Politics Trumps Everything
As an economist, I teach my students how to use economic models to represent the workings of the economy. Given assumptions that some people do question, those models let us identify the best way to organize activities in the economy. It still amazes me, and hopefully sometimes amazes my students, that such often simple models can provide powerful insights into how the economy works. However, I also repeatedly remind my students that no matter how sound the logic, no matter how many economists agree, politics trumps everything.
I was recently interviewed by CBC radio, and was hoping to explore some of the questions I have about the value planning solution to our water system challenges. However, the conversation focused almost exclusively on why three of our city water utilities are not participating, what it would take to get them to participate, and what could be done if they refuse. The tenor of the questioning was that the outcome of the value planning exercise is the right plan, and the barrier to its implementation is the irrigation districts. I think there are some serious issues that need to be resolved before it is even clear whether or not this is the right plan, and below are the notes I prepared for the interview. However, politics trumps everything, and my reflections after the interview turn to that.
In 2012 the Kelowna Joint Water Committee completed a plan to integrate the five major water systems in Kelowna. All five utilities were part of the plan, and the provincial government was in support. Then some of our local city politicians saw a political opportunity. Canadians are passionate about water, and a politician rallying against the variations in water quality across the city would easily get attention and likely get support. For someone looking to win an election, this was a shrewd move. However, it also amounted to sacrificing for political gain people and organizations that have a long history in this community. The tenor of the conversation since the election, and certainly the undertone of the interview questions, was that the water utilities who are not participating are selfishly protecting their turf in the face of what is obviously the right way to go.
The four utilities other than the city deliver a single service, water. They are managed under the direction of a board of trustees elected from among those they serve. Their job is to look out for the interest of those they serve. If we believe in democracy, then we should respect the autonomy of these organizations, whether or not we like their choices. Democracy is not about low cost service delivery, and democracy has not failed if the voters decide to undertake something other than the cheapest option.
I think it is useful to think about how things would unfold if the city were trying to absorb four private, for profit water utilities instead of four improvement districts. Before anything was done, there would be a negotiation on the financial terms whereby the city would acquire the assets of the private utilities. If one of the utilities refused, then the city could seek to expropriate the assets of the private utility. However, this would trigger a process to determine what fair compensation for those assets would be, and that compensation is usually more than fair market value. The reason for that being a recognition that if these assets were only worth fair market value to the owner, the owner would be offering them for sale. Like a private utility, the improvement districts own assets. Those assets were purchased and maintained using funds collected from the ratepayers, and those assets are set up to provide valuable services to those ratepayers into the future. The current situation essentially amounts to the city saying ‘give us control of your assets, and trust us that we will treat your ratepayers fairly when we get around to figuring out what that will look like.’ I suspect that if the city approached the utilities to negotiate a deal to acquire the assets and fairly take care of the staff and fairly compensate the ratepayers, solutions could be found.
The fair treatment of staff, and of the trustees and ratepayers of the utilities is an important issue. As a mid-sized, rapidly growing city, there are compelling arguments about how the overall evolution of the city can be better accomplished if the city is responsible for all important services. This is independent of whether the results of the value planning exercise are in fact the right plan. However, this great city that our mayor likes to champion got here through the hard work of many people, and the irrigation districts were central to that. The process that has unfolded since the last city election has not recognized the dedication and hard work of the people who work for and serve the water utilities. This began with the repudiation of all the efforts that went into the 2012 integration plan, and then multiplied when the city opted to use its financial leverage to secure its goals, rather than working with the utilities to try and smooth out the divisions created through the election. I hope we can get back to a more cooperative approach.
Politics trumps everything, and politics never stops. Going forward, the city is hoping to secure almost $45 million in provincial grant money, in order to implement the first phase of the project described in the value planning exercise. I don’t know how tied this grant is to the specific plan. If it is, then we may be politically locking ourselves into a plan that might not in fact be the best plan. If we spend $45 million to take water from Mission Creek and deliver it to residences in the South East Kelowna Irrigation District (SEKID) and the South Okanagan Mission Irrigation District (SOMID), that money is gone. We don’t get it back if it turns out that Mission Creek cannot supply the water we need it to. How tied is this money to the results of the value planning exercise?
