42 Carmichael Court New Glasgow, NS B2H 5T2 (902)

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1 42 Carmichael Court New Glasgow, NS B2H 5T2 (902) Clerk of the Board Nova Scotia Utility and Review Board PO Box 1692, Unit M Halifax, NS B3J 3S3 To the Clerk and Members of the Board Re: M07050 Application by the Municipality of the County of Pictou and the Towns of New Glasgow, Stellarton and Pictou for an order to amalgamate the municipal units I am a resident of the Town of New Glasgow, and a taxpayer in that town and also in the County of Pictou. I am a CPA, CA and have forty years experience providing auditing and advisory services to Nova Scotia municipalities and related organizations, including many in Pictou County. I am also a past president of the Pictou County Chamber of Commerce. During my tenure with the Chamber board and in later years I have advocated for changes to the municipal governance structure within Pictou County, including supporting amalgamation of the local government structures. When the Pictou County MOU process was first announced in the spring of 2014 I was at first only concerned with viability of the proposed process, but continued to believe the end objective of rationalizing the local government structure held merit. However, due to my concerns with the proposed process I did advocate for change in the proposal, and maintained an ongoing familiarity with the amalgamation proceedings as well as completing independent research on the topic. My research has involved several hundred hours of personal time commitment and included reviews of a number of studies on municipal amalgamation in Ontario and other areas and a detailed review and analysis of the various documents specific to this proposed amalgamation. Based on my research over the past ten months, I am less convinced of the inherent merits of municipal amalgamation in general, but more importantly, I am totally convinced that the proposed amalgamation in Pictou County is not in the best interest of the local residents. The length of my report provides an indication of the depth of my concerns with this proposal. The Executive Summary of my report which follows summarizes my research and analysis on this amalgamation and clearly demonstrates that this amalgamation is not supported by the evidence

2 provided by the applicants, and further shows that available evidence indicates that the proposed amalgamation will be detrimental to the area residents. I thank you in advance for considering my comments and analysis in your deliberations and decision on this application. Yours truly, Brian W White, CPA, CA

3 Executive Summary The Nova Scotia Utility and Review Board (NSUARB) has been requested to consider an application by the Towns of New Glasgow, Pictou and Stellarton and the Municipality of the County of Pictou for a voluntary amalgamation pursuant to section 358 of the Municipal Government Act (MGA). This report examines the numerous reports and documents presented by the applicants in support of their proposed amalgamation as well as extensive research on the effectiveness of municipal amalgamations in other areas. 1. The applicants assert that aging population demographics and employment percentages as well as the growth rate in commercial property assessment supports a change in municipal structure. They fail, however to provide any evidence that amalgamation will, or can, provide the purported benefits. An analysis of similar demographic information for the existing regional governments in Nova Scotia shows that there is little evidence that regionalization has resulted in significant improvements for those municipalities. 2. The applicants assert that an amalgamated municipal council of 11 elected members is the right size. This report shows that the same elected officials and staff have recently successfully argued before the NSUARB that a combined total of 29 elected officials was the right size, and the applicants have not provided any evidence to reconcile the two radically different positions. 3. The applicants project total capital spending of $69.2 million over the first five years, of which $32.3 million is planned by the existing municipalities. New spending of $23.9 million would be funded from new grants, reserves and increased debt, and would be equally available without amalgamation. Only $13 million of the proposed new spending results from the amalgamation process. 4. Despite the capital spending funded by significant injection of new money from the province, the assumed new capital grants, reserve drawdowns and new long term debt, the applicants project that three of five capital-related financial indicators will deteriorate over the first five years of amalgamation and two of those indicators will fall below the provincial minimums in year five. This clearly shows that the required changes will not be met by amalgamation. 5. The applicants project that without amalgamation they would have combined reserves of $11.7 million at the end of year 5. Under their amalgamation projections the reserves will be eroded to $5.3 million. It is difficult to characterize this as an improvement or benefit for the area residents. 6. The financial projections of the applicants show cumulative revenue increases of $2.9 million and expense reductions of $1.6 million over the first five years of amalgamation. The revenue increases are all temporary in nature and will discontinue after five years. $1.2 million of the expense reductions are discretionary and equally achievable without amalgamation. Thus the five year benefits that accrue from amalgamation total $3.3 million. 7. Based on municipal tax burdens across the province, it can be shown that cost reductions of $3 million per year are required to bring the amalgamated unit s residential tax burden in line with the most efficient 25% of Nova Scotia municipalities far in excess of the projected 5 year savings. 1 P a g e

