Halifax Water Rate Pricing and Stormwater Management Programs. March 4 th, 2013

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1 Halifax Water Rate Pricing and Stormwater Management Programs March 4 th, 2013 Real Property Association of Canada One University Avenue, Suite 1410 Toronto, Ontario Canada M5J 2P1 T: (416) F: (416)

2 About REALpac: REALpac is Canada's senior national industry association for owners and managers of investment real estate. Our Members include publicly traded real estate companies, real estate investment trusts (REITs), private companies, pension funds, banks and life insurance companies with investment real estate assets each in excess of $100 million. The association is further supported by large owner/occupiers and pension fund advisors as well as individually selected investment dealers and real estate brokerages. REALpac is an exclusive, executive organization whose vision is to be Canada's most influential voice in the real property investment industry. Our mission is to bring together Canada's real property investment leaders to collectively influence public policy, to educate government and the public, to ensure stable and beneficial real estate property and capital markets and to promote the performance of the Real Property sector in Canada. The commercial real estate sector (CRE Sector) makes a substantial contribution to the Canadian economy, generating $63.3 billion in economic activity in The CRE sector adds to the Canadian economy in various ways by: Supporting 340,000 jobs, many of which are high-paying professional jobs, which is roughly equivalent to the total employment in the entire Canadian agriculture industry; Generating $18.1 billion in personal income, related to labour income and other sources of income, which is more than twice the labour income of the Canadian agriculture, forestry, and fishing industries combined; Generating $12.5 billion in corporate profits earned by many small and medium companies, as well as some of the largest pension funds and insurance companies in Canada; Contributing $7.2 billion in personal and corporate income tax revenues for the federal and provincial governments; and ultimately, Accounting for $32.4 billion in total net contribution to Canada's GDP Advocacy Approach: REALpac has a specific approach to government relations. We prefer to develop positions in-house, and to present those views in a consistent way to governments and stakeholders. We always research our positions, and strive to understand the legal and political background of the issue. We often take a comparative law approach; how do other jurisdictions across Canada or around the world handle this issue? We will often seek out allies on certain issues, and often seek out opposing views to understand all perspectives. We develop argument based on our three core values; leadership, citizenship and excellence. We seek to lead the industry to where it ought to go, always seeking high moral ground. As citizens of Canada, we always seek resolutions we believe to be the best for Canada, not just our industry. We respect the views of others, and always seek to earn the respect of all stakeholders to an issue, regardless of the outcome. We make sure others know our position clearly, understand our arguments, and respect us as representatives of our industry.

3 Subject: Halifax Water Rate Pricing and Stormwater Management Program REALpac has recently been contacted by a number of Member companies who have expressed considerable concern about Halifax Water s Utility and Review Board hearings and the subsequent increased costs of water. By way of introduction, REALpac represents companies who are key cogs in the economy of your province. Our members occupy 2 head offices, 16 regional offices, and own an entire portfolio of 259 buildings spread across 42 municipalities, with the majority of these properties located within Halifax Water s service area. Our Members ownership covers the full spectrum of real property from commercial, hotel, industrial, and office to retail, multi-family residential, and storage facilities. All told, REALpac s Members are key stakeholders in the City of Halifax and Province of Nova Scotia, and have an inherent interest in sound policy related to utility rates. As major resource consumers, we recognize the importance of addressing capital funding deficiencies and ensuring the long term sustainability of infrastructure across Canada. When examining utility rates, REALpac seeks to maintain a guiding set of principles by ensuring the funding process is done in a manner that: Is fairly and evenly distributed amongst the commercial and residential sector alike; and, Where possible, tied to the current method of consumption based usage measurement. In reviewing the information found within your application to the Nova Scotia Utility and Review Board, we have identified items of concern that will have significant impacts on the daily costs for our members, the majority of which represent your largest revenue generators as it stands today. Of note, we perceive a 52% increase in consumption charges for sewer and water, 500% 1000% increases in sprinkler charges, and the development of a costly new stormwater management charge. Recommendations: Stormwater Management Program REALpac is acutely aware of public utilities need to sustainably fund its infrastructure, however, we are against sudden and significant increases to rates that can lead to rate shock. A 52% increase in consumption charges and % increase in sprinkler charges represent what we deem to be extreme increases, and it raises the cost of doing business in an economy that is already fragile. We would endeavour Halifax Water to explore the following innovative financing mechanisms to help fund future capital projects: Debenture financing; Capital funding reductions/deferrals (only if possible, and tied to a robust conservation program that would decrease the current water load and allow for the post-dating of infrastructure projects); and, Long term rate increases at a significantly reduced rate than currently proposed. REALpac believes that a combination of these programs would allow Halifax Water to significantly reduce its current proposed rate, fund its capital needs, and maintain a sound economic environment for local property owners and businesses.

