It has been a very long time since I have wrote on this blog, as I have been very busy trying to work on Laneway Homes, been writing a book and generally working very hard.
In the spirit of Charles Mahron of StrongTowns.org I have been doing some case studies in Kamloops in regards to the financial affairs of our city, the liabilities that we do not see reflected in the cities capital plans and the return on investment the public sector sees in different areas of the city.
I do not want to say too much, only to provide the figures as I have found them, and let the figures speak for themselves. Currently I have asked an accountant to audit these figures for accuracy, and the figures gathered are based on a number of sources outside of my control.
Notes on References:
I have received all tax information from the BC Assessment Website between January of 2013 and June of 2013. The tax rates and budget figures are based on the 2013 Kamloops City Budget as obtained from the cities website. The figures shown here for taxes collected assume that there are no home-owner subsidies made. Cost of Infrastructure improvements was gathered by a BC Ministry of Transportation Document titled “Construction and Rehabilitation Cost Guide” 2013. Size of properties is gathered from the cities online property information system and survey. For the first two case studies I choose to use Cul-De-Sacs. In this way it can be argued that the only tax-payers who receive a benefit from this infrastructure would be people living on that street, people accessing people who live on that street, and people who are lost (who arguably are not receiving benefit from that street in their usage). I believe that in all ways I have tried to show the best case scenario from the city administrators point of view.
Case Study One; Canongate Crescent, Aberdeen area
Seen above in Google Street View, and on Google Maps, Canongate Crescent is a typical Aberdeen subdivision, with above average home prices. The average property value is $420,882.35. The cities mill rate tax is 4.37%. This, with no subsidies, bring in revenue of $62,534 per year. The cities financial plan for 2013 shows Infrastructure budget at 6.89% of the total budget. If applied to this street, that allows $9076 of this streets taxes allocated for infrastructure costs. Let us for the moment assume that the residents of this street do not contribute ANY of their infrastructure taxes to any other street in the universe. Based on projections provided by the MOT and compared against city projects in 2012 of a similar size (Grandview Terrace), it is estimated that resurfacing this street would cost $702,000. This would be the minimum treatment allowed by city and provincial codes. This treatment is expected to have a life-cycle of 15 years until needing re-surfacing again. The governments minimum code for road re-surfacing (50mm deep) costs on average $117,000 per lane per km.
If the resurfacing was done this year, the cost would be $702,000. With revenue coming in for the street from the properties adjacent at $9076 per year it would take 77 years to pay for the project. If we take the governments number of 15 years until replacement, that makes the shortfall on the project $565,860. Looked at another way, the shortfall is $37,724 per year; or $1109.53 per household per year.
Looking at it yet another way, with the same current budget proportions, and with the idea that we would want every house to at least be able to maintain the road service in the front of their own house, each persons taxes would need to increase from an average of $1839 per house per year, by $1109.53 to a per year per house tax payment of $2948.53! That is a 55% increase in taxes immediately, just to pay for the road in front of the house.
In recap, the important figures:
- Taxable Value: $14,310,000.00
- Taxes Paid: $62,534.00
- Budgeted for Infrastructure: $9,076.00
- Projected Road Resurfacing Cost: $702,000
- Projected Life of Road: 15 years
- Shortfall in 15 years: $565,860
- Tax Increase to Pay for road in 15 years: $1,109
- Tax Rate Increase: 55% plus 3% increase tied to inflation each year
Case Study Two; Kyle Drive, Westsyde area
Kyle Drive in Westsyde, bisects Westsyde Road and on the west side creates a little Cul-De-Sac. I have chosen this Cul-De-Sac for the same reasons as the last.
Kyle Drive contains 11 properties, with a total taxable value of $3,223,000. The average home price is just below the Kamloops average, with the average Kyle Drive property worth $293,000. The income from property tax on these properties is $14,084.51 and the infrastructure budget from this number is $957 per year. To change things up, in this example I used Hot-In-Place Recycling as the payment method, which has a useful life of 9-11 years. The government expectation for HIP is $54,000 per km per lane (Lanes being 12′ wide).
Using the same type of figures as the last example, it takes years for these tax payers to pay for the re-surfacing of the road in front of their homes. The loss calculated based on a 10 year life-cycle is $6,630 or $663 per year. The tax increase that would need to happen immediately to break even on the re-surfacing of their road is $60 per year per house.
Important Figures:
- Current Taxs pay for Hot-In-Place Road Resurface in: 16 years
- Tax increase per house would need to be: $60 per house per year
It is important to note that within this infrastructure budget the city still needs to pay for water and sewer lines, the far more expensive arterial roads, and all the other paraphernalia involved like water treatment plants, pumping stations, road signals, engineering, on and on….
Consider that every transaction in our whole city falls under similar circumstances. Part of the book I am assembling at the moment includes dozens of these examples. We are concerned about our 2% tax hikes each year, but with these figures we can absolutely know that we have a ticking time bomb of 50% and 100% tax hikes in our future.
There is nothing that can be done to solve this problem, but there are things that we can do to react to the choices we have made more sensibly than others. This blog is a good place to start and my book will involve many value capture techniques for the private and public sectors.
June 3, 2013
mitchforgie
strongerkamloops 
4 responses to “Development Finances”
Charles Marohn
December 6th, 2013 at 05:31
Love this. Awesome work.
Z. Fechten
December 7th, 2013 at 15:40
This is exacly the sort of analysis we need to see more of, but I think your numbers are off. According to Google Maps, Canongate Crescent is 260 m long, so the cost would be 0.26 km x 2 lanes x $117,000/lane-km = $60,840. Adding in Canongate Place, plus a bit for the cul-de-sacs and working around the drain inlets, this project could probably be done for $80,000.
For your book, you should do some reading on pavement distress curves and pavement management techniques. Many municipalities usea “worst-first” strategy, trying to fix the streets that are in bad shape and neglecting the ones that are still good. The problem is, by the time they’ve fixed all the bad ones, the good ones have deteriorated and they have spent a lot of tax money just to end up where they started.
A better strategy is keeping the good roads in good shape. An inexpensive surface treatment like chip sealing or microsurfacing will last 8 years if done when the road is just starting to show wear, and costs less than half of the 15 year resurfacing. This will, over time, allow the town to get ahead of the deterioration curve and bring up the condition of the system as a whole.
It’s sort of like maintaining a wood house. If you repaint the clapboards every few years, they will last for decades. If you don’t, you’ll be replacing the siding and doing structural repairs in 10 years.
Hat tip to Mr. Marohn!
mitchforgie
December 7th, 2013 at 21:15
I wrote this article almost a year ago, and used the only numbers I had a reference for. There was a project in Kamloops on Grandview Terrace, that was roughly double the length, and so I just cut the numbers in half. Since then I have done a more accurate analysis with far more information, on many roads around Kamloops, and the average appears to be a loss per km compared to tax income of roughly $56,000 per km in selected peripheral areas.
More complete and current anaylsis can be read in my book, free here; http://issuu.com/mitchellforgie/docs/stronger_kamloops starting on page 16.
Z. Fechten
December 7th, 2013 at 16:06
By the way, does that $9000/year just include street maintenance costs, or does it include public utilties like water lines, sanitary sewers and storm sewers?