Re: “Debt talks dominated by rural complaints,”   Huntsville Forester article, Aug. 20.

Anyone reading your article about the Aug. 15 district council meeting would think that cottagers’ objections to having to pay for the water/sewer debt were rendered “fruitless” and irrelevant because “…in the final debt reduction initiative report….the non-urban tax levy for water and sewer was not a suggestion.” But that conclusion would be very, very wrong. Cottagers absolutely will end up paying for a big part of the debt and for future urban water/sewer and sewer developments if the recommendations are implemented.

While the final report technically did not include a recommendation for an additional specific line-item tax to be levied against non-urban residents, it absolutely did recommend shifting a major portion of development costs to the general tax levy, which means to rural residents and seasonal cottagers.

Seasonal residents in Muskoka outnumber permanent residents like me by nearly two to one. Cottages, especially those on the water, have higher property values than residential properties in the towns and villages. Because we are taxed under Market Value Assessment, the result is that cottagers end up contributing a disproportionate share of the tax income to the towns and townships and the district. So any additional charges that have to be paid out of the general tax levy are paid for the most part by cottagers. That’s just the way it is.

The debt reduction presentation and the report on which it was based recommends shifting a large portion of water/sewer costs onto general taxation, which means onto the cottagers. But indirectly, not by way of a specific tax levy. How so?

There is no such thing as free money. Anybody who has ever taken out a 20-year mortgage for their home knows that over half of the money they pay over those years goes to cover the interest charges, not the principle. Same thing applies to capital costs for water and sewer infrastructure. When you read between the lines, the report recommends that interest costs of sewer and water projects be removed from user-pay development charges and moved over to general taxation.

It’s like this: Anybody who has ever built a house and had to borrow money from the bank knows that the bank starts charging interest from the second you borrow your first dollar. Bridge financing is advanced while you’re building and then, when you’re finished, everything gets rolled up into a mortgage. But the interest you pay on borrowed money while you’re building adds up. And nobody is so dumb as to think that somehow the interest on their bridge financing will just vanish and not end up being part of the total cost of the new house. But that’s more or less what the district is proposing. They are recommending taking the millions of dollars that will have to be paid in interest during the construction phases and paying for it out of general taxation (read: mostly from cottagers).

Next comes the “ODSP Savings.” A year ago the province announced that it would upload the cost of the Ontario Disability Support Program. Within a couple of years the District of Muskoka will no longer have to pay nearly $4 million a year for this program. But it is not a savings to the taxpayer, only to the district. ODSP still has to be paid for. What you and I will no longer have to pay for through property taxes we will now pay for through provincial taxes.

Normally, if a municipality stopped having to pay nearly $4 million a year for a service you would think that they would reduce taxpayers’ taxes by that amount. Nope. That ain’t going to happen. The report recommends that we keep on paying the same amount to the district and that this general tax income be used to fund water and sewer projects. And then they call this “financed by the province.” Well, it’s not. It’s financed by the general tax levy. You can be absolutely sure that nobody at no time from any office of the province of Ontario ever called anybody at the district and said, “We’re going to kick in nearly $4 million every year to finance your sewers.” Didn’t happen.

More specifically, the report recommends that the taxes we will no longer have to pay for ODSP will continue to be collected and placed in the Debt Reduction Reserve Fund. As this fund grows – and by 2026 it would reach over $70 million – it would become the primary source of funding for water/sewer infrastructure. The money needed would be internally borrowed from the fund “at zero or no interest.”

If you needed to borrow $50 million for 20 years and someone offered it to you interest free, would you take the offer? Like, yeah… in a heartbeat. The compound interest you would have to pay on $50 million at 6 per cent for 20 years adds up to $100 million. That’s like somebody giving you $2 for every dollar you borrow. This is a good deal.

The money in Muskoka’s reserve funds does not get stashed as cash under Gord Adam’s mattress. It is prudently invested in bonds, money markets and blue chip securities and earns interest income. If you loan the money out interest-free, you are giving away the interest you would have earned on it to whoever receives the loan. The money for the loans is coming from general taxation (read: mostly the cottagers) and the interest is being given away to urban water/sewage costs.

If the report’s recommendations are implemented then eventually almost all of the interest charges on both bridge financing and long-term debt will be paid by general taxation. Since at least half of the long-term costs of capital projects are in the interest paid on capital debt then half of the long-term funding to pay for them is going to start coming from general tax income. Read: mostly from cottagers. Cottagers and other rural residents are absolutely going to end up paying a major portion of urban water/sewer costs.

Actually, as a permanent rural resident of Muskoka, who paid for my own water and septic system, I don’t entirely object to being whacked for a few more tax dollars to help pay for good sewers in our towns and villages. It is important to me — and to my pocketbook — that all of Muskoka retain its unsullied reputation for clean rivers and lakes. I shudder to think what would happen to my property value if we were to have a Walkerton or two in Muskoka, or if any one of our watersheds became infamous for floating turds. So go ahead and bill me for a reasonable contribution, but don’t try to finesse the tax by re-structuring indirect charges. Just be transparent about the whole thing and add a line to my tax bill and call it Debt Reduction like the guys at Hydro now do. And please be upfront and just tell the cottagers that they really are going to footing a big part of the bill.

Craig Copland,
Kahshe Lake