4 8. The applicants identify an annual revenue loss of $1.7 million that will occur in the sixth year of amalgamation, but ignore this in their financial projections and analysis. Based on applicant data, this revenue loss net of amalgamation related cost reductions will result in a 5.3 increase in tax rates in year six and beyond. This increase would appear to violate the MOU precondition of no material increase in County tax rates. 9. The applicants assert that economies of scale in excess of their projected amounts are to be expected. There is, however, an extensive body of research that shows amalgamation in Ontario did not lead to cost or tax savings, and that costs may be even higher than they would have been in the absence of amalgamation. In conclusion, the applicants have failed to provide evidence of positive social impacts from amalgamation, and have provided evidence in the form of financial projections that, when subjected to a rigorous review, show a significant negative financial impact arising from the proposed amalgamation. This analysis shows that the proposed amalgamation is NOT in the best interest of the inhabitants and should, therefore, be rejected. 2 P a g e

5 The Nova Scotia Utility and Review Board (NSUARB) has been requested to consider an application by the Towns of New Glasgow, Pictou and Stellarton and the Municipality of the County of Pictou for a voluntary amalgamation pursuant to section 358 of the Municipal Government Act (MGA). The MGA sets out the process and criteria for a proposed amalgamation and at section 363(1) provides the NSUARB with the power to order an amalgamation as follows: After the application has been heard, the Board may, if satisfied that the order is in the best interests of the inhabitants of the area, taking into account the financial and social implications of the order applied for, order an amalgamation or annexation upon such terms as it considers advisable. This section clearly establishes the test that must be met by the applicants in order for an amalgamation order to be made. The test goes beyond do no harm and establishes a requirement for a positive benefit for the inhabitants of the area in order for the application to succeed. The question, therefore, that must be asked and answered is whether the applicants have provided evidence (or whether such evidence has been otherwise provided) that demonstrates an amalgamation is in the best interests of the area inhabitants. This paper will show that the applicants have not presented the requisite evidence, and further show that evidence exists that shows similar amalgamations in other jurisdictions has resulted in negative impacts for those areas. In a recent paper published by the Fraser Institute, authors Lydia Miljan and Zachary Spicer 1 discuss the history of municipal amalgamation in Ontario that took place in the mid-1990 s and consider the potential for de-amalgamation. The paper observes: Study after study has found that the benefits of municipal amalgamation have failed to materialize. Costs generally increase after amalgamation... In their concluding comments the authors state: The difficulty in successfully implementing de-amalgamation means that amalgamation is something that cannot and should not be easily entered into. More care needs to be taken in finding the best institutional structure for our municipal governments. Given that there does not appear to be any provision in the Nova Scotia Municipal Government Act for the de-amalgamation of a municipality, the authors cautions take on even more importance in the case at hand. Social Implications While the social implications are not clearly spelled out, this is a relatively broad term that covers many issues and concerns. Based on the application documents, it would appear that the applicants have 1 Miljan, L., & Spicer, Z. (2015, July 15). De-amalgamation in Ontario: Is it the answer? Retrieved February 21, 2016, from Fraser Institute: 3 P a g e