If we build this, and then find out it was not as good an idea as we originally thought, will we walk away and start again, or will we insist in continuing with the plan. It is hard for any of us to accept that we made a big mistake. It will be very hard for a politician to say he or she made a $45 million dollar mistake. We could end up spending a lot more money for storage to secure fish flows, to negotiate an arrangement with the West Bank First Nation, and may have to back out of the commitment to supply agricultural water consistent with the present water licences. By spending $45 million now, will we end up going down a more costly path to avoid admitting that a mistake was made? To my students, I say sunk costs are sunk, and why they were spend in the first place does not matter. However, politics trumps everything, and admitting expensive mistakes does not have good political optics. I hope that the conditions on the money we get from the provincial government have the space for us to complete the careful research and planning that is needed, and to follow a different plan if that research does not support what we currently think is the best idea.
My notes prepared for the interview:
- What the plan is:
- An exploration of what water supply in Kelowna could look like if it was managed as a single utility, and how much it might cost to implement such a single system, relative to 2012 plan.
- fundamentally, it envisions one water utility, rather than five major utilities and a collection of minor ones.
- An exploration of what water supply in Kelowna could look like if it was managed as a single utility, and how much it might cost to implement such a single system, relative to 2012 plan.
- What they found:
- Using Mission Creek for a large part of Kelowna’s water supply could be more cost effective than the 2012 integration plan developed by the five main utilities.
- use gravity for delivery, cost effective compared to pumping.
- use high quality source water, avoid/defer cost of filtration.
- balance with lake, have two high quality sources that can switch between, increases security.
- Using Mission Creek for a large part of Kelowna’s water supply could be more cost effective than the 2012 integration plan developed by the five main utilities.
- What the plan isn’t (not in the mandate of the study):
- A detailed engineering study that sets out the specifics of how to implement plan.
- cost estimate is based on numbers in 2012 study, not new work specific to proposal.
- A detailed assessment of the capacity of Mission Creek to supply about 75% of Kelowna’s water.
- no modeling of the watershed and impacts of climate change.
- A detailed exploration of the water licencing and regulatory requirements to implement the plan
- environmental flow needs
- commitments to agriculture
- A detailed plan to ensure that all water users are better off being part of one water utility than they are now as part of separate utilities.
- plan recognizes that ratepayers have payed for assets and acknowledges that equity would require some compensation to ratepayers of the utilities for the value assets that are taken over by the city and the value of the services that those assets will provide to the city.
- there has been no agreement about this matter before this planning exercise, which may be part of reason that three utilities didn’t participate.
- A clear plan to ensure that there is sufficient water for agriculture now and into the future.
- plan recognized importance, has some suggestions about how it could be done in terms of infrastructure, but doesn’t do much else
- A plan for the governance of the new water utility and the transition from five utilities to one utility.
- describes it as an important thing that should be done.
- A detailed engineering study that sets out the specifics of how to implement plan.
- What the immediate action item is:
- Spend about $68 million to supply water from Mission Creek to SEKID and an east-west main to deliver Mission Creek water to the city.
- this is as an alternative to spending about $23 million for wells and system separation to achieve water quality improvements in SEKID.
- Spend about $68 million to supply water from Mission Creek to SEKID and an east-west main to deliver Mission Creek water to the city.
- Longer term items:
- Different alignment of pipes, location of pumping stations, etc. than in 2012 integration plan.
- to enable switching between Mission Creek and Okanagan lake as main sources.
- Increased storage in Mission Creek, to provide capacity in line with supply objectives for Mission creek.
- Different alignment of pipes, location of pumping stations, etc. than in 2012 integration plan.
- To implement plan, need:
- All water utilities on side.
- Certainty that Mission Creek can be used as set out in the plan
- actual water that is and will be available
- regulatory issues – environmental flow needs, etc.
- licence issues – large share of licenced water on Mission Creek is supposed to be protected for agriculture
- ability to build storage, given some of Mission Creek watershed is inside provincial parks.
- My key question:
- Should we spend $45 million more on an infrastructure project when we don’t know if the larger plan can be implemented.
- can’t get that $45 million back if we can’t implement the plan.
- will this infrastructure be worthwhile even if rest of plan cannot be implemented?
- Why the panic now?
- federal and provincial granting programs come and go, miss this one, can get the next one.
- implementation of plan is contingent on future granting opportunities
- Should we spend $45 million more on an infrastructure project when we don’t know if the larger plan can be implemented.
- The grand story.
- province wants to get rid of improvement districts
- desires that dissolution of improvement districts and integration with cities or regional districts be voluntary
- reason, an inconvenience to local government land use planning and coordinated service delivery
- local government cannot be ‘single desk’ for approving development if there is another local government responsible for some services.
- province refuses to provide improvement districts with access to funds that are available to cities and regional districts
- ‘forces’ improvement districts to ‘voluntarily’ join cities or regional districts when they face costs which are ‘too high’.
