Capital miscalculation

By David Broadland, September 2013

The CRD made a fundamental planning decision about future development in the region based on strictly theoretical considerations and without including any public input. The result may leave the City of Victoria with limited sewage treatment capacity to grow and puts the CRD plan for how to expand treatment in the future in question. 

While a pitched battle raged last fall between pro- and anti-sewage treatment advocates, a little-understood provision for allocating the cost of the $783-million project to the participating municipalities was quietly passed by the Capital Regional District, with no fanfare and no public input.

That distribution of costs was based on the portion of the proposed McLoughlin Point treatment plant’s capacity that was allocated to each municipality. A close examination of those allocations, and what they mean for where future growth in the region has been directed— without public discussion—is eye-opening. And lying at the core of this issue is the McLoughlin site itself.

McLoughlin is a kind of fall-back position—the CRD couldn’t find a bigger site where a treatment plant could be expanded as the community grows. So the plant’s capacity was imposed by the site’s petite physical size; it did not arise from a careful determination of the long-term treatment needs of the region. As a consequence, the excess capacity of the proposed plant—the amount of sewage above current levels that the plant will be able to process—has become a kind of fuel gauge for how much population and employment growth can be accommodated in the region before a second, hugely-expensive plant has to be built. And, because of the peculiar way in which shares of that fuel were allocated in 2012, the City of Victoria appears set to run out of fuel for growth by 2030 (they’ll start pushing the panic button in 2025), while Langford is likely to keep on chugging along until 2048. (Both of these dates were calculated based on the average rate of dwelling construction in each community over the past 54 months, average household size for different types of homes, current per capita sewage production, and expected gains in water conservation by 2030.)

The allocation of McLoughlin’s excess capacity also appears to be an inequitable division of the $500 million federal/provincial subsidy the $783 million project will receive. McLoughlin’s excess capacity represents 24 percent of its total capacity, so it can be argued that excess capacity should be assigned 24 percent of the total cost. That amounts to roughly $190 million. With Langford being allocated 37 percent of the project’s excess capacity, it is, in effect, being given fuel for growth in that community that’s worth $70 million. That works out, on a per capita basis, to $2251 worth of fuel for every man, woman and child currently residing in Langford.

The City of Victoria, on the other hand, received 18.6 percent of McLoughlin’s fuel for growth, or $430 per capita.

 

SOON AFTER HE WAS ELECTED as a Victoria city councillor in November 2011, Ben Isitt told Focus, “There are groups in this community who would like to pursue more Bear Mountains. One of my major priorities at the CRD level is to prevent that from happening…If you look at all of the low-lying buildings and parking lots between Downtown and Uptown, there is a huge area there where we could densify with low-rise buildings and mixed-use development. We could house tens of thousands of people without going one inch further into our farmlands or forested lands. That’s just a policy choice.”

I contacted Isitt recently and asked him why he hadn’t opposed the way in which McLoughlin’s excess capacity had been allocated. Isitt was sure it must have happened before he was even elected: “I was not at the CRD board table or the Victoria city council table when the capacity was allocated.” Actually, Isitt was a CRD director and Victoria city councillor when the allocations were made. They were presented to CRD directors at an October 2012 meeting. But the distinction between how much of each municipality’s allocation was for current use and how much was for future use wasn’t made to CRD directors before they were asked to sign off on what the bureaucrats had decided. The politicians, given incomplete information, were not able to fully participate; the public weren’t consulted at all. Should they have been?

“Yes,” Isitt says, “public consultation on the allocation of capacity for sewage treatment should have occurred in light of the potential impact on urban containment, as well as the potential costs to be incurred by each municipality.”

Victoria City Councillor Geoff Young disagrees: “I do not accept the premise that there needed to be a political fight over excess capacity.” He sees it as more of a “technical” issue that was properly handled by municipal and CRD staff. With regards to the inequitable division of the growth benefits, Young says, “ Obtaining excess capacity is not seen as a benefit. Even though the [federal and provincial] governments are paying much of the capital cost, taxpayers throughout the region have made it abundantly clear they do not welcome paying for sewage treatment costs. While actual use determines the operating cost levy, municipalities that demand excess capacity will have to impose taxes to pay for the debt costs. No government official wants to be responsible for citizens having to cover such a cost.”

But was the political reality that Young experienced—that taxpayers made it clear to him they didn’t want to pay for sewage treatment—sufficient reason to avoid an open and public examination of this fundamental planning decision? Deborah Curran is Hakai Professor in Environmental Law at UVic’s Faculty of Law, and is considered an expert on smart growth. She provides advice to government on the subject. I asked her if public input should have been considered in the allocation of McLoughlin’s excess capacity. Curran responded, “Infrastructure should follow regional and community planning. Once a community has had a deliberate conversation about how and where to grow, infrastructure decisions should support those land use patterns. Our Regional Growth Strategy in the CRD is being updated into a Regional Sustainability Strategy in which urban containment and the building of compact, complete communities will still be the norm. Any infrastructure decisions, including sewage treatment, should reflect the long-term vision for the region of densifying in existing urban areas and maintaining connected ecosystems and productive working landscapes.”

