Region defers $600M-$700M in capital projects to absorb financial hit from COVID-19
A clear picture of the financial fallout of COVID-19 came crashing down on regional councillors Thursday. A startling report from staff detailed how the region had little choice but to defer a staggering number of capital projects over the next five years in order to save between $600 million and $700 million.
When COVID-19 swept across the nation it brought daily life and the economy to a halt.
Activities, plans, projects and growth all frozen in time as Canadians grappled with the short and long term effects of the pandemic. Municipalities have been forced to tighten budgets and start preparing for economic recovery.
In Peel, the multi-million dollar deferral of projects over the next five years includes water, wastewater and transportation infrastructure plans.
A glum set of regional councillors approved the “scary” financial motion in order to avoid the inevitable debt should the region do nothing to abate the financial hit from COVID-19.
A breakdown of projects slated for deferral by the Region of Peel over the next two years.
At the meeting Thursday, Councillor Pat Saito asked specifically for a list of projects being deferred. Director of Regional Planning and Growth Management Anthony Parente assured projects that already had specific timelines approved would not be delayed, but did not provide any further details as to what work will be pushed to later years.
In an email to The Pointer Councillor Satio said, “unfortunately it is the only way — not the best,” referring to the, “tough financial situation,” the Region is in.
Any approved capital project means the work is badly needed, but staff will now have to prioritize what can be kicked down the road and what is simply too important to delay.
When asked by The Pointer, the Region was unable to provide a list of impacted projects, only stating that they are infrastructure projects “which support new development only”.
An estimated $429 million of water-related projects, including repairs to linear pipelines and building of new pumping stations and reservoirs, will be pushed until at least 2022.
Wastewater, including work on linear pipelines and other improvements, will have $180 million in work postponed over the next two years.
Transportation projects, such as road improvements, will see $205 million in work delayed.
Repairs like crack sealing and other maintenance are crucial to keep local roads in working order.
The staff report describes these deferred projects as low legal, safety and regulatory risk.
For 2020, the region is pausing $65 million in projects in order to free up much-needed cash to level out this year’s budget. Regional staff assured councillors that this list of deferred projects and the ongoing capital program will be reviewed regularly to ensure that no projects that could put community safety at risk are put off.
The deferrals are a result of reduced development charge (DC) revenues for the region as the pandemic has significantly slowed down growth in Peel. This reduction is largest in the development of single and semi-detached homes. The stunted growth is not expected to return to normal for several years, hampering overall cash flow and financial flexibility for the Region of Peel.
“Although recovery is expected to begin immediately following the emergency, growth is not expected to return to pre-recession levels until after 2024,” the report states.
Staff have reviewed development charges from the 2008-09 financial crisis to gauge how much of a loss to expect following the pandemic. During the 2008/9 recession, the Region was forced to issue $1.5 billion of additional debt to support its capital program, something that was “manageable” staff state. With the COVID recession, Peel projects it would need to take out $2.1 billion of additional debt, something that “would put the Region’s financial flexibility and credit rating at significant risk,” the report states.
Without deferring capital projects, the Region of Peel would be forced to take on a considerable amount of debt.
One particularly high-risk project will still be moving forward. The G.E. Booth Wastewater Treatment plant needs to be expanded to support the Inspiration Lakeview development on Mississauga’s waterfront. The project will proceed slower than intended due to distancing regulations, but no funding will be deferred.
Staff admit there are risks associated with delaying projects over the next few years, including additional costs from inflation the longer the project is paused. The Region also runs the risk of having to swallow increased construction and labour costs the longer shovels don’t hit the ground. Peel staff state it still makes more sense financially to defer and potentially have to increase project budgets than to jump into them now.
There is also the risk that aging infrastructure will fail without the necessary repairs, or without the creation of new infrastructure to support it. This is a particularly poignant risk in downtown Brampton where badly needed subsurface infrastructure work has been put off for years. Late last month, regional council approved the first phase of what could be temporary work to begin repairs in downtown, labelling the infrastructure there as “high risk”. The Region says work will not stop on crucial waste water management projects, but recognizes that the diversion and slowing of projects could lead to an increased risk of basement flooding in the spring.
“We’re going to get those phone calls [from the public],” said Councillor Annette Groves, on the matter of flooding.
“Our infrastructure is quite old… it’s unfortunate that that needs to be deferred, but I guess we don’t have a choice,” she said.
Without a concrete list of projects being deferred, there is confusion around what work is moving forward and what is being delayed.
Some projects already passed in the 2020 capital budget are desperately needed to help revive the downtown core of Brampton or improve waste management and traffic flow through the region.
The hundreds of millions in deferrals comes as the Region of Peel is grappling with an already long list of needed infrastructure work and repairs. The 2020 budget document states that the capital infrastructure budget has a funding gap of nearly $2 billion over the next 20 years. In order to close this gap, staff have suggested a 1 percent tax levy until 2026, a measure they believe will close the staggering shortfall.
The current deferrals updated at Thursday’s council meeting will not have any impact on the price of utilities in the region, a spokesperson said.
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