It will cost Canadians $142 billion to replace water and wastewater assets that are currently in fair to poor condition, according to the Canadian Infrastructure Report Card. Canada’s Ecofiscal Commission cites that figure, equivalent of almost 22% of the total federal debt, in its most recent report and comes down hard on the side of user fees as the best vehicle to raise the money.
Canada’s Ecofiscal Commission makes its case in “Only the Pipes Should be Hidden: Best practices for pricing and improving municipal water and wastewater services”, a report released September 26, 2017. It argues that well-designed user fees can raise the funds necessary to build and maintain water and wastewater infrastructure and also contribute meaningfully to water conservation objectives.
There is no norm when it comes to paying for water and wastewater services in Canada. In some pockets of the country, water is metered and paid for by users using a variety of rate structures. In others, users pay a flat fee. Municipalities also draw on property taxes, development fees and grants from senior levels of government. It’s not enough. Water and wastewater infrastructure is crumbling and water users are disconnected from the true cost of their water use. Per capita, Canadians are among the highest water users in the developed world.
Canada’s Ecofiscal Commission believes this can be addressed by making municipal water systems accountable for the full cost recovery of water and wastewater systems through user fees. Full cost entails not only the cost of delivery infrastructure (known as private costs) but also the social costs associated with maintaining natural systems like lakes, rivers and aquifers, costs currently borne mostly by provincial and federal governments.
There are roadblocks, accounting standards being the most noteworthy and surprising. National accounting standards developed and enforced by the Public Sector Accounting Board (PSAB) allow municipalities to recognize only engineered infrastructure as tangible assets. One of the recommendations in the report is that the PSAB review its policies on natural assets.
Beyond accounting limitations, the most commonly cited arguments against cost recovery are implementation costs and social justice, explains Dale Beugin, executive director and research director of Canada’s Ecofiscal Commission.
For municipalities that currently do not charge for water use by volume, and there are many, the cost of purchasing and installing water meters would be considerable. However, they could be outpaced by the rewards, Beugin tells EcoLog News. When water consumption fell in the city of London following the introduction of volumetric pricing, the city was able to defer the construction of a new waste treatment plant by 20 years, he says.
“They saved a ton of money on infrastructure by conserving water,” he says.
Social justice arguments are most commonly heard in Quebec, says Beugin, where arguments for user fees compete with their impact on disadvantaged households and the concept of water as a right. Beugin says these issues can be addressed in a well-engineered cost recovery system.
“There are lots of ways to design rates so that you are not affecting low-income households,” says Beugin.
The City of Ottawa provides an interesting example of the benefits, and unexpected challenges, that can flow from a user-fee model. Ottawa moved to volumetric pricing using sophisticated metering technology in 2011 that addressed not only usage, but leaks. It led to a decline in water use that caused a significant revenue shortfall and hampered the city’s ability to forecast future revenues. Beugin says there were other factors at play that affected water use in Ottawa, but it’s clear that pricing played an important role. Ottawa has since adjusted its pricing to a mix of flat fees and volumetric charges.
Perhaps the most interesting example is in the town of Gibsons, population 4,600, just north of Vancouver. The report calls it the “leading edge of water and wastewater management in Canada,” using cost recovery through user fees to fund both its physical assets (private costs) and natural assets (social costs). It has meant hefty hikes in water rates for single-family households — anywhere from 36% to 53% between 2014 and 2016 — but the town also now has a plan to maintain and replace its assets over a 25-year to 100-year time horizon and to monitor and maintain its aquifer.