6 identified a number of issues and concerns that they feel would be addressed by the proposed amalgamation. While most identified issues tend to be either specifically financial in nature or overlap with financial considerations, the following would appear to fall into the social implications category: Efficient and coordinated land use planning Consistent levels of core municipal programs and services Promotion and attraction of private sector capital and development Fair and proportionate representation Reversal of declining population levels Reversal of aging population demographic profile The applicants, in Section 3 of the Amalgamation Application, set out detailed analysis of the population demographics for the proposed amalgamated area. On page 30 of the Application they state "In the opinion of the applicants, the demographic information contained herein supports a change in municipal structure and regional vision." The applicants fail, however, to provide any analysis of regional government or other structures that show positive trends in existing amalgamated areas. They also fail to provide any evidence that the demographic trends are connected or attributable to the existing municipal governance structure. As presented, the graphs and charts in Section 3 support nothing. In response to information requests from the NSUARB, the applicants have provided a more comprehensive, but still incomplete, demographic analysis for the province. The applicants continue to rely on an assumption that amalgamation will result in improved population growth, age distributions and employment levels but do not present any analysis or other evidence that this would result. Table 1 that follows sets out a more comprehensive analysis of percentage population change for all Nova Scotia Municipalities between 2006 and Given that the existing Nova Scotia regional municipalities have been in existence for over 15 years, it is reasonable to expect that if governance structures are a positive influence on population growth, this would be reflected in their data. Queens Regional Municipality has seen a population decline of 2.3% over the 5 year period. This is slightly better than both the median and average for Nova Scotia rural municipalities. Cape Breton Regional Municipality has seen a decline of 4.7%, considerably worse than the median and average for all rural municipalities and also considerably worse than reflected by all of the Nova Scotia towns. Only Halifax Regional Municipality shows a population increase, at 4.7%. While this is one of the best percentage increases in the province, 4 of 30 towns show population increases well above the Halifax statistic. This analysis is inconclusive, but does demonstrate that the impact of municipal governance structure on population growth trends is, at best, questionable. Table 6 of the Application shows the number of residents aged 15 or older who are employed within the amalgamating units. The applicants have chosen to report total numbers rather than the normally reported percentage of residents 15 or older who are employed. Table 2 herein sets out the percentages for all Nova Scotia municipalities. From this table we can see that two of the three regional municipalities have employment percentages well below the provincial averages and medians. We can also see that the reported data for the participating units (excluding the Town of Pictou data which is 4 P a g e

7 not published) shows the local employment percentages are at or above the median level for all Nova Scotia municipalities. This does not support the view that regionalization is the path to higher employment and indeed, does not even show that improvement, although always welcome, is required. The preceding analysis of employment participation provides some indication that amalgamation (regionalization) does not correlate with improved economic development. A further indicator of economic development activity should be found in commercial property assessment data. 5 P a g e

8 Table 1 % Change in Population Municipality Population Change Municipality of Guysborough (10.5) Municipality of St. Mary's (9.0) Municipality of Shelburne (8.7) Municipality of Victoria (8.2) Municipality of Inverness (7.5) Municipality of Digby (6.5) Municipality of Clare (5.6) Municipality of Richmond (5.2) Municipality of Argyle (4.7) Municipality of Barrington (4.6) Municipality of Cumberland (4.4) Municipality of Annapolis (3.1) Municipality of Yarmouth (1.9) Municipality of Pictou (1.3) Municipality of Chester (1.3) Municipality of Kings (0.5) Municipality of Lunenburg (0.2) Municipality of Colchester 1.4 Municipality of Hants West 2.1 Municipality of Antigonish 3.2 Municipality of Hants East 3.3 Rural Municipality Average (3.5) Rural Municipality Median (4.4) Cape Breton Regional Municipality (4.7) Region of Queens (2.3) Halifax Regional Municipality 4.7 Regional Municipality Average (0.8) Regional Municipality Median (2.3) Town of Shelburne (10.3) Town of Pictou (9.9) Town of Mulgrave (9.7) Town of Lockeport (9.0) Town of Parrsboro (6.9) Town of Yarmouth (5.6) Town of Stellarton (4.9) Town of Clark's Harbour (4.7) Town of Trenton (4.6) Town of Middleton (4.4) Town of Port Hawkesbury (4.3) Town of Hantsport (2.7) Town of Bridgetown (2.4) Town of Oxford (2.3) Town of Springhill (1.9) Town of Westville (0.2) Town of Lunenburg (0.2) Town of Berwick 0.0 Town of New Glasgow 1.1 Town of Stewiacke 1.2 Town of Windsor 2.0 Town of Amherst 2.2 Town of Truro 2.5 Town of Digby 2.9 Town of Bridgewater 3.7 Town of Mahone Bay 4.3 Town of Kentville 4.8 Town of Antigonish 6.8 Town of Annapolis Royal 8.3 Town of Wolfville 13.2 Town Average (1.0) Town Median (1.1) Source: Province of Nova Scotia Department of Municipal Affairs Financial Condition Indicators P a g e

