1.
How does financing water systems affect drinking
water safety?
2. How do municipalities finance water and sewage
systems?
3. Are all municipalities in Ontario able to pay
for their water systems?
4. What is the new Sustainable Water and Sewage
Systems Act?
5. What are the major features of the Sustainable
Water and Sewage Systems Act?
6. How will non-municipal sources of drinking
water be funded?
7. What are Justice O'Connor's recommendations
from the Walkerton Commission of Inquiry regarding the Sustainable
Water and Sewage Systems Act?
8. What does the Sustainable Water and Sewage
Systems Act mean for our water rates?
9. What are the Canadian Environmental Law Association's
views on the Sustainable Water and Sewage Systems Act?
10. How can I get more information about the Ontario
Sustainable Water And Sewage Systems Act and financing water systems?
11. How can I find out more about water rates
and financing in other jurisdictions?
1.
How
does financing water systems affect drinking water safety?
Safe
drinking water depends on a good source, effective treatment, secure
distribution, continuous monitoring, and quick action when problems
are found. If any part of this system is deficient, then the safety
of drinking water may be jeopardized.
Therefore,
it is essential that all municipalities are able to pay the costs
of maintaining their drinking water systems. This includes operating
costs such as proper training of managers and operators, and frequent
monitoring and testing of water quality. It also includes major
capital costs such as the repair and replacement of aging pipes
and the expansion and renewal of infrastructure.
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2. How do municipalities finance water
and sewage systems?
Municipalities
can raise money for water and sewage systems in four different ways:
- They
can get money directly from water rates or other revenue sources,
such as development charges;
- They
can retain money for longer term projects by setting aside money
in reserve funds for future use;
- They
can borrow money when they need to make significant investments;
- The
federal and provincial governments may assist municipalities with
grants and loans for infrastructure renewal, or
- The
municipality can enter into agreements with private companies
to finance and manage operations.
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3.
Are all municipalities in Ontario able to pay
for their water systems?
In
Ontario, approximately 80 per cent of water treatment facilities
are operated by municipalities. About 20 per cent are operated by
the Ontario Clean Water Agency (OCWA), an agency that manages municipal
water and sewage treatment facilities and their distribution systems.
According
to Justice O’Connor in the Report of the Walkerton Commission
of Inquiry, it is unclear whether municipalities are providing adequate
resources to support the province’s water systems. Some municipalities
appear to have planned well for infrastructure renewal and future
capital costs, while other municipalities may not have adequately
addressed their fiscal needs.
In
order to keep rates low or to attract development, some municipalities
have not set water rates high enough to cover the costs of maintaining
their drinking water systems. Similarly, some municipalities have
attempted to delay or defer capital costs of long-term infrastructure
replacement or upgrades. In Walkerton, for example, many distribution
pipes had not been replaced for years and were, in some instances,
almost completely blocked from inadequate flushing.
In
other cases, municipalities have used the surplus revenue from water
rates to finance other municipal projects or services, rather than
keeping an adequate reserve fund.
Smaller
systems, in particular, may have difficulty maintaining their water
systems because they have fewer customers to bear the costs of their
water services.
These
problems have led to serious underfinancing of drinking water systems
in the province. Estimates of the amount of money needed for infrastructure
investment and expansion in the province vary tremendously, but
one estimate put it as high as $12.6 billion (Canadian Water and
Wastewater Association, 1998 study). The Ontario government has
encouraged amalgamations as a way of cutting costs for smaller municipalities
by combining system operations, staff and purchasing.
For
the past 15 years investment in water infrastructure has been diminishing.
During this same period there has been a corresponding decrease
in the amount of funding that federal and provincial governments
have provided for infrastructure projects. Moreover, provincial
and federal grants are an unreliable and unpredictable source of
funding for municipalities. In some cases municipalities have relied
on the possibility of government grants, rather than adequately
planning for their infrastructure needs.
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4. What is the new Sustainable Water and Sewage
Systems Act, 2002?
In
the aftermath of the Walkerton tragedy, the Ontario government announced
its intention to move toward full cost recovery for water and sewer
services. Full cost recovery means that all costs are identified,
budgeted for and recovered through a variety of user fees and charges,
including rates. In December 2001 the government proposed the Sustainable
Water and Sewage Systems Act (Bill 155).
