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HomeMy WebLinkAbout1977-08-23August 23, 1977 Mr. Robert Dykstra Chairman Courtice Area Task Force Town of Newcastle 40 Temperance Street Bowmanville, Ontario Group 40 University Ave. 6th Floor Toronto, Ontario M5J 1T1 (416) 862-0450 Dear Mr. Dykstra: On May 6,1977, the Courtice Area Task Force requested that the IBI Group review a report prepared by M.V. Jones and Associates Limited, entitled "The Financial Impact of Development Upon Newcastle Courtice Residents". Ourreview focused on those portions of the M.V. Jones study which dealt with municipal financial impacts*and included: a) comments on methodology uses; b) updating the report using the most recent municipal financial statistics; and c) comments on the relevance of the findings to the proposed first phase development in Courtice. The section dealing with financial impact in the M.V. Jones Study consisted of three reports. The first dealt with financial impact based on 1971-73 information prior to the introduction of regional government. Information from the four previous municipalities that now constitute the Town of Newcastle was combined to provide an information base for this *It should be pointed out that a second impact issue related to the frontage charges imposed to recover the costs of the trunk water and sanitary services, is being analyzed separately by the Region of Durham together with the services of a consulting hydrologist. IBI is a group of companies practicing professional consulting and is affiliated with Beinhaker/Irwin Associates Architects, Engineers and Planners .w ~' thefrk fc' fi /v im Mr. Robert Dykstra 2, chapter. This was superceded by the second report, which dealt with the newly—created Town of Newcastle based on 19.74 information. The third report dealt with the potential impact on the market and assessed values of prop- erties in the Courtice area. Our review concentrated on Report Two of the M. V. Jones Study as this report pertains specifically to the municipal financial impact of the proposed first phase development in Courtice. CONCLUSIONS Report Two of the M..V. Jones Study concluded that major urban devel- opment would not have a major impact on the municipal taxes paid by the Town's present and future residents. It is our finding that while the methodology used to carry out the analysis of financial impact was generally appropriate, the assumptions made throughout the analysis have not been documented in sufficient detail for a comprehensive review to be carried out and hence, we must conclude that we are unable to either confirm or deny the M. V. Jones Study conclusion. The specific areas for which we found insufficient documentation are noted in the body of this letter. In carrying out our review, we have, held discussions with the report's author, Mr. L. Robinson of M. V. Jones Associates. Mr. Robinson confirmed that no further documentation exists that would permit a more comprehensive review of the report. Mr. Robert Dykstra Thus, with reference to the three purposes of this analysis, our findings are: a) that the basic methodology was appropriate given the level of generality of data that was use ; b) that recent cost increases in some municipal services indicate that a revision of future estimated cost levels is required; and c) that a lack of documentation makes any conclusions on the relevance of the report to today's situation impossible. In the sections below you will find our detailed comments on the M. V. Jones financial analyses. METHODOLOGY USED BY M. V. JONES The following section explains the type of methodology used by M.V.Jones to estimate the financial impact on the Town of Newcastle of growth from a 1974 population of 29,600 to a population of 42,000. It should be noted that this population increase includes the growth of Courtice to approximately 6,000 people. A diagram explaining the steps in the method is shown in this letter as Exhibit 1. Step 1: Operating Costs The first step in the analysis was to determine the costs of operating various municipal services at the higher population level. This involved an analysis of current expenditure levels and then assumptions as to how these expenditure levels might change as the Town grew from its present population to 42,000. The details of these expenditures are shown in Exhibit 2. 3. Mr. Robert Dykstra 4, The total estimated local operating expenditures at the population level of 42,000 were obtained by multiplying the total future assumed per capita costs for existing residents by 29,600 and those for new residents by 12,400. For example, the M. V. Jones analysis determined that at the 1974 population level of 29,600, approximately $277,000, or $9.35 per capita, was spent on operating expenditures in the category of general government. M. V. Jones than assumed that this level of expenditure would rise through an increase in the number and type of services provided in this category such that the overall cost of the population level of 42,000 would be $15 per capita. This increased "level of service" implies that additional municipal services over and above those currently provided would be provided to residents at the higher population level. The ways in which level of service would be improved were not, however, documented. The assumption was also made that for some services the per capita operating costs for new residents would be higher than those for existing residents. These are also detailed in Exhibit 2. We were unable to uncover documentation to substantiate this assumption and hence are unable to comment on its validity. In some cases, costs for new residents might in fact be lower on a per capita basis as services could be provided more efficiently due to economies of scale. Step 2: Capital Costs Step 2 involved estimating the capital costs required for growth to the 42,000 population level. M. V. Jones carried out an analysis of Mr. Robert Dykstra 5. the estimated capital costs including roads, recreation facilities, etc., then broke these capital expenditures down into those expected to be paid for at the regional level and those expected to be paid for by the Town of Newcastle. Those to be paid for by the Town of Newcastle were then reduced by the amount of the applicable provincial capital cost grants and by the total expected revenue from lot levies on the growth to 42,000. Having then subtracted the provincial capital cost grants and the total lot levy revenues from the local portion of capital costs, the net local capital cost level results. In order to estimate an annual cost of these capital facilities, M. V. Jones then assumed that the total