9 Table 2 Employment Participation % Municipality Employment Participation Municipality of Guysborough 43.0 Municipality of Digby 46.0 Municipality of Annapolis 46.0 Municipality of Victoria 46.0 Municipality of Richmond 48.0 Municipality of St. Mary's 49.0 Municipality of Inverness 49.0 Municipality of Clare 52.0 Municipality of Barrington 54.0 Municipality of Lunenburg 54.0 Municipality of Chester 54.0 Municipality of Yarmouth 54.0 Municipality of Cumberland 55.0 Municipality of Kings 55.0 Municipality of Pictou 56.0 Municipality of Argyle 56.0 Municipality of Hants West 57.0 Municipality of Colchester 58.0 Municipality of Antigonish 63.0 Municipality of Hants East 63.0 Municipality of Shelburne Data unavailable Rural Municipality Average 52.9 Rural Municipality Median 54.0 Region of Queens 46.0 Cape Breton Regional Municipality 46.0 Halifax Regional Municipality 64.0 Regional Municipality Average 52.0 Regional Municipality Median 46.0 Town of Clark's Harbour 34.0 Town of Annapolis Royal 35.0 Town of Shelburne 42.0 Town of Digby 44.0 Town of Windsor 46.0 Town of Mahone Bay 46.0 Town of Wolfville 47.0 Town of Berwick 48.0 Town of Westville 48.0 Town of Hantsport 49.0 Town of Yarmouth 50.0 Town of Bridgewater 50.0 Town of Middleton 50.0 Town of New Glasgow 50.0 Town of Mulgrave 51.0 Town of Lunenburg 51.0 Town of Amherst 51.0 Town of Truro 52.0 Town of Kentville 53.0 Town of Stellarton 53.0 Town of Trenton 54.0 Town of Antigonish 57.0 Town of Port Hawkesbury 58.0 Town of Stewiacke 63.0 Town of Parrsboro Data unavailable Town of Springhill Data unavailable Town of Oxford Data unavailable Town of Pictou Data unavailable Town of Bridgetown Town of Lockeport Data unavailable Data unavailable Town Average 49.3 Town Median 50.0 Source: Province of Nova Scotia Department of Municipal Affairs Financial Condition Indicators Employment participation % represents number of employed residents over age 15 as a percentage of total population over age P a g e

10 In Section 4 (Page 43) of the Application we find the statement "The Applicants assert that the relatively flat growth in incremental commercial assessment demonstrates the need for structural municipal reform." Again, the Applicants fail to support their assertion with evidence. Table 3 below sets out the change in commercial assessments as a percentage of total assessments over the three years between and Virtually all municipalities in Nova Scotia suffered a reduction in commercial assessment percentages over the three years, with two of the three regionals having a larger reduction than close to half of all provincial municipalities. Even Halifax witnessed a reduction, although lower than all but 7 of the 54 municipalities. This analysis does not indicate that regionalization will be a panacea for shrinking commercial assessments. In fact, we can see from the data that, without the benefit of regionalization, large size, or highly paid staff and councillors, Stellarton led the province in commercial assessment growth over the three years to We can also see that of the six municipalities in Pictou County, only New Glasgow failed to exceed the median levels for both comparable and regional municipalities. The applicants contend throughout their application, their subsequent responses to information requests and their final evidence submission that the proposed amalgamation will help foster economic development in the area by reducing the number of municipal units and also by rationalizing services and harmonizing tax burdens. The fact is that with the proposed amalgamation there will continue to be at least three and potentially more if some of the applicants withdraw municipal units in the area. In addition, the applicants in their MOU and other documents clearly set out taxation principles that will lead to a variety of areas rates and charges that will effectively mean services and taxation levels will continue to be very localized. Can the applicants demonstrate how a continued proliferation of localized taxation and area rates in an amalgamated unit will create positive linkages between urban and rural communities or an equitable sharing of costs and benefits of economic development? It should be clear that localized tax rates tied to localized assessment bases can only serve to perpetuate localized self interest and internal competition. It is also noteworthy that the information contained in the Application respecting residential property assessments uses the "capped" assessment values rather than the full market-value assessments. While the capped values are relevant in considering taxation levels, they are an artificial construct created solely for taxation purposes. A much more meaningful analysis would use the market-value assessments since those are more reflective of the actual reality. It is not practical to develop the market-value assessment data for this report, but the information should have been readily available to the MOU committee from the Department of Municipal Affairs. The applicants assert that other benefits should accrue from amalgamation including improved land use planning and the ability to advance initiatives such as hospital renovations... in a timelier manner. As noted in their application and evidence filing of November 20, 2015 (page 22), the five towns within Pictou County (i.e. the three proposing amalgamation plus Trenton and Westville) took steps in 2014 to adopt common Municipal Planning Documents under ss of the MGA. It would seem that amalgamation would not be necessary to achieve the improved land use planning. With respect to the ability to advance initiatives in a timelier manner, the applicants provide no evidence that the hospital 8 P a g e