This
legislation was then re-introduced by the Ministry of the Environment
as Bill 175 in September 2002. In December 2002 this Act was passed
by the Ontario Legislature. However, it has not yet been proclaimed
in force because the government has not completed drafting the regulations
that are necessary to implement the Act.
The
goal of Ontario’s Sustainable Water and Sewage Systems Act,
2002 (hereafter referred to as the Sustainable Water and Sewage
Systems Act) is to ensure that municipalities can finance essential
water and sewer services and ensure clean, safe drinking water.
The Act makes it mandatory for municipalities to assess the costs
of providing water and sewage services, and to recover the amount
of money needed to operate and maintain them.
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5.
What are the major features of the Sustainable
Water and Sewage Systems Act?
The
Sustainable Water and Sewage Systems Act provides the framework
for implementing full cost accounting and recovery. Municipalities
must assess the costs of water in order to charge appropriate rates
and generate sufficient revenue to finance capital and operating
costs. This is a two-part process – first preparing a full
cost report, and secondly a cost recovery plan. The main requirements
of the Act are:
- All
designated municipalities that provide water and sewage services
must first prepare a report, called a Full Cost Report, containing:
-
an inventory and management plan for their infrastructure;
- an assessment of the full costs of providing water services,
including source protection costs, operating costs, financing
costs, renewal and replacement costs, and improvement costs;
and
- revenue obtained to provide water and sewage services;
- Two
or more municipalities may produce a joint report, if it is considered
appropriate by the Minister;
- The
report must be reviewed by the municipal auditor before it is
approved by the municipality and submitted to the Minister by
the date by regulation;
- The
Minister may approve the municipalities’ reports or may
require changes to be made before approving it;
- After
the full cost report is approved, within 6 months the municipality
must prepare a plan, called a Cost Recovery Plan, that shows how
it will pay for the full cost of water services;
- The
Cost Recovery Plan must also be reviewed by the municipal auditor
and approved by the municipality before it is submitted to the
Minister of the Environment for approval;
-
If a municipality refuses to prepare a report or a plan, the Minister
may prepare a report or plan and recover the costs from the municipality;
- The
Act also requires municipalities to set up dedicated reserve accounts
to pay the full cost of water and sewage services.
The
regulations under this Act will specify sources of revenue that
municipalities are allowed, or not allowed, to use in their cost
recovery plans.
The
regulations may also specify the maximum increases that a municipality
may charge for water services. With the Minister's approval, the
municipality may be able to exceed these limits on water rate increases.
Regulations
will require regular progress reports by the municipalities on the
implementation of their approved cost recovery plans.
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6.
How will non-municipal sources of drinking
water be funded?
Non-municipal
sources of drinking water are not subject to the requirements of
the Sustainable Water and Sewage Systems Act.
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7.
What are Justice O'Connor's recommendations
from the Walkerton Commission of Inquiry regarding the Sustainable
Water and Sewage Systems Act?
Justice
O’Connor supported the Sustainable Water and Sewage Systems
Act. Throughout his report, he considered the difficulties of appropriately
financing water systems. He concluded that, if the Sustainable Water
and Sewage Systems Act were passed into law, it would address many
of the important issues concerning the financing of water systems
in Ontario.
He
further recommended that municipalities submit plans as a condition
for obtaining a licence to operate a water treatment plant. This
recommendation is reflected in Part V of the Safe Drinking Water
Act, which cross-references the Sustainable Water and Sewage Systems
Act.
To read Justice O’Connor’s recommendations on financing
water systems, see The Report of the Walkerton Commission of Inquiry,
Part Two, Chapter 10, “The Role of Municipal Governments”
at:
www.attorneygeneral.jus.gov.on.ca/english/about/pubs/walkerton/
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8.
What does the Sustainable Water and Sewage
Systems Act mean for our water rates?
When
municipalities assess the true costs of water services, it is likely
that rates will increase in many cities and towns across the province.
People
in Ontario have enjoyed relatively inexpensive water. Water rates
are lower in Canada than in most developed countries, like England,
France, and Australia.