- RWW, BMID, GEID not in financial situation where service quaility currently requires large investments
- SEKID is.
- City could have followed 2012 plan, which would have meant merger of utilities within city would be many years or decades in future.
- City opted to leave SEKID hanging, without access to funds, until they agreed to participate in planning for merger into single utility.
- desire of province / city to get rid of improvement districts about overall land use planning and service delivery, not specifically about drinking water quality or saving money on water delivery costs.
- province wants to get rid of improvement districts
Some other points:
- Water Sustainability Act with respect to agricultural licences:
26(5) Despite subsection (1) (g), a decision maker may not (a) authorize a change in water use purpose for dedicated agricultural water except to another qualifying agricultural use,
- Mission creek is ‘fully recorded’ and has licences totaling just over 35,250 ML per year.
- almost 20,000 ML is agricultural water licenced to BMID – if WSA followed, not available for waterworks
- if transfer waterworks from GEID and SEKID to mission creek, and ag water from mission creek to GEID and SEKID, get almost 5,000 ML more waterworks water on Mission creek.
- need about 20,000 ML of licence capacity to meet 75% of current non-agricultural demand for system.
- total waterworks licences, with transfer from GEID and SEKID are about 10,000 ML.
- there is not enough licence space for proposed 75% supply from Mission Creek, if ag licences are to be respected, as set out in WSA.
- province could reassess and issue new licences, but that does not change hydrology and increases risk that there will be supply challenges in dry years. New licences would have lowest priority date.
- plan proposes new storage, which may enable new licences. However, cheapest (and highest quality) storage expansion is inside provincial park.
- Net result, may have to pump more from lake than set out in plan, and therefore would not realize all of suggested cost saving.
- Without BMID, GEID and RWW on side, when can plan actually be implemented?
- If Mission creek cannot be used as set out in plan, is it still worth using Mission Creek water for SEKID instead of wells?
- Wells are cheaper.
- Can’t get money back for more expensive Mission Creek use if it turns out Mission Creek cannot be used the way set out in plan.
- Instead of spending money on integrating system now, should we be considering a Water Sustainability Plan for the Mission Creek and nearby watersheds that enter Okanagan Lake in Kelowna?
- bring all stakeholders together, set out objectives, and then develop integration plan consistent with overall community objectives for entire watershed?
- Water sustainability plans have provisions for an agricultural water reserve, which may provide extra security for agriculture into the future
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John, I think there is one absolutely fundamental issue that keeps getting missed in this discussion. People tend to automatically think that an amalgamated, centralized system is always the best, whether in private business or government services. This was the attitude that your interviewer brought to the CBC interview yesterday morning. This is also the attitude that informed the provincial government’s decision in the 1970s (or was it the 1960s) to phase out all irrigation districts and improvement districts. Those of us who study governance systems understand that centralized approaches are not automatically the best approaches, but the provincial government appears blissfully unaware of that fact. So does the average citizen and most media analysts, since they never hear an alternative viewpoint. People need to understand that the whole Kelowna water crisis has been precipitated by a rigid and outdated approach to governance by the provincial government. Why does no one ever make that point? The second point no one ever seems to make is that water is not just like any other resource or service. Managing water means managing watersheds and all the ecosystem values that implies. Best governance practices for water should align with what we have learned from socio-ecological resilience studies – that social institutions need to be organized so as to support ecological resilience, biodiversity, etc. SEKID and BMID have actually come to approximate watershed stewardship institutions, even though they have not been officially given that mandate. The City of Kelowna water utility, by contrast, has not assumed any such role and I suspect will be very poorly equipped to do so in the case of amalgamation. Let’s try to move these issues into the discussion forum in future.
hi John and John – you are both right on target with your points – there are a number of different governance models for water utilities operating in our valley – i live in a community where the water utility is managed by our district municipality – the elected board in charge is our council who have a wide range of issues other than water to stay informed on – they are never able to be as knowledgeable on water issues as the boards of the irrigation districts who have only the complexity of water issues to manage – the management staff in charge of the water utility are dealing with water decisions along with a number of other matters – and there is no one person whose main responsibility it is to manage water
its not possible to say that we are well managed because our water utility is part of our local government – we make the usual number of errors and muddle along as well as other communities
i was hopeful that the 2012 Kelowna Joint Water Committee’s plan was going to give us another governance model to evaluate – the fact of their agreement to a plan was inspiring – and later the city’s bulling out very disappointing
In 2009, the Province asked the City and the four water purveyors to work together to develop the best lowest cost overall solution to deliver water to all citizens regardless of current boundaries. As its title suggests, integration was the long-term solution in the 2012 Kelowna Integrated Water Supply Plan.