There was, in fact, “a deliberate conversation.” It just didn’t happen to include anyone but municipal and CRD bureaucrats.

 

I QUESTIONED THE CRD about how the division of McLoughlin’s excess capacity had taken place. The CRD’s CFO Diana Lokken outlined the process used. She said the CRD had worked with each municipality to determine current use and had applied such planning tools as the population projections in each of their official community plans and the Regional Growth Strategy to arrive at an estimate of future use. Each municipality then came up with a requested capacity. Since the total of those requests came to 14 percent less than McLoughlin’s design capacity, each request was increased by 14 percent. And that was that. Done. The allocations were presented to directors, and they signed off. 

The uneven result was produced because Langford requested 280 percent of its 2012 use and Victoria asked for one percent above its 2012 use. The CRD then added fourteen percent to each of their requests. Keep in mind that it’s the difference between current use and excess capacity that will determine how much growth will be possible before a second plant needs to be built.

These requests were, as Lokken confirmed, worked out on the basis of flows projected from population projections. Was Victoria really projecting an increase of only one percent in its population over the next 30 years? And Langford a 280 percent increase?

I’ll come back to Victoria’s small ask later, but first let’s look at Langford’s Big Ask.

For insight into the population projections that formed the basis for Langford’s allocation, I went to the CRD’s Jack Hull, an engineer and the interim project director for the treatment plan. Hull believes “most of the growth” in the CRD is occurring in Westshore communities, by which he means the populations of Langford, Colwood and View Royal. I asked Hull what sources of information the CRD relies on to predict future growth in population and employment, and the subsequent need for treatment capacity. Hull replied, “The  population projections were originally based on the Regional Growth Strategy projections (2003) and the Urban Futures Report (2009). The CRD also uses BC Stats P.E.O.P.L.E. Projections. These projections were created at the Capital Regional District level. The projections were later refined using A Context for Change Management in the Capital Regional District, a report prepared by Urban Futures which provided population projections (2008-2038) for the CRD and municipalities for use in the Regional Sustainability Strategy.”

I should mention that Hull refers to the same study twice: A Context for Change Management in the Capital Regional District done for the CRD by Urban Futures in 2009. Geoff Young also referred to this study as having an influence on the outcome of the allocation process. I will come back and consider the Urban Futures report more thoroughly, but let’s go back to Jack Hull’s take on population growth.

Before contacting Hull I had gone through the CRD’s detailed record of construction permits issued by each municipality, from January 2009 to the end of June 2013, and tabulated benchmark numbers: total permit values, the number of permits for constructing new apartments in each municipality, and the number of permits for constructing ground-oriented housing in each municipality. The CRD’s own figures seemed to say that most of the growth over the past four-and-a-half years was in the core: Saanich and Victoria. During that time Victoria and Saanich issued permits for 3292 new dwellings, while Langford, Colwood and View Royal issued 2484. This doesn’t fit with Hull’s belief that “most of the growth” is occurring in the Westshore. So I asked him why the CRD hadn’t included what was actually happening on the ground in its determination of needed capacity and the allocation of McLoughlin’s excess capacity. Hull said, “We plan on the basis of the average growth, not the highs and lows that occur in the short term.”

Geoff Young supports Hull’s view. He said, “I don’t agree that residential units or construction alone are perfect indicators of future capacity needs… both ‘the market’ and growth plans are determinants of actual future growth. Planners can create zoning room in plans, but the market may not respond. Building permits or starts over a short period are not perfect indicators either.”

But is four-and-one-half years of data really too short a period compared to the data the CRD trusts? This brings me back to Urban Futures’ A Context for Change Management in the Capital Regional District, a study that has had a powerful influence on planning for the future in the region. Hull admits it informed CRD decisions about the treatment plan, including allocation of McLoughlin’s excess capacity. It was also the fundamental statistical backbone for the CRD’s program to develop LRT from Downtown to Langford. It is being used, as Hull said above, in development of a Regional Sustainability Strategy. But it seems to have miscalculated the Capital’s future.

Let’s look at a finding in that study that will help gauge the reliability of Urban Futures projections that the CRD then used to inform its own decision-making around planning for treatment, including allocation of McLoughlin’s excess capacity. Based on what appears to be a three-year averaging of starts on apartment buildings in the CRD in 2007, 2008 and 2009, Urban Futures predicted that the Core’s share of new apartment buildings was on the decline, and the Westshore’s share was increasing, and that this trend would continue to 2038. You can see that in the graph below, which is taken from page 45 of the report. But look at what happened after the report was delivered to the CRD: the Core’s share of apartment construction jumped up, and the Westshore’s jumped down, significantly. The data for those jumps are from the CRDs own records, and they represent a longer period of data collection (4.5 years) than Urban Futures used (3 years) to project a trend out to 2038.

graph

How did Urban Futures get this important trend wrong? Well their data was gathered from another economic era, the one that included housing starts fuelled by “irrational exuberance” and sub-prime lending, and which led to fiascos like Langford’s Bridge to Nowhere. Urban Futures’ data included building permits issued for several ultimately doomed highrise building projects connected with the soon-to-be bankrupt Bear Mountain and Robert Quigg’s aborted Capella project.