4 Recommendations: Stormwater Management Program REALpac has long been against municipalities adopting stormwater management programs that focus specifically on impervious area. As a result of an indicated interest by Halifax Water to examine a program of this nature, we see it as imperative that you understand the following negative externalities associated with it: Change in billing methodology to impervious area shifts stormwater costs from residential property to non-residential property, particularly to horizontal properties with large parking areas (i.e. shopping centres/box stores and industrial facilities); A major source of stormwater runoff is from common municipal roads, sidewalks, municipal buildings and municipal parking facilities. A shift in funding responsibility to non-residential property through the use of impervious area will allocate a disproportionate share of these common use facilities to non-residential owners; Advocates of stormwater charges based on impervious area state that the area measure is more equitable as it quantifies the relative contribution of stormwater runoff as a function of land use practices and development decisions of property owners. In reality, many of these decisions were established many years ago based on municipal zoning requirements, particularly respecting off street parking requirements; Off street parking design standards requiring impermeable surfaces were previously mandated. Only recently has technology allowed for hard surface permeable parking areas, however, at a significant cost premium; Businesses such as shopping centres, industrial facilities, car dealers, vehicle repair shops and gas stations require large impervious sites to operate their businesses and will be heavily impacted; Commercial properties requiring off street parking are disadvantaged when compared to street front business which only utilize exempted street parking; The shifting of stormwater costs from residential to non-residential will result in an effective increase in fixed costs to business that are already overtaxed relative to residential. Advocates of using impervious area based on fairness and equity are promoting a selective user pay system based on run-off. In fact, large commercial properties pay more to municipalities than the value of services they get in return. Large properties also provide their own fire protection, security, waste and snow removal reducing the need for additional municipal services; The increase in fixed costs to commercial properties would translate to a reduction in commercial property values and a corresponding decrease in assessed values and increased tax rates; Tenants are responsible for all operating costs and, therefore, as tenants compete for business on a regional level, the switch to a stormwater charge in Halifax will place tenants at a disadvantage relative to their competition in neighbouring municipalities; A change to impervious area will require the creation of a new costly administration to measure and calculate charges based on impervious area including the creation of an impartial dispute resolution process to handle area disagreements. The database will have to be maintained and constantly updated to reflect physical changes; and, Switch to an impervious area calculation will shift the burden to commercial property owners, the economic engine for the city of Halifax and will result in loss of employment within the city

5 As a result of the criticisms indicated above with an impervious area stormwater management program, REALpac is recommending that Halifax Water examine a program that maintains user pay principles and accurately measures an individual properties contribution to stormwater runoff: a Runoff Coefficient (RC) Stormwater Rate. RC stormwater rates recognize the significant (albeit lesser) contribution of pervious areas within the City of Halifax to related infrastructure and represent fundamental aspects of storm sewer design across North America. These coefficients illustrate the percentage of water that does not infiltrate into the ground or evaporate into the air before entering into the stormwater infrastructure (pipes, rivers, ponds, basins, etc). Conversely, an impervious area charge merely accounts for the runoff attributed to hard surface areas within the City of Halifax. As stated in our list of concerns above, impervious areas (hard surfaces) are not the only contributor to stormwater runoff. In fact, Halifax Water official documents (see Table 6.3) indicate that pavement, lawns [sandy soil], and lawns [heavy soil] each contribute to surface type runoff: Halifax Water Design and Construction Specifications (Municipal Water & Wastewater Systems) With runoff coefficients ranging from 0.95 (95%) to 0.05 (5%), it is evident that contributions to stormwater runoffs come from a number of different surface and property types. For a property that contains multiple types of surfaces, an overall composite RC can be calculated by using a weighted average of the different types of surfaces. What this means in respect of Halifax Water s recommendation to move forward with an impervious area charge is that anywhere between 5% 35% of contributions by pervious areas (lawns, gardens, etc.) to stormwater runoff is not captured within the program, and thus unfairly and disproportionately places the funding burden on those with large swaths of pavement. Instead, implementing a charge based on an individual properties runoff coefficient would provide an accurate and equitable way for the City of Halifax to fund their stormwater program, and would maintain a sound user pay principle. From a comparative standpoint, other notable cities who have implemented a runoff coefficient approach include the likes of Boulder and Fort Collins, Colorado and Saskatoon, Saskatchewan to list a few.

6 We believe a Runoff Coefficient (RC) approach would meet the goals and financial needs of the stormwater program, evenly distribute the cost to the appropriate users, and would accurately account for individual properties impact on stormwater infrastructure. We would be interested in discussing our recommendations in person. If you could please provide me with a date and time that representatives from your organization may be available, I would be happy to arrange my schedule accordingly. Feel free to contact me at (416) ext. 224 or reickmeier@realpac.ca at your earliest convenience should you have any questions regarding our recommendations. Sincerely, Ryan J. Eickmeier Director, Government Relations & Policy