Thoughts and Opinions On Today's Important Issues

Thursday, February 14, 2008

A Tax Is A Levy Is A Utility Rate Increase

On Valentine's Day of all days. How rude.

That's the day that most Windsorites will see the Enwin story in the Star. In this case, a rose is not a rose is not a rose in the City of Roses. Shakespeare is wrong too: in this case a tax, unlike a rose, by any other name does not smell as sweet.

It just smells when games are played by our elected politicians to try to fool us.

I want to thank the Windsor Star for ruining my evening. There was no need for them to post the Dave Battagello story about Enwin so early, it was around seven o'clock when I saw it. Of course it meant that I would have to write a BLOG about it since it is such an outrageous story.

Clearly, one of the Editors has a devilish sense of humour. The Editor wanted Bloggers to stay up all night analyzing the story for our readers in the morning. I mean we have to do it don't we. You expect it of us.

It really isn't all that unusual story, even though it will will make taxpayers furious. The City uses a variety of their divisions and commissions to get money into the City coffers. Let's take the Tunnel as an example and look at the relationship among the City, the Windsor Tunnel Commission and Transit Windsor. Here's what I wrote before. Just follow the money:
  • "I am sure you noticed about the Tunnel Bus that "Transit administrators proposed increasing the cost of the tunnel bus by 25 cents to $3 per trip to make the service break even, but the proposal was rejected."

    Why break even right, continue to lose $25,000 per year.... While "City officials stripped the Transit Windsor budget to its bare bones" it left losses in the cross-border service.

    Transit Windsor pays money to the Windsor Tunnel Commission for each bus that uses the Tunnel. Transit tried to kill the service (or the payments) to reduce money during Budget time last year I was told. The WTC went ballistic since it would mean a reduction in revenues. Not such a good idea if the Tunnel needs to show HIGH income. It could also mean a reduction in what the WTC paid the City as a "dividend" which meant taxes would go higher. I was told last year that the tolls paid were close to $300K.

    So the City, as required, subsidizes Transit Windsor who pays tolls to the WTC who paid a dividend to the City who subsidizes Transit Windsor who pays tolls.....!"

You see what I mean. The use of non-arm's-length entities to the City can accomplish great things. Remember as well that the City wanted to do a big Tunnel deal with Detroit and having substantial revenues coming out of the Tunnel operations wouldn't hurt as investors would consider its balance sheet when deciding if they were going to get involved in financing the City's plan.

The Battagello story is a variation of that. Let's follow the money here:

  • the Enwin Utilities' dividend to the City of Windsor is $4 million, $1 million more than last year
  • WUC water rates increased dramatically last year to help pay for watermain replacement except only a fraction of the money was used that was collected for replacement
  • WUC pays Enwin a management fee. The whitewash audit told us "the "managed services" fees WUC pays Enwin also shot up by almost $1 million, or 10 per cent. Enwin, the city-owned electricity utility that shares meter reading and billing services with WUC, charges the water utility $8.3 million for its share of the expenses. That cost is rising to $9.3 million."

What a remarkable coincidence. The water rates increased so that the Water Commission could pay Enwin an extra million in management fees which just happened to go to the City as a dividend.

Why it is just like the Tunnel Bus. If you follow the money you see how it gets to the City after it goes through various City owned or controlled non-arm's-length entities. It almost gets lost from view doesn't it since it is so hard to track. Not of course for the City's Treasury Department people who are so smart and can tell where this money is at all times I would bet.

Now don't get too upset, dear reader, it is all a game that has been played for years and I'm sure by many municipalities. You see, no city wants to be at the top of the tax rate in the Province. I mean, after all, would you want to move to a place or invest and start a business where taxes are high. So games are played by keeping tax rates low but adding on levies as Windsor does that are not taxes in the technical sense but money still goes to the city from the taxpayers pocket. As Councillor Valentinis said:

  • "If you didn't do this, well that's another one per cent increase on (municipal) taxes."

Is it really any different with the utilities and management fees? Increase the water rates, increase the electrical company management fees and pay a dividend to the City. It's just like a tax but you can't call it one. It's perfect.

