing.  There are apparently upwards of 8,000 households in Thunder Bay that still have a lead connection pipe to the City water distribution system.  This means that the program is expected to “solve” the lead problem for approximately 6 percent of affected households. A program designed to completely solve the problem would require a much larger pool of funds – 8,000 multiplied by 3,000 – which would be $24 million.  And, there is no guarantee most households would take up the city’s offer. 

 

The incentive of a zero-interest loan of $3,000 for a project which based on the pinhole leak water service line replacement examples costs $5,000 to $10,000 is not terribly attractive.  Given the current loan program generated only 24 applications and not hundreds given the pool of 8,000 applicants suggests that this program will not be very successful. It is designed as a political solution to convey the impression that the City is doing something about the lead problem especially in the wake of the sodium hydroxide fiasco. 

 

However, economic incentives matter.  If the City was serious about addressing the lead connector pipe problem, it would use a cost-sharing grant program.  That is, it should pay 50 percent of the costs of replacing the lead connector line up to a maximum grant of say $3,000.  It needs a cost-sharing grant because realistically the obstacle to replacing the pipe on the part of homeowners given low current market interest rates is not access to loans but the total cost of the project relative to their household savings or income.  It also needs to cap the grant because an open-ended grant creates the incentive to generate escalating cost estimates on the part of service providers.

 

And, in the process of implementing this pipe replacement program it should also extend the program to city residents who have experienced leaks in their connector pipes in the wake of the introduction of sodium hydroxide.  Based on the leaky pipe statistics publicly provided on the Leaky Pipe Club Facebook page, it can be estimated that upwards of 3,000 households have experienced leaks over the last 18 months. Of these, a substantial fraction experienced not only household leaks but the failure of their connector pipe.  However, we do not know the official number of leaky pipe households or how many connection pipes have been replaced because the City does not release those numbers.  So, using 3000 households as a potential estimate and at $3000 per grant, would result in an estimate of $9,000,000 as the cost of a connector pipe replacement support program for leaky pipe households. And of course, this would be on top of the $24,000,000 estimate for the lead pipe households.

 

So, a total cost estimate for resolving these water issues comes to $33,000,000.  Is it a lot of money?  Certainly.  However, if we can spend $40,000,000 for a new sports facility and over $50,000,000 for a new police station, obviously money is no object.  It is politics.  The Mayor and Council obviously do not find the incentive of ribbon-cutting ceremonies for a lead pipe replacement sufficiently attractive events to put on their campaign literature or to attract provincial and federal cabinet ministers to the photo-op.  Basic water infrastructure and maintenance is not glitzy enough compared to spanking new water treatment plants or a shiny new turf facility or even a bridge or traffic roundabout.

 

Thunder Bay is fiscally constrained you say?  City councilors and administrators have seen the “light” and are now advocating only 2 percent tax increases so we cannot afford to do all of this? Think again!  Along with incentives being important in economic decision making, there is also the concept of the trade-off.  The cost of dealing with the water issue – lead and leaky pipes – can be estimated at $33,000,000.  The cost of the turf facility and new police station amount to $90,000,000.  It is time to choose.  And, by the way all this has to be done with tax increases kept as close to zero as possible given the City’s economic situation.  Putting forth a 2 percent tax levy increase is only the beginning.  It needs to go down from there.

 

 

 

 

Thunder Bay’s Tide of Water Troubles

The Lakehead and the City of Thunder Bay are defined by water.  The name itself comes from the bay between the north shore of Lake Superior and the Sibley Peninsula which was named Baie de Tonnerre by the French.  Lake Superior itself is by its surface area of 82,100 square km the largest freshwater lake in the world - though not by water volume – where it comes in third after Lake Baikal and Tanganyika.  The lake is not only a source of drinking water for Thunder Bay but it is an economic driver given it has made the city a major port and transhipment point.

Water is essential for life and Thunder Bay has a long history of dealings with the issues that it can bring.  After more than 100 years of urban development at the Lakehead, water supply, quality and cost are still important issues for the residents, though when it comes to day to day living, most of us take water for granted as long as it flows without issues – and does not get too expensive.

At the turn of 20^th century, the former twin cities of Port Arthur and Fort William drew their drinking water directly from wells, streams and the Kam river.  However, as population grew, these became inadequate to meet growing urban demand. Moreover, effluent discharge into the Kam River and the lake was also an issue given the potential for contamination. A major typhoid outbreak occurred in Fort William in 1906 which prompted its city leaders to arrange to obtain its water from Loch Lomond behind Mount McKay located on Fort William First Nation.  This was a large engineering project for the time and involved drilling a pipeline through the mountain with water flowing by 1910.  Inadequate supply in Port Arthur prompted its leaders to decide in 1903 to obtain water directly from Lake Superior prompting the creation of a water intake far into the lake at Bare Point with full operation in place by 1914.

As they moved into the twentieth century, Thunder Bay’s twin cities thus had two water supplies.  Fort William’s citizens would boast about the quality of water from their “mountain lake” as if it flowed from an alpine glacier while its effluent continued to be discharged into Lake Superior (as did Port Arthur).  Indeed, this inspired generations of Fort William school children who would apparently chant “flush the toilet, Port Arthur needs a drink” as they did their daily business.

Yet, despite the securing of adequate supply, water at the Lakehead was still an issue given the lack of proper treatment for discharges into Lake Superior as well as emissions from sawmills, pulp mills and other industry.  This polluted the water and ultimately generated the infamous toxic blob in the harbour which was a large patch of creosote, PCPs and other toxic chemicals that was only cleaned up starting in the 1990s and early 2000s. 