amount would be deben- tured over a 15 -year term at 10.5% interest. As no details as to the specific capital costs, provincial capital cost grants assumed, and lot levy assumptions are available, we are unable to comment on the accuracy of these capital cost estimates. Step 3: Total Annual Expenditures The total estimated local operating expenditures at the 42,000 population level were then added to the per annum debenturing costs to arrive at a total annual municipal cost figure. Step 4: Sources. of Revenue Step 4 involved estimating the proportion of local costs to be met from the general mill rate. In order to do this, the amount of applicable provincial grants (i.e. excluding provincial capital cost grants) were estimated and added to the "Other Revenues" category which included grants in lieu of taxes and revenue from licences and permits. This amount was subtracted from the total local costs and the resulting figures are the expenditures to be met by the general mill rate. Mr. Robert Dykstra 6. Step 5: Assessment Base and Mill Rate Calculation In Step 5 the total amount of assessment on which the local expenditures are levied was derived in order to determine the general mill rate. The M. V. Jones report added to the 1974 assessment an assumed increase in assessment due to the growth from the 29,600 population to the 42,000 population level. Details as to the method by which this increase was determined are not available and hence we cannot comment on the accuracy of this calculation. QUALIFICATIONS ON THIS METHODOLOGY 1. In our opinion, the most accurate measure of the existing and future level of local expenditures has not been used in all cases. The level of municipal operating expenditures in certain service areas are dependent on the number of households to be served, rather than the number of persons. Specifically, these service areas would include the fire department and the sanitation department. It also should be stated that the per capita analysis is the most simple and direct way of calculating expenditures, and provides a reasonable estimate unless the household structure of the new residents differs appreciably from that of the existing residents. 2. No account was taken of funds available from OHAP in the M. V. Jones report. Given that the existing Agreements between both the munici- pality and the region involve substantial amounts of money, it is expected Mr. Robert Dykstra 7. that these funds would lessen the financial burden of new development significantly. 3. Should the basis of assessment be revised through the intro- duction of market value assessment, the conclusions of this financial impact study, or in fact any other financial impact study, based on the current assessment system, would no longer be valid. A very detailed analysis would be required to determine the impact on the conclusions of this report of the introduction of market value assessment. COMPARISON OF COST LEVELS The comparison of the audited 1974 and 1976 constant dollar per. capita operating expenditures shown in Exhibit 2 indicates that costs have increased in total by 10.6% over the period. The bulk of this increase can be attributed to the Recreation and Community Services sectors where increased levels of service and increased unit costs to provide these services rose 97% from $12.86 in 1974 to $18.94 in 1976 (in constant 1974 dollars). It can also be seen from Exhibit 2 that the actual 1976 per capita. costs based upon the population of 31,000 are already in excess of the M. V. JOnes estimates for a population of 42,000. Accordingly, we conclude that the per capita operating expenditure changes between 1974 and 1976 would have an impact on the M. V. Jones report estimates. However, since no documentation is available on the M. V. Jones reports'assumptions regarding levels of service, we cannot confirm that their estimated future Mr. Robert Dykstra g, per capita operating cost levels are appropriate nor establish their rel— evance to the proposed first phase development in Courtice. A more detailed analysis would be required to determine the reasons for the cost increases noted above and the extent to which they would affect the results of the M. V. Jones report. REGIONAL LEVY We would agree with the logic in the M. V. Jones report that leads to the conclusion that the impact on the regional levy of urban development in Newcastle to a 42,000 population would be minor. Our conclusion is based generally on the nature of the formulae for calculating the levy and off- setting grants and the fact that growth to 42,000 in Newcastle is not expected to be a major component of growth throughout the Region. However, a detailed analysis, or more complete documentation of the M. V. Jones report, would be required to confirm this. EDUCATION COSTS While education costs are not dealt with specifically in Chapter 2 of the M. V. Jones report, we would agree with the statement on Page 5-1 of the Jones report that "the levy required for education will scarcely be affected by an increase, however large it may be, of residential assessment in Newcastle". Mr. Robert Dykstra 9. The following points are relevant in coming to this conclusion: 1. Capital costs are funded very largely by the Province 2. The costs are spread over the entire Northumberland and Newcastle school district. 3. The birth rate is declining and generally the average family size is decreasing with time. In future then a larger population will be required to support existing facilities, and employ existing staff, and the cost per household will be comparatively less. RELEVANT TAX SHARES In order to understand the relative importance of the general mill rate, it should be noted that in 1976 the general rate accounted for approximately 23% of the total taxation in the municipality (the remainder was for area rates, education and the regional levy). On this basis, a 15% increase in the general rate would mean a 3.5% increase in the average householder's total municipal tax bill. The approximate breakdown of the disposition of the revenue raised by means of taxation in 1974 and 1976 is as follows: 1974 1974 - Education 50% 56% - Region 21% 18% - Local 29% 26% Mr. Robert Dykstra 10. SUMMARY To summarize, we have found no good reason for disagreeing with the findings of the M. V. Jones Report. However, we must report that the assumptions made cannot be documented in detail, and we are therefore unable to comment as to their validity. We are hence unable to establish the relevance of the report to the proposed first phase of development in Courtice. We hope you find this report in order. Yours truly IBI Russell'Gwilliam Director RGIcs