Responsible Sewage Treatment Victoria

"Additional taxes needed to cover combined capital and operating costs of the planned land-based sewage treatment - if added to local tax bills as an annual charge - would be the equivalent to $557 per $500,000 of 2007 assessed value, every year for the next 50 years (ranging from $390 to $725)."

" We can say therefore that the additional cost for the land based liquid waste treatment would be similar to the annual cost of operating the Victoria Police Department; and would be nearly two thirds of the Victoria general city levy. "

Cost to taxpayers of land-based sewage treatment plants

Review of Detailed Cost Estimates* for Core Area and West Shore Sewage Treatment

Rebecca Warburton, Ph.D., Economist and Associate Professor, School of Public Administration, University of Victoria; member of the CRD’s Liquid Waste Management Plan Public Advisory Committee, 2000-2002.

The report* provided by the CRD has been reviewed with regards to determining what might be the costs borne by taxpayers.

Estimated Costs

At present the CRD’s preferred choice is Option 2.1 (Treatment plants at Macaulay Point, Clover Point, Saanich East, and Westshore B; plus improvements to outfalls, interceptors, the Northeast Trunk; and a Biosolids facility).

The net present value (NPV) of the total estimated capital and operating costs is $1.142 Billion in 2007 dollars. This NPV reflects the estimated lump sum that would need to paid, in advance, in order to acquire the necessary land and build and operate the system for 50 years (from 2015 to 2065).

The actual capital and operating outlays are higher than the reported NPV; but future expenditures (mostly operating costs) were discounted back to 2007 at 4% per year, to arrive at the NPV figures. This is a conventional economic analysis method, allowing a fair comparison of projects with differently-timed expenditures and benefits.

All costs in the report are in 2007 dollars, meaning that no inflation has been projected or allowed for; again this is a standard economic analysis method. Inflation does not change the results of analysis, and as future inflation rates are not known, it is less confusing to present results in real (uninflated) dollars of the current year (2007). Actual cash outlays in future years would most likely be higher than the amounts in the report, because of future inflation.

One caveat concerning the estimated present values is that there are no costs until 2015, when the system comes online. It would appear, therefore, that no costs have been estimated for studying the engineering and environmental issues or planning the system; yet obviously there would be significant costs incurred during the planning period. Hence the estimates are incomplete in this regard.

Another caveat is that the report did not acknowledge the substantial uncertainty that exists when making cost projections 50 years into the future. We have therefore arbitrarily created alternative high and low estimates, plus or minus 30% of the figures in the report, to show the potential for cost variation. This is a conventional economic method known as Sensitivity Analysis; it is commonly employed whenever the true costs cannot be known, and higher or lower figures might affect the decision to proceed. A point estimate has spurious accuracy in such a situation; a range estimate provides more information for those who must decide.

Tax Assessment Data

Assessment data were obtained for all taxable properties in the Core Area and West Shore municipalities, providing the number of properties and the 2007 assessed value. Tax-exempt portions of assessed value were excluded. The properties are of all types; homes, businesses, farms, etc.

Burden on Taxpayers

Local, provincial, and federal taxpayers are expected to share capital costs equally, each paying one third of the total; local taxpayers would pay 100% of operating costs. Local taxpayers would pay their share through their property taxes; provincial and federal taxpayers would not see identified charges but rather would pay more for various unidentified taxes.

In the interests of transparency, and because the decision (to build or not to build) should not be affected by which taxpayer pays, we have calculated what would need to be paid by local taxpayers if the entire amount were to be levied on property tax bills. In terms of rational public policy, it is not reasonable to argue that local taxpayers and decision-makers should consider only their own costs, and ignore those to be borne by other BC residents and other Canadian taxpayers.

The actual impact on local property tax bills would be less if (as expected) two thirds of capital costs are paid for from the Provincial, Federal and Tax bases. Overall, 69% of net present value costs are for capital, and 31% for operating costs. The local taxpayer share would be one third of 69%, or 23% of the total; plus the 31% for operating costs. Therefore local taxpayers would be expected to pay 54% of the total (capital and operating) costs shown below.

The ranges indicated show what would happen if actual costs varied from the projections by 30% up or down, as is readily imaginable given the time spans and uncertainties involved.

Here are the additional taxes needed to cover combined capital and operating costs:

· If paid as one lump sum in 2007: $1.1 billion for the region (ranging from $800 million to $1.5 billion).

· If paid annually, equivalent to spending $53 million for the region (in 2007 dollars) every year for 50 years (ranging from $37 million annually to $69 million annually).

· If added to local tax bills as a lump sum, equivalent to $11,973 per $500,000 of 2007 assessed value (ranging from $8,381 to $15,565).

· If added to local tax bills as an annual charge, equivalent to $557 per $500,000 of 2007 assessed value, every year for the next 50 years (ranging from $390 to $725).

How do these costs compare with other municipal costs?

For the City of Victoria the total cost of the police department for the 2007 taxes is 1.1916 per $1000 assessed value which is $596 per $500,000 assessed household value. For the General City tax levy it is 1.9855 for $993 per $500,000 of assessed value. We can say therefore that the additional cost for the land based liquid waste treatment would be similar to the annual cost of operating the Victoria Police Department; and would be nearly two thirds of the general city levy.

What else could the money buy?

The sums above are substantial, and significant relative to existing tax levels. Are there more cost-effective actions that might be taken locally, if the science behind our existing treatment system is accepted and the current inclination to build land-based treatment plants is reconsidered?

• Improving the storm water drains to prevent beach overflows
• Investing more in the source control program
• Providing housing for the homeless
• Building light rapid transit to the Western Communities
• Funding the new patient tower at the Royal Jubilee Hospital

It is likely that ALL of the above could be provided at a lower total cost than land-based sewage treatment alone; clearly with greater overall benefits in terms of environmental protection, human health, and quality of life in the capital region.

Table 1:

Summary of Capital and Operating Costs for Land-Based Sewage Treatment, Option 2-1

* Discussion Paper #5: Wastewater Management Options, Detailed Cost Estimates. Consultant report produced for CRD, May 2007.