The 2017 Value Planning Study, a criteria of the Provincial government to ensure the 2012 plan met provincial requirements, indicated the plan could be done for $95 million less if integration occurred sooner and purveyors focused on two main water sources.
Late in 2015, City Council named a city-wide integrated water system as its top priority. This was a full two years after the five local purveyors tabled the 2012 integrated plan but had failed to have the Value Planning Study completed. The 2015 Citizens Survey confirmed citizens’ top priority for infrastructure funding was for water. The Council priority was in response to citizens’ concerns and was the path all five water purveyors had agreed to pending the outcome of the Value Planning study. It was not for “political gain” as you state in this blog post.
It’s our belief all citizens should have the same quality of drinking water for equitable rates, we should have a resilient and robust system to help mitigate the negative impacts of climate change and increasing government regulation and agricultural interests should be maintained. It’ s our belief this should be delivered in the most cost-effective and efficient way possible, which was the goal of the 2012 and 2017 plans.
All four irrigation districts and the City of Kelowna signed off on the guiding principles to be incorporated into the new plan. The new plan is based on existing documents, including the 2012 Kelowna Integrated Water Supply Plan co-authored by all five water utilities, and acknowledges the need to address governance at the appropriate time. The City of Kelowna has wanted to address governance for some time, but agreed to wait to see the results of the Value Planning Study to ensure the best technical solution drove governance discussions. All purveyors agreed to this approach.
Shortly after signing on, three of the four chose not to take part in the process to create a new plan. While not at the table, those three were represented through the previous plans and documents they had supported in the past and those documents were included in the process.
The level of funding currently available for projects of this magnitude has not been seen in 20 years. If successful, impacted citizens will benefit from potential 17-cent dollars plus have improvements completed much faster than without senior government funding.
For the record, the City of Kelowna would like to correct and clarify some comments and assertions presented in this blog.
Corrections:
“If we spend $45 million to take water from Mission Creek and deliver it to residences in South East Kelowna Irrigation District (SEKID) and the South Okanagan Mission Irrigation District, the money is gone.”
Fact: This initial project does not take water from Mission Creek. It expands an existing supply source on Okanagan Lake. It will upgrade the City’s Water Utility and separate the domestic water service from irrigation water service throughout SEKID. Sustainable irrigation water will also be provided to the SOMID customers from the City’s own Water Utility also with supply from Okanagan Lake. The project also allows for the potential for five small private utilities to hook up to the new system.
“It will be very hard for a politician to say he or she made a $45-million mistake.”
Fact: Close to $30 million is to build a separate domestic water system for SEKID customers and the rest is to provide water quality improvements along with a resilient water supply from Okanagan Lake.
“Cost estimate is based on numbers in 2012 study…”
Fact: Cost estimates were escalated to 2017 dollars.
“What the immediate action item is: Spend $68 million to supply water from Mission Creek to SEKID…”
Fact: The immediate action is to supply SEKID domestic customers with water from Okanagan Lake. The project also will provide a sustainable source of agricultural water to the ratepayers of South Okanagan Mission Irrigation District, allow five small water purveyors to connect and provide improvements that support future growth in the city.
Clarifications:
“Mission creek is ‘fully recorded’ and has licences totaling just over 35,250 ML per year.”
The Value Planning Study reviewed current and future licensing requirements as related to the proposed plan and there is adequate flow for both domestic water and fish flow. The study recommends developing a city-wide water model and a more detailed review of how the water systems will be split. System demands will be compared with available licensing to ensure that any one source will not be over drawn.
“Democracy is not about the lowest cost service delivery.”
This plan is the best lowest cost solution that an international panel of experts arrived at after a week of working together. This work was built on more than 10 years of studies and plans. These engineers and environmental scientists have agreed on a realistic plan that was a requirement of the province in order to qualify for grants. Without grant funding, ratepayers in irrigation districts must fund the bulk of improvements themselves. This is why some Kelowna residents currently pay double what others pay for their water.
“The current situation essentially amounts to the city saying ‘give us control of your assets, and trust us that we will treat your ratepayers fairly when we get around to figuring out what that will look like.’”