Given the seriousness with which this study has been taken—and the cost of the projects it has been used to justify—it’s perhaps important to consider what’s not in it. I searched the report for signs that it really was about change. I did a document search for: climate change, energy costs, sprawl, sewage treatment, farmland, sustainability, traffic congestion, densification, sub-prime lending, deforestation, food security, the leaky condo era (hey, it crushed the market for condos for a time), financial meltdown, public transportation—all real agents of change in the place we actually live. Nothing. There was no indication that the report was anything more than a theoretical exercise at guessing the future. But Urban Futures did say that most of the future growth in the region would be in Langford.

So Langford’s Big Ask didn’t raise any concerns amongst the group of bureaucrats using Urban Futures’ report as a guide to where the future lies.

What about Victoria’s miniscule ask of one percent above current use? (They got more than that because the CRD added 14 percent to each municipality’s request.) What was the thinking there? Young’s admission that he wouldn’t want to incur any more taxpayers’ wrath than necessary no doubt played some part in City of Victoria staff’s consideration. Victoria taxpayers are breathing fire these days. But, according to Young, the City didn’t need to ask big anyway: “[T]here is enormous potential within Victoria to reduce wet-weather infiltration into the system,” Young says.

He’s referring to the poor condition of Victoria’s 241 kilometres of sewers which are, on average, 86 years old. During rainy winter months, millions of litres per day flow into Victoria’s sewer mains, and that’s a problem the City of Victoria is slowly addressing. Sadly, though, wet-weather infiltration has little to do with the determination of whether a municipality is exceeding its allocated capacity, which is based on average dry weather flow, a sanitary engineering term the meaning of which seems to have evaded Young even after years of serving on the sewage committee. The reality is that even to reduce dry-weather groundwater infiltration to the point where Victoria could avoid, for a few years, the hefty financial penalty for exceeding its allocated capacity, it would have to spend hundreds of millions for new sewers (the City has estimated replacing the sewer mains would cost $331 million). That’s not going to happen.

The penalty for exceeding allocated capacity is just one of the rules the CRD established for stretching McLoughlin’s limited capacity into the future. Another is that municipalities which have more capacity than they need can sell it to a municipality that needs more. But a municipality can’t be forced to sell its excess capacity, and the only municipality that’s likely to have a long-term abundance is Langford. If the Urban Futures report and Jack Hull are right and Langford is the future, it’s unlikely to sell any capacity to Victoria.

Denise Blackwell, the Langford councillor who sits as the chair of the Core Area Liquid Waste Management Committee, admits that her community does “expect to attract growth to Langford.” Blackwell says that at build-out Langford will have 18,000 single-family and 11,000 multi-family dwellings, which would be home to over 66,000 residents (it currently has 32,000). The community also predicts an equivalent population—from commercial, institutional and industrial operations—of another 22,000 people. When is all this growth projected to happen? Langford’s Director of Engineering Michelle Mahovlich makes the understatement of the month: “A date is difficult to narrow down due to market conditions.”

If Urban Futures and the CRD are wrong about Westshore, and market conditions for living in Langford don’t pick-up, it won’t have to do anything until mid-century. Langford has already captured 80 percent of the capacity it needs to get to build-out.

But what happens if Urban Futures and the CRD are wrong about where apartment buildings are going to be built, and redevelopment and densifying of the core accelerates? Then the CRD’s plan for how to expand capacity to meet future growth—by building a second treatment plant in Westshore—will be unworkable. A slowed-down Langford would already have all the capacity it needs and would presumably refuse to participate in building a hugely expensive second treatment plant that would only be needed because McLoughlin can’t be expanded. Will Victoria then end up with two sewage treatment plants on its harbour?

As I was researching this story, I came across a memo that Jack Hull had sent to members of the civilian commission overseeing implementation of the treatment plan. It was a graph that plotted the unit costs of eight different treatment plants against their capacities. Each plant lay slightly to one side or other of a smooth logarithmic curve. The graph had been presented to the commissioners as proof that the McLoughlin Point plant would be large enough that it fell on a part of the curve that had economies of scale. Hull’s memo included a description of the complex process used to establish the points on the graph. It sounded thorough. But analysis of the graph showed the cost of McLouglin would be $290 million—$80 million more than the publicly-announced price. When I raised this discrepancy with the CRD, a spokesperson said that price was "theoretical." I would really like to be able to report to you that they meant the price indicated by the graph was "theoretical." But after observing how the CRD seemed to miscalculate where growth in the region is occurring, I couldn’t help but wonder if "theoretical" wasn't an apt description for the planning of the entire project.

David Broadland is the publisher of Focus.