Details

A private member's bill would require municipalities to implement full cost recovery

INFLUENTS, Spring 2010
by Juli Abouchar

Introduction

The latest move in Ontario’s long and protracted shift towards sustainable water and wastewater infrastructure funding is Bill 237, which would enact the Sustainable Water and Waste Water Systems Improvement and Maintenance Act, 2009 (“SWIM”)¹. If enacted, it would establish the Ontario Water Board to oversee aspects of municipal water and wastewater treatment. Municipalities would be required to assess the full cost of providing water or wastewater services, describe how they intend to pay the full cost, and then submit this assessment as a Business Plan for review and approval to the proposed Water Board.

If enacted, this SWIM would supersede similar legislation that has been in the works for eight years. Its mere introduction should remind government of the need to tend to work left undone following the Walkerton Inquiry Report.

The challenge of sustainable infrastructure funding

When it comes to government spending, water and wastewater projects often take a back seat to flashier projects.² May 2010 will mark one decade since the Walkerton tragedy. Evidence at the Walkerton Inquiry pointed to the challenge that many municipalities have in understanding the costs of running water and wastewater systems and sustaining infrastructure, together with the pressures to keep water rates low and to redirect resources from the water systems to other projects.

Justice O’Connor considered the need for a means to ensure that municipal water and wastewater systems are adequately financed so important from a safety perspective that he devoted an entire separate section of his report to financial issues.³

Justice O’Connor recognized that full cost accounting and full cost recovery were key components to ensuring the sustainability of water and wastewater systems, and that financial plans should be prepared based on these components.⁴ The Provincial government’s role would be to set standards for full cost recovery and to determine the degree to which the government would review and approve these plans.⁵

Since Walkerton, the province introduced a Drinking Water Licencing Program that includes the requirement to prepare Financial Plans.⁶ However, Financial Plans will not require full cost recovery until the Sustainable Water and Sewage Systems Act, 2002 is proclaimed into force.

The fix that never was: Sustainable Water and Sewage Systems Act

Justice Dennis O’Connor’s report of the Walkerton Commission Inquiry was submitted to the government in early 2002, at which point the province had already introduced the Sustainable Water and Sewage Systems Act (SWSSA).⁷ However, the SWSSA was never proclaimed into force, nor were the regulations necessary for the act to operate ever developed.

The SWSSA would have required municipalities to conduct an assessment of the full cost of providing the water and wastewater services and the revenue needed to provide them.⁸ These costs would have included source protection costs, operating costs, financing costs, renewal and replacement costs and improvement costs associated with extracting, treating or distributing water to the public, and “such other costs that may be specified by regulation”.⁹ This list of general components lacks the specificity to guide municipalities. For example how are indirect costs, or costs that may also benefit other municipal activities treated?

Municipalities would be required to prepare and implement plans describing how they intend to pay the full cost of providing those services.¹⁰ This does not address the exceptional circumstances, as suggested by Justice O’Connor¹¹ when provincial subsidies are appropriate.

Finally, the SWSSA would have required municipalities to establish and maintain a dedicated reserve account, segregated from its general revenues, for revenue allocated to pay the full cost of providing water services or wastewater services.¹²Plans would be approved by the Minister of the Environment.

The stopgap: the Financial Plans Regulation

Part of the intent of the unfulfilled SWSSA has been revived in the Financial Plans Regulation developed under the Safe Drinking Water Act.¹⁴ The regulation came into force August 14, 2007. It requires municipalities to prepare financial plans when they apply for a municipal drinking water licence for a new system or apply for a renewal of a municipal drinking water licence.¹⁵ For new systems, the financial plans must indicate that the drinking water system is financially viable, include a statement that the financial impacts of the drinking water system have been considered, and include details of the proposed or projected financial operations of the drinking water system.¹⁶ Applications for amendments to licences require more detailed information.¹⁷Eventually, all municipal drinking water systems will be required to create these financial plans, starting as early as July 2010.¹⁸

The Ministry of the Environment has developed a guideline to assist municipalities in meeting their obligations under the Financial Plans Regulation.¹⁹ The guideline covers topics such as long-term capital investment planning, asset management, and approaches to developing financial plans.

Although the Financial Plans Regulation fulfills one of the key requirements of the Walkerton Inquiry, it does not require full cost recovery as recommended. Instead, it merely requires that the system be “financially viable”. The Financial Plans Regulationwas intended to be a stopgap measure until regulations under the SWSSA could be developed.²⁰

New hope? Bill 237 and the Sustainable Water and Waste Water Systems Improvement and Maintenance Act, 2009

Ontario Bill 237 is a private member's bill, introduced by David Caplan (MPP, Don Valley East). So far, this has only received first reading on December 9, 2009.

If enacted, SWIM would establish the Ontario Water Board to oversee aspects of municipal water and wastewater treatment, and would require municipalities to prepare business plans for the provision of water services or waste water services (which would be submitted to the Board for approval).

Plans under SWIM must contain, among other things, an assessment of the full cost of providing water or wastewater services to the public and a description of how the municipality intends to pay this full cost. The plan would also have to specify that full metering of customers will be used as a source of revenue, subject to any exceptions prescribed by the regulations.

However, none of SWSSA, SWIM nor the Financial Plans Regulation defines “full cost” as it applies to mandatory cost recovery. Without such standards to guide the approval of Business Plans, the objectives of any Water Board would be thwarted from the outset.

Mr. Caplan’s private member’s bill may prompt government to seriously consider the linkage between financial issues and safe water and to develop mandatory full cost recovery standards with municipalities. Then it will have played an important role in ensuring safe drinking water for Ontarians.

End Notes

1. S.O. 2002, c. 29.
2. To be fair, the government has recently announced funding for many individual municipal infrastructure projects; see http://www.mei.gov.on.ca/en/infrastructure/sectors/?page=water for more information.
3. Part Two: Report of the Walkerton Inquiry at pages 298-317 (available at http://www.attorneygeneral.jus.gov.on.ca/english/about/pubs/walkerton/).
4. Ibid. p. 300
5. Ibid.
6. Ontario Regulation 453/07
7. 2002, S.O. 2002, c. 29.
8. Ss. 3(5), 4(5).
9. Ss. 3(7), 4(7).
10. Ss. 9(1), 10(1), 14.
11. Part II Walkerton Report page 316
12. S. 22.
13. S. 7.
14. S.O. 2002, c. 32.
15. O. Reg. 453/07, ss. 1(1), (2). See also Safe Drinking Water Act, 2002, s. 32(5) para. 2(ii).
16. O. Reg. 453/07, s. 1(2) paras. 1, 2(i) and 4.
17. O. Reg. 453/07, s. 3(1).
18. O. Reg. 453/07, ss. 1(3) and 3(1). See also O. Reg. 188/07, s. 3.
19. Toward Financially Sustainable Drinking-Water and Wastewater Systems, Ministry of the Environment, August 2007.
20. See the Environmental Commissioner of Ontario’s 2008 report: Getting to K(No)w, ECO Annual Report, 2007-08, Toronto: The Queen’s Printer for Ontario, at 90-94.