Lessons In High Finance

So you think everything is OK financially at City Hall do you? Just keep on reading and I'll tell you what the Ministry of Municipal Affairs and Housing's Financial Indicator Review 2005 tells us about Windsor's situation in comparison with other cities in the Province.

First though, it looked like the [Utility] lightbulb just went on in Gord Henderson's head and in mine as well. Is a recent Saturday Henderson column a not-so-subtle message to the Mayor from his bestest buddy? Has Gord finally figured out what is going on and doesn't like it? Just look at the excerpts below, especially the italicized comments.

Only a month ago, Gord wrote:

• "..there's been a mind-boggling transformation of Windsor's finances over the past two-and-a-half years, from fiscal basket case to a city that has cash jingling in its pocket and revenue streams in its future to match its aspirations.
  
  ...I asked Mayor Eddie Francis to walk me through the numbers Friday. He did...
  
  But it doesn't take a mathematical wizard to recognize that Windsor, under its current leadership, has made a spectacular financial comeback."
  
  

And then on the Saturday he wrote:

• "LaSalle residents, along with those of Windsor and other county municipalities, have been scuppered by politicians who used these new utilities as below-the-radar sources of new tax revenues.
  
  "It's a shell game. Now you see it. Now you don't," said Green, a former LaSalle Utilities Commission member, explaining that the province allowed municipalities, which were reeling under the burden of downloading, to set up new utility corporations and have them make hefty payments -- a staggering $46 million in Windsor's case -- for the former utility assets and provide juicy dividends to their municipal owners.
  
  But the money didn't grow on trees. It had to be borrowed by these new corporations from the banks. And guess who's paying for that? You and I, the suckers in this shell game, every time we pay a utilities bill...
  
  Talk about blind and dumb. Like most Windsor and Essex County residents, this end run on the taxpayers sailed over my head at the time...
  
  The tragic thing, they say, is that few people understand how they've been screwed and continue to be screwed in order to provide politicians with revenue streams to support monumental ego exercises like the LaSalle recreation complex that's now $8.8 million over budget."

Wow, that is strong talk. How does Gord reconcile what he quoted in his Saturday column respecting the Lasalle arena and what he said a month ago? Perhaps Gord no longer believes what he was told in relation to "revenue streams."

• "By 2009, when major projects like the Norwich Block fiasco, the city hall welfare tower mistake and the new Huron Lodge at St. Clair College have been paid off, the city will find itself with torrents of money flowing in and no major funding obligations. In 2009 it will have an additional $23.5 million available, in 2010 $36.4 million and in 2011 another $36.4 million.
  
  Taxpayers like me, long accustomed to thinking of Windsor as being one step removed from the poorhouse, have a hard time getting our heads around the concept of this city keeping a lid on taxes while having cash available for big projects.
  
  "If this was 2002 financial circumstances, it wouldn't even be talked about. But our financial prudence is paying off and giving us flexibility. We can pay for this (the arena complex) without going to debentures and without going to the taxpayers," explained Francis."
  
  

Here are some things that have been bothering me for a long time but I never bothered sitting down and trying to figure them out until now. According to Eddie, "the numbers tell the story." But if we read Gord's column, do they:

1. How could the city absorb $23 million of unexpected increases when we supposedly cut our Budget to the bone so that there would not be unnecessary expenses ie for pay equity, OMERS pension increases, provincial downloading expenses, Estrin/Schwartz legal and consulting fees, other "unexpected costs"




2. How could the projected long-term debt be reduced from $276 million ($1300 per man, woman and child in Windsor) to a projected $161 million by the end of the year if we are only paying down $10 million a year on debt? The Province's number as you will see below is almost $2,000 per person. [Note I read in the Star that "The $10-million annual commitment doesn't pay down current debt levels but it does enable the city to avoid borrowing to pay for long-term projects. ]




3. How could we pay for $130 million for large projects like 400 City Hall Square, Huron Lodge and the Norwich block without any new debt




4. How does the Employees' future benefits liabilityof $200 million fit into all of this and why doesn't the Mayor mention it as part of our debt since it is shown in our balance sheet?




5. If torrents of money start flowing in -- an additional $23.5 million available, in 2010 $36.4 million and in 2011 another $36.4 million and $40 million thereafter--then what are we going to do with it?




6. Eddie claims we can use this money for better roads, better playgrounds and great arenas and to deliver better services. I did not see anything in his speech that said let's reduce taxes and take the burden off of City taxpayers. [How about better water mains as you shall see in my other Blog today]




7. What is the scandal at Enwin, what were the "unnecessary risks in other business areas" and how much did it cost us now that "Enwin is back to basics" considering that Councillors had to attend so many more meetings




8. How did Enwin's debt get reduced by $43 million




9. While Canderel and MFP deals "saved" us money, how many extra millions are we paying for MFP than we expected and how much are we still liable on the Canderel leases even after the sub-leasing




10. How could, in the Mayor's words "other municipalities have struggled. And all some could do was raise taxes, or cut important services. [but we had] no new debt … and no new taxes?

Back to the Ministry of Municipal Affairs and Housing's Financial Indicator Review 2005. What does it show about our financial position?