Justice
O’Connor pointed out that water rates in Ontario are comparable
to the cost of cable television or internet services. He stated
that there “appears to be room for water rates to rise in
cases where consumers are not paying the full cost of safe water”.
He
also recognized that his recommendations for a Safe Drinking Water
Act, and the requirement that municipalities implement full cost
recovery, would lead to higher water rates. Nevertheless, he was
concerned that everyone in the province should be able to afford
and enjoy safe clean drinking water.
The
implementation of the Sustainable Water and Sewage Systems Act will
give municipalities an incentive to promote conservation to avoid
expanding or constructing new water treatment facilities. Ontario
municipalities have been slowly introducing water meters into their
communities. As opposed to a flat rate, metering means consumers
will pay for the amount of water actually used. This generally leads
to conservation when people realize that they will pay less for
water if they use less. Some Ontario municipalities have also introduced
increasing block rates. This means charging a higher unit price
as use rises, which is another incentive for conservation.
The
Act will also encourage municipalities to plan for long-term renewal
and replacement of drinking water distribution systems. Life cycle
financing for these systems will be encouraged.
The
provincial government has also considered the problem of major rate
increases, and incorporated provisions to avoid rate shocks. Under
the regulations for the Sustainable Water and Sewage Systems Act
(which have not yet been released) a cap on municipal rates will
likely be established. The Minister, however, will have the discretion
to allow municipalities to set higher rates in special circumstances.
See the Water
Conservation FAQ.
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9.
What are the Canadian Environmental Law Association's
views on the Sustainable Water and Sewage Systems Act?
The
Canadian Environmental Law Association (CELA) generally supports
full cost recovery of water and sewage services by the municipalities.
CELA was especially concerned that the definition of “full
cost” in the Act include source protection. The government
responded by accepting this recommendation and amended the definition
of “full cost” to include source protection in the final
version of the Act.
However,
CELA sees the need for the government to provide help for small
water systems, and to protect low income people in Ontario who may
not be able to afford higher rates for these services. CELA believes
this Act must be integrated with the source protection framework
that the government has promised but not yet introduced. More information
on CELA's views are available in the following publications:
Publication
#434. Submission
of the Canadian Environmental Law Association to the Standing Committee
on General Government re: Sustainable Water and Sewage Systems Act,
2002 (Bill 175), EBR Registry no. XA02E0006.
Publication #415. Comments
by the Canadian Environmental Law Association concerning Bill 155,
"An Act respecting the cost of water and waste water services."
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10.
How can I find more information on the Sustainable
Water and Sewer Services Act and financing water systems?
The
Sustainable Water and Sewer Services Act can be found at: www.e-laws.gov.on.ca
The
Report of the Walkerton Commission of Inquiry, part 2, Chapter 10,
contains a discussion of the need to finance water systems adequately.
The Report is available at:
www.attorneygeneral.jus.gov.on.ca/english/about/pubs/walkerton/
Both
the Act and the Walkerton report are also available in print from
the Ontario Government Bookstore at: http://pubont.stores.gov.on.ca/pool/
The
Ontario Ministry of Public Infrastructure Renewal has prepared a
number of reports on water and sewer systems, including an inventory
of assets in the province, financing, and pricing. These are available
through: www.pir.gov.on.ca/
Reports
on financing were prepared for the Walkerton Inquiry, including
C.N. Watson & Associates' report, prepared on behalf of CELA
at the Walkerton Inquiry, “Financial
Management of Municipal Water Systems in Ontario”.
The
Sustainable Water and Sewage Services Act is one of the four legislative
changes recommended in the Report of the Walkerton Commission of
Inquiry in order to ensure safe drinking water. For information
on the other three requirements, see the Nutrient
Management Act FAQ, Source Water
Protection FAQ and the Safe Drinking
Water Act FAQ.
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11.
How can I find out more about financing water
systems and water rates in other jurisdictions?
For
a review of other jurisdictions, see Annex B of “The Management
and Financing of Drinking Water Systems”, Pollution Probe,
April 2001, at: www.pollutionprobe.org/Publications/Water.htm
Under
the U.S. Safe Drinking Water Act, the Drinking Water State Revolving
Fund was established to provide infrastructure funds. For more information
on this fund, see: http://epa.gov/safewater/dwsrf.html
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