I attended the City of North Vancouver's Finance Committee meeting last night. The subject of discussion was the capital spending plan for the next ten years. Some quick thoughts:
Harry Jerome Centre
There was lots of discussion and some hand-wringing about the cost of a replacement Harry Jerome Recreation Centre. The approximate price tag for this is $54m, and some members and presenters were actually seriously talking about depleting the City's reserves in a single shot to pay for it! That would be nonsensical for a number of reasons:
- The City is currently, and I would guess for the next few years, earning 5-6% interest per year on the bond investments in its financial reserve portfolio. Why would we drop assets earning that much when we can borrow money at less than 4%?
- More importantly, since the current Harry Jerome building lasted about 40 years it would be reasonable to expect that its replacement would last at least that long. Why should we not expect the citizens of the City thirty years from now to shoulder some of the burden of paying for it? After all, they'll be the ones enjoying it.
Lets do some quick math. Assume that we borrow the full $54m that is the current cost estimate. At 4.13% over 40 years that works out to about $2.7m per year. That's an affordable amount for the City. When you consider that it would be prudent to use a mix of lower-performing capital reserve assets to make a "down payment", the effects of inflation over that time period, and the ability of the new building to increase land values in the area, the total cost is even less daunting.
"Base" maintenance spending
I thought the most interesting figure in the presentation was the total amount required to maintain the City's core infrastructure -- roads, sewers, buildings, water mains, etc -- over the next ten years. That amount is apparently only $48.8m, or, on average, less than $5m per year. I found that surprisingly low, and I wonder if everything is included in that amount. I wonder how many other BC municipalities have the luxury of being able to spend only 18% of their capital budget on existing infrastructure, and have 82% to devote to new projects.
Street work
Despite the previous point about how much is required to maintain the City's infrastructure, I was disappointed to see that only $200,000 per year for the next few years has been allocated to maintain the City's roads. Councillor Fearnley asked, essentially, "what does this reduced level of expenditure mean to the quality of our roads" and was not given an answer. It reinforced to me, again, that the City needs to move towards stronger implementation of performance budgeting.
Look, for example, at the
Pavement Operations budget for the City of Sunnyvale, California. There's nothing particularly special about Sunnyvale, I chose it because I used to live near there. Look at how their council makes budget decisions about things like this:
Sunnyvale Pavement Operations Budget
The focus is on operational performance measures, not dollars spent. There are, of course, lots of dollar signs in the budget documents. But they are tied to specific performance measures, so that councillors and the public know what they can expect for the spending. In the end, it's not important how much is spent on pavement. What counts is how good the roads are, how many of the traffic lights work, etc.
Next steps
The councillors have been asked to rank the relative priorities of five main capital projects. The next meeting is in early December and I will try to again attend.