1. Windsor's over-all risk level is "moderate"




2. Our total debt per household is $1,977 while the median of comparable municipalities is $890 and the average is $1170 (although to give credit, the debt is down from $2,543 in 2002) [High Risk although when including "own purpose debt charges," the overall debt level is Moderate]




3. Total reserves and discretionary reserves per household are $1,001 while the median is $1,083 and the average is $1,203 [Moderate Risk]




4. Total reserves and discretionary reserves as a % of Municipal operating expenses is 14.9% while the median is 26.8% and the average is 26.65 [High risk ie little flexibility to offset non-budgeted revenue losses or expenditue increases]




5. Municipal Position per household (I am not sure what that means) is (3177) while the median is (229) and the average is (511)

I have talked before about an "election budget" that was passed by Council this year. [BLOGs January 10, 2006 "Windsor Budget Fables," April 13, 2006 "Wiggle Room," May 02, 2006, "Slip And Fall On The Budgetary Crack"]. Who can fault a Council that keeps costs down supposedly and yet we have the cash to pay out all of these unexpected costs and large projects. Does it sound to you that perhaps we are being "over-taxed" in the first place. Moreover, Councillor Lewenza told us previously that we would pay big time NEXT year after the election.

Gord talked about the "Whopping hidden tax." Well back in 2001, city treasurer Roman Martiuk said the cost of borrowing for projects will be covered through the Enwin funds, raceway slot revenues and a one per cent capital levy, which would be placed on tax bills for the next five years, additional sewer surcharges and higher development fees. Fees, surcharges and fees but no "taxes!"

Councillor Valentinis has said in the past "I'm finding that people are inundated with these special levies and increases and they resent it...Whether we tack on a little here and a little there, the taxpayer is the one asked to fork over the money." Councillor Halberstadt has remarked "Call them levies, call them surcharges or call them taxes, it's still money out of people's pockets." In other words, doesn't a rose by any other name smell the same?

Roman Martiuk had warned Council in the same time-frame that "no other major projects" are to be funded between 2002 and 2007 if the city's finances are to remain on track. " At that time if you will recall, the downtown arena was only to cost $41 million not the $75-80 million or more the East end arena will cost us if it is built.

Our new fiscal mantra is "pay as you go." It was started under Martiuk. "Get rid of the borrowing. That's what pay as you go is all about." I guess it works but now City taxpayers become the "bankers" as we pay for these projects right away out of our pocket-books rather than the City borrowing the money at very low interest rates these days. We don't get the savings either since the monies that would otherwise go for interest go into capital projects like say an exorbitantly priced arena rather than for tax reduction. We have this $40 million coming up soon that is just begging to be squandered in monument building.

What is even more frightening is what "Heard on the Street" in the recent BizX magazine said:

• "The mainstream media has been sold a bit of a bill of goods on the City of Windsor's long-term debt prospects as City Hall attempts to make a political case to spend $55-million on a new arena complex. This mantra, as outlined in the mayor's state-of-the-city address, trumpets savings over the last two years through a debt-reduction plan based on eliminating debentures except for a select few high-cost projects.
  
  Prior to the debt plan, it was projected that the city's long-term debt would be $276 million by the end of 2006. Now it is projected at $161 million, with the $105-million differential saving $4.1 million in interest a year.
  
  Taxpayers should note that a few things haven't been emphasized, the first being the one-percent capital levy charged to taxpayers every year to enable the pay-as-you go policy. Secondly, City Council built $10 million in debt-reduction money into the tax rate in 2004. Most significantly, a projected jump in the city's long-term debt from $161 million to $217 million by the end of 2007 also isn't mentioned.
  
  The city needs to debenture its share of the rebuilt Lou Romano Treatment Plant at approximately $42 million, either late this year or early next year. This is on top of a 20-percent surcharge on your water bill to help pay off the $110-million plant. Another $20-million debenture will be needed for the Windsor Utilities Commission to finance a new reservoir. By 2010, when the city plans to pay off the go-it-alone arena without a debenture, the long-term debt is projected at $191 million.
  
  Windsor did not fare very well in the last financial indicators, published by BMA Management Consulting Inc. The average debt in Ontario for 22 single-tier municipalities was $532 million per capital at the end of 2004, with Windsor sitting at $820. Only Ottawa, Thunder Bay Chatham-Kent and London had higher per capita debts, with the Forest City on top at $1,066 per capita. London, coincidentally, opened a new arena in 2004.

BMA also published some interesting information on taxes that you can see on the left (click on the image).

Windsor Councillors were shown a similar page except the CVA column was not shown where Windsor's value is in the bottom quarter. They were given the good news that "Windsor’s total residential tax burden of $3,504 is also in the mid range when measured against
comparable municipalities." I guess I would not mind paying taxes at such a high rate if my house was worth more!

The BMA data in its 2005 Municipal study (that's the best I could find online) also showed that, in comparison with 67 other municipalities in Ontario:

• Our 2001-4 population growth was below average
• Our 2004 building permits per capita were below average
• Our Net Municipal Levy per Capita was the highest
• Our Reserves as a % of Total Expenditures was third lowest
• Our Debt Charges as a % of Total Expenditures was fourth highest
• Outstanding Debt to Reserve Ratio was second worst
• Taxes on properties were generally above the group average
• Office taxes ($ per unit) were above average

As the Mayor said in his Chamber of commerce speech: "And there is no clearer measure of that progress, than our municipal finances. High taxes and a crippling debt make municipalities uncompetitive, and unattractive."

Standard & Poor's said this about Windsor on 03-19-2005 "Although the rating is considered strong, a review by the bond rater said the city doesn't have enough cash "to finance its planned capital expenditure program in the next five years." It concludes: "the city's debt burden is therefore expected to increase significantly in the medium term."

On 09-29-2005, Standard & Poor's said "that a "healthy budgetary performance" was partly responsible for the good news. The city's outlook remains stable. But the bond raters warned the city will have to deal with a growing burden posed by rising post-retirement benefits that have left it with a future liability of $170 million. "Windsor's large post-retirement liabilities ... are among the highest compared with its peers," the report said. "

So ask a lot of questions before you accept that everything is turning rosy financially in the City of Roses.