Coun. Brian Mayes is right to call for a review of the so-called “dividend” city hall takes from its water and sewer utility every year.
If it’s eliminated, the challenge will be to figure out how to replace the near-$40 million it produces annually for the city budget.
Mayes is calling for an official review of the controversial practice of taking money from the water and sewer utility and using it for general revenues.
ALEX LUPUL / FREE PRESS FILES
Coun. Brian Mayes is calling for an official review of the controversial practice of taking money from the water and sewer utility and using it for general revenues.
He says the rates people pay should be used for water and sewer projects.
“There’s $40 million a year that we could be putting toward these water and sewer projects that’s being collected from water and sewer ratepayers,” said Mayes. “I think we might have to phase out the dividend…”
Skimming money from the utility began under former mayor Sam Katz in 2011. The city needed the cash. But instead of raising property taxes, which comes with a heavy political price, it came from the water and sewer utility, which is a less-obvious way of getting more money from homeowners and businesses.
Every time water and sewer rates go up, the city gets a bigger “dividend,” but politicians don’t take as much heat for it. That’s because the stated reason for the rate increases is to pay for expensive infrastructure projects, such as upgrades to treatment plants. But it’s not entirely accurate.
Rates go up every year, in part, to pay for the tens of millions the city siphons from the utility every year. If those dividends were not taken, rates would not have to rise as much they do.
When city council started skimming the money in 2011, it took eight per cent of the utility’s gross revenues. It generated $17.1 million the first year. The city called it a “return on investment,” which, of course, was nonsense. It was always a back-door tax increase.
When former mayor Brian Bowman took office in 2014, he liked the dividend so much he raised it to 12 per cent of gross revenues. The dividend jumped from $20 million to $30.7 million in 2015. It’s been going up every year as rates climb.
From 2011 to 2018, the city siphoned a total of $211 million from the utility, according to audited financial statements at the time.
City council lowered the dividend to 11 per cent in 2019 to give the appearance that it was giving ratepayers a break. But it was still higher than it was prior to 2014 and before 2011, when it didn’t exist at all.
Coun. Russ Wyatt has gone further than Mayes on the dividend. He wants it phased out altogether, not just reviewed.
“It was a back-door tax increase.… Better to be up front about the challenges facing our city and what our taxes need to be,” Wyatt said this week.
The Public Utilities Board also called the dividend a “hidden property tax” in a 2012 report.
Mayor Scott Gillingham rejected that claim this week. He said because the dividend is listed in the budget every year, “there’s nothing hidden about it.”
That’s not entirely correct. It may be in the budget but the city is not open and transparent about it. When rates go up, city officials do not acknowledge that it’s due, in part, to pay for the dividend. They claim that it’s solely to pay for infrastructure projects.
Gillingham is right, though, that eliminating the dividend would create a $40-million hole in the city’s operating budget. That’s the problem when new taxes (or new taxes disguised as “dividends”) are created: they’re not easy to get rid of.
That’s especially true right now as the city is facing a financial crunch. It has almost drained its financial stabilization fund and does not appear to have a plan on how to balance the books once that cushion is gone.
Gillingham said what the city really needs is a new funding model from the province, one that includes some type of growth tax, such as a sales tax.
He is right about that, too. The city relies too heavily on property taxes, which do not grow as the economy expands. It needs new revenue streams that grow with the economy. The status quo is not sustainable.
But those should be visible to the public, unlike the city’s hidden water and sewer dividend. The city should be open and transparent about what taxes it is charging and what the money is being used for.
The practice of skimming money from the water and sewer utility should end. It was a bad idea in 2011 and it’s a bad idea today.
tom.brodbeck@freepress.mb.ca
Tom Brodbeck
Columnist
Tom Brodbeck is a columnist with the Free Press and has over 30 years experience in print media. He joined the Free Press in 2019. Born and raised in Montreal, Tom graduated from the University of Manitoba in 1993 with a Bachelor of Arts degree in economics and commerce. Read more about Tom.
Tom provides commentary and analysis on political and related issues at the municipal, provincial and federal level. His columns are built on research and coverage of local events. The Free Press’s editing team reviews Tom’s columns before they are posted online or published in print – part of the Free Press’s tradition, since 1872, of producing reliable independent journalism. Read more about Free Press’s history and mandate, and learn how our newsroom operates.
Our newsroom depends on a growing audience of readers to power our journalism. If you are not a paid reader, please consider becoming a subscriber.
Our newsroom depends on its audience of readers to power our journalism. Thank you for your support.