It helps as well when the City controls all of the entities and can make the money flow so smoothly. It also helps when the Mayor and Council congratulate themselves on keeping the tax increase so low and confuse citizens at the same time.

A few other odd items from the story:

  1. Enwin at the same time received the right from the Ontario Energy Board to increase the hydro rates by 2.1%, half a percent higher than the average in Ontario. Yet the OEB apparently did not know that an extra million dollars was being paid to the Utility even though the rate increase hearings were held late in the year. Is the Enwin accounting so poor that it could not tell the OEB about its true financial position.

  2. I think that Councillor Valentinis has trouble distinguishing where my pocket ends and the City's pocket begins. He "defended the board's decision to give the $4-million dividend, noting the money is going back to the local taxpayer." Uhhhh, sorry Councillor, it is not going to the taxpayer, is going to Council for you to waste errrr, spend.

  3. I have to tell you that I'm very worried when I read things such as Enwin is out of cash, yet can pay an increased dividend. Its excuse for increasing Hydro rates was "Enwin cited inflation and capital costs as reasons for needing the increase." Oh my, are the capital costs for replacing all of the Hydro lines that are now getting old. Are we being gently told that we're going to have a huge increase in Hydro rates similar to that of WUC in the future to replace borrowings?

  4. Wouldn't you think that Enwin should keep the money in its accounts if its financial position is looking precarious. The Treasurer said "the dividend funds are not earmarked in the 2008 budget for any specific purpose and will be lumped into overall operating revenues." I wonder if it will be used to pay down the East End arena costs.

  5. It looks like the City had included that amount in the budget for 2008 yet Enwin did not seem to be able to tell the OEB be about it in their rate hearings.

  6. Perhaps someone can explain to me how the Enwin rates are competitive when they are half a percent higher than the average in the Province.

  7. By the way the Enwin action is not something that just happened but seems to be deliberate. Again the Treasurer said "If we didn't have it, council would have to find $4 million from other services or reduce services by that amount." In other words, the Mayor and Councillors knew exactly what they were doing. They decided that they would not take money from your tax pocketbook but would take it from your utility pocketbook

  8. The Treasurer is clearly a jokester except the laugh is on us. Does you really expect us to believe "The increase [in dividend] is because of improvement in operations." It came because of the water rate increases.

Now don't get your shorts in a knot. There is another reason for all of this as I tried to explain before. Look for one or both of the Water Utilities Commission and Enwin to be dealt with in a Public/private partnership deal that should bring the City a ton of cash so that Eddie can spend it on his entrepreneurial ideas before he leaves office. I told you that the City of London was looking for about a quarter of $1 billion for their Hydro operation alone. Eddie does need a legacy after all.

Who would be interested in throwing money at a Windsor Utility when comparing it with those of other cities in Ontario unless it was making oodles of money. The Water Utility is making a ton with the big rate increases and could make way more with the technology it discussed that could reduce the need for watermain replacement by extending the life for of a watermain for about 50 years. It means that its profits will be gigantic and will go directly into the bottom line of a private equity investor or pension fund rather than into the City balance sheet.

Of course, all that citizens will see will be the big upfront payment by the investor for which the local politicians will take credit. They won't really appreciate how high the rates will be in the future over the 99 year term of the lease since who will live that long (unless they are pumping gas at City fleet facilitites) nor will they actually do the math to calculate the huge profits that will be made as well by the investor.

Enwin gets in on it too and is attractive to an investor because it can declare and pay huge dividends while at the same time increasing Hydro rates. Just look at the fun that the investor will be able to make if it controls both utilities and can charge management fees as it so desires to maximize its financial position.

I know, I know you think I'm kidding about all this but I'm not. Remember the amendment made to the Purchasing Bylaw even after the MFP matter when Eddie became Mayor:

32. (1) A Sole Source purchase may be used for the purchasing of goods and/or services for Contracts of any Contract value, in the following circumstances:

(i) Where a public/private partnership exists.

As I speculated before, why else did Standard & Poors give the City such a good credit rating.

Our tax situation is just like a rose garden...lovely to look at but beware the thorns!

PS. Read the Star Forum on this and be shocked at the nastiness directed against the Mayor and Council. It's getting brutal