The City is not approaching the IDs in order to “absorb them” – it has no jurisdiction over IDs-– that’s the province’s role. What the City is concerned about is ensuring limited funding goes to projects that make the most sense, and the 2017 Integrated Water Supply Plan presents the best way forward as grant dollars are diverted from other important community priorities All ratepayers are citizens of Kelowna and that is why the City wants the most cost-effective plan that will deliver high quality drinking water to all citizens, rate equity, a resilient and robust system to mitigate the negative impacts of climate change and increasing regulations and the maintenance of agricultural interests.
“This began with the repudiation of all the efforts that went into the 2012 integration plan, and then multiplied when the city opted to use its financial leverage to secure its goals, rather than working with the utilities to try and smooth out the divisions created through the election. I hope we can get back to a more cooperative approach.”
The 2012 integration plan was the basis for the 2017 value planning study. The City did conduct a 2014 review of the 2012 plan (given the delay in having the VP study completed) which cast some doubt on certain aspects of the 2012 plan. However, we agreed to continue with the Value planning study in 2017 as per the agreed upon process. The City has no financial leverage.
“Why the panic now?”
SEKID customers have been under either a Water Quality Advisory or a Boil Water Advisory for most of the last 10 years. An independent team of water planning experts working with local experts agree that the best way to do this is for the City to supply SEKID customers with its treated lake water, distributed separately to all properties from irrigation waters. We have a Plan and we have met all the requirements of senior government to access their grant program.
Thank-you for these comments. They lead me to review the news items on water in Kelowna, and I was mistaken in my recollection that it was an election issue in 2014. As you state, it became a stated priority for the city in 2015, and it was in February of 2016, a little over a year ago, that Mayor Basran when public with a clearly stated intention for the city to take over the water utilities and bring their management under the control of city council. As reported by Kelowna Capital News (“Kelowna mayor stakes his (water) claim”, February 11, 2016): “[Mayor Basran] felt it was time for the public to hear the call for one integrated water network directly from him.” With respect to funding water improvements in the irrigation districts, the article states: “… [Mayor] Basran said the government has made it clear any future provincial funding for irrigation district improvements here will have to go through the city. “So, we’re just doing what it appears the province wants us to do.”” This was something of a reversal of Mayor Basran’s earlier commitment to work with the utilities without wanting to take them over (Kelowna Capital News, “Water is top priority for Kelowna city council”, September 15, 2015. Thank-you again for pointing out my error.
As to the first phase of the plan, I misread the document. The first phase will not take water from Mission Creek. It will construct infrastructure that can take water from Mission Creek. I.e., the intention is to take water from Mission Creek. Does this mean that until such time as BMID joins or storage can be built so that licence capacity on Mission Creek can be increased, water will be pumped from Okanagan Lake or those wells that this plan is supposed to avoid are installed anyhow? Plan actually suggests wells may need to be installed.
I did have to make some guesses, given the information in the report, about the net increase in cost of this first phase, relative to the cost to deal with SEKID water issues. I may also have made an error here, and if I am correct that the SEKID well field cost is about $10 million, which could be avoided, then the incremental cost of the first phase of the project is about $30 million. How much of this infrastructure makes sense if Mission Creek cannot be used as planned, or cannot be used for a decade or more? If the rate of return on another investment of $30 million was a bit over 3%, then being able to put off spending this $30 million for ten years would justify installing the well field now.
I appreciate and respect that when it comes to funding, local governments are in a tough spot. Senior governments like being able to hand out money in a way that scores them political points – politics trumps everything – rather than providing a consistent ‘infrastructure bank’ from which local government can secure funds when the timing is right. Local governments need to be able to deliver sufficient political benefit to those senior levels of government to make it worthwhile for them to dish out the cash. If water is not front of mind for people when the money is handed out, then it gets a yawn, or worse a cynical response about trying to buy votes. However, if it is top of mind for the voters and the government appears to be listening, then it can score support. It is a sad, wasteful game that results in building infrastructure at the wrong time, incurring unnecessary operation and maintenance costs, and draws resources away from other worthwhile but less flashy causes. However, the reality is and always will be that politics trumps everything.
What is doubly sad about this is that while from the perspective of the city government, grant money from senior governments may look great, the fact is that whichever level of government the money comes from, in the end it all comes from the taxpayer. So, the reality is that Canadian taxpayers, which includes all of us in Kelowna, are paying 100% of the cost of this project, should it go ahead. We pay the money to Ottawa and Victoria, and then get into a scramble to get as much of it back as we can, ideally for us with more coming back than we sent. Every community in Canada is doing the same thing, so on balance it works out that Kelowna residents are paying pretty much the full cost of the project in the end.