Amalgamation in 1970 which joined the twin Lakehead cities of Port Arthur and Fort William and the adjacent townships of Neebing and McIntyre brought about a one city-two systems approach to water.  This concept of one-city/two systems was no doubt eventually the inspiration for the Chinese takeover of Hong Kong from the British but without a 50-year guarantee for separate water systems.  Indeed, 2020 is the 50^th anniversary of amalgamation and Thunder Bay went to one water system in 2006.

Upon amalgamation, there were issues with the water system as the supply especially on the Fort William side was stretched given increasing suburban development on the rural fringes of the city as well as development in the inter-city area.  Indeed, about 25 years after amalgamation, there were water quality issues with Loch Lomond from organic matter and in 1997 there was a cryptosporidium(giardia) outbreak which led to months of boil water advisories.  Yet, there was still debate over retaining two water systems with the full move to one system with pumping stations to provide supply and pressure taking nearly a decade.  However, discharge into Lake Superior was still an issue but it was dealt with by building a new state of the art water treatment plant on Atlantic Avenue.

However, this all came at a cost with rapidly rising water bills – which continue to rise given that the issues with Thunder Bay water are not over yet.  The new water treatment plant appears to have had a design flaw in that much of its heavy equipment was prone to flooding which occurred in 2012 after heavy rains.  There is extensive litigation over this involving flooding in adjacent residential areas that is still unresolved.  As well, this and subsequent rainfall events have high-lighted the need for more adequate storm sewers in many parts of the city and better drainage especially in the inter-city area.  Again, this costs money.

And, the woes continue to mount.  Older parts of Thunder Bay like many cities in North America, have lead piping especially in their intake pipes to city water mains.  Given the health issues with lead in water for about 8,000 households in the city, an effort to solve the problem was made.  Of course, the capital intensive and expensive approach would be for homeowners to have their lead connection pipe replaced. 

However, this pipe is on private property and therefore not a cost the city was willing to bear given it has other infrastructure priorities such as indoor sports facilities so to fix the pipe homeowners would have to spend about $3,000.  Aside from the immediate cost, homeowners with lead piping in their homes would still face the lead issue and if the municipal water main in the area was still old, it meant that lead might still be a problem in the water. However, homeowners could choose to replace their lead connection when municipal rehabilitation of the water main was done in their area.  However, the full mitigation process would be slow and take decades making lead a health issue for years to come.

The solution apparently devised by the City of Thunder Bay was the addition of sodium hydroxide to water which changed the pH level of the water (reduce its acidity) and therefore helped neutralize the lead content.  However, this additive was put into water going to all homes and it was apparently successful in reducing the amounts of lead.  However, after full extension of the procedure in 2018 following the 2016 pilot it appears that the incidence of pinhole leaks in copper piping private homes and businesses Thunder Bay has gone up dramatically.  Even the City’s Canada Games Complex has sprung leaks.

The geographic distribution of these cases is widespread but apparently mainly on the north side and the timing of the large number of cases follows the introduction of sodium hydroxide to Thunder Bay's water supply to address lead levels in a relatively smaller and more geographically concentrated percentage of homes. Thus, while the City and lead-affected homeowners save money upfront, the costs have been spread out across the city down the road – an interesting cost-benefit situation. However, in the wake of the leaks, sodium hydroxide has now been discontinued.

Correlation is not necessarily causation, but when variables move together, there is something going on though the exact process may be more complicated than a simple binary two-way variable association.  Even if the sodium hydroxide on its own may not cause pinhole leaks, there may be other additives or natural substances in our water supply that it has interacted with that might not have been realized at the time the study and decision process was done.  Or perhaps there are substantial differences in water pressure that made the north side more susceptible to leaks.  So, we have a bit of a problem here.

First, pinhole leaks have also been reported in some other cities some years prior to Thunder Bay's introduction of the additive.  Indeed, water treatment and water quality is a factor.  Interestingly, when it comes to additives in the water, Thunder Bay has resisted adding fluoride despite decades of evidence that it worked and was safe.  Yet Thunder Bay seems to have moved relatively quickly to introduce sodium hydroxide – a known corrosive chemical - to solve a public health issue relatively cheaply and the province apparently signed off on this.  Why not I suppose? Why experiment with lead mitigation in Toronto or Ottawa when Thunder Bay is always so eager to volunteer to be a guinea pig whether it is dealing with water or being first with provincial school closures.  The city's Environment Division director, Michelle Warywoda, has said Thunder Bay is the first Ontario municipality to report a possible connection between sodium hydroxide and water pipe leaks though the statement omitted a mention of whether we are the only Ontario municipality to have used sodium hydroxide.  Some explanation is necessary here.

Second, there are definite financial implications and possibly even health concerns here. A financial burden has been placed on homeowners by this problem and it is not clear the City is planning to address this given they have noted that residents should call a plumber to deal with leaks and that there is “no outright payment for this.”  While some of the leaks have been relatively minor, others have been more severe and homeowners are now feeling more stressed about the constant overhanging potential of leaking pipes.  Given the pandemic causing more people to work at home, the anxiety of pinholes leaks adds to the public health issues in an already difficult environment given the pandemic.  And, there are the potential long term health implications of introducing a chemical in the water and any potential effects in the longer term.  While sodium hydroxide is not a known cancer causing substance, who really knows what other long-term consequences there might be?

 

Thunder Bay has had a long history of dealing with water issues.  The early 21^st century saw substantial investment in spending to secure our water supply and improve it but two decades later it appears that are more expensive issues and fixes to come.  These problems are not going away anytime soon and should be taking up a larger share of discussion time at Thunder Bay City Council and Administration.  To date, there has been a lot of silence.  I suppose that silence is advantageous if you are trying to listen for the drip, drip, drip of leaking pipes.