11 renovation or any other project has been delayed by the absence of an amalgamated municipal government. Indeed, all indications are that any delays in the current hospital renovations have arisen at the provincial level rather than at the local level. The applicants state in various documents, most recently their February 5, 2016 final report, that: The analysis shows that the NM (new municipality) has the ability to:... Right-size the governance structure from 31 elected officials to 11. The proposed 11 elected officials being defined as the right size is at odds with earlier submissions made by the applicants and ruled on by the NSUARB. The following discussion shows that based on those submissions and rulings, a minimum right sized structure would require 21 elected officials (12 representing the County, 7 representing New Glasgow and 1 each representing Stellarton and Pictou). The proposed electoral boundaries roughly align with the existing municipal boundaries of the four Applicants, with one councillor each from a slightly expanded area of Stellarton and Pictou, two councillors from New Glasgow plus one from an area consisting of the southeast portion of New Glasgow and adjacent areas of the County. The remaining five councillors would represent areas lying totally within the current County boundaries. The most likely council configuration will see 1 councillor each from the former Stellarton and Pictou Town areas, 3 councillors from the former New Glasgow area and 5 councillors from the County, with the mayor's residence likely to vary from time to time. In comparison, both Stellarton and Pictou currently have 5 member councils, New Glasgow 7 and the County 14. Municipalities are required to undertake a review of council size and electoral boundaries every eight years. Stellarton, Pictou and the County completed their most recent review in New Glasgow last completed a review in 2007, and has not yet completed the 2015 review currently required by legislation. The 2015 review for both Pictou and Stellarton confirmed a council size of 5 (4 councillors plus mayor). The primary argument for the status quo appears to be that a smaller council size could be dysfunctional if one or more councillors were absent. The County, in its 2015 review, considered three options - status quo (14 councillors), a reduction to 12 and a reduction to 10. County Council successfully argued before the NSUARB that a council of 12 would provide the appropriate size to provide effective governance in view of the significant geographical territory to be covered. While the required New Glasgow review has not been completed, on December 2, 2014, New Glasgow Council considered three options - 1) status quo, 2) continuation with a council of 7 but eliminating the ward system and 3) a reduction of council to 5 members. After discussion, Council passed a motion to recommend to the NSUARB that the status quo be retained, arguing, in part, that a 7 member council best served the population. We are now presented with an amalgamated council structure that reduces County representation to half of the size that was found appropriate and necessary less than 12 months ago, and a New Glasgow representation of less than half the size that council considered appropriate and necessary only 14 9 P a g e

12 months ago. The Pictou and Stellarton position of requiring a minimum council of 5 for effective governance has at least some inherent logic, and is not inconsistent with the amalgamation proposal. The most obvious question is "Were the County and New Glasgow councils right a few months ago or are they right now?" It is impossible for there to be two right answers. 10 P a g e

13 Table 3 Change in Commercial Assessment to Municipality Commercial Assessment % Commercial Assessment % Change in Commercial Assessment % Municipality of Richmond (13.2) Municipality of Guysborough (3.2) Municipality of St. Mary's (2.7) Municipality of Cumberland (1.2) Municipality of Colchester (1.1) Municipality of Victoria (1.1) Municipality of Hants West (1.0) Municipality of Annapolis (0.9) Municipality of Digby (0.9) Municipality of Clare (0.9) Municipality of Kings (0.9) Municipality of Pictou (0.9) Municipality of Yarmouth (0.9) Municipality of Inverness (0.6) Municipality of Antigonish (0.5) Municipality of Argyle (0.5) Municipality of Barrington (0.5) Municipality of Lunenburg (0.4) Municipality of Chester (0.3) Municipality of Shelburne Municipality of Hants East Rural Municipality Average (1.4) Rural Municipality Median (0.9) Region of Queens (4.6) Cape Breton Regional Municipality (1.4) Halifax Regional Municipality (0.3) Regional Municipality Average (2.1) Regional Municipality Median (1.4) Town of Hantsport (18.4) Town of Annapolis Royal (3.4) Town of Yarmouth (2.8) Town of Clark's Harbour (2.5) Town of Shelburne (2.5) Town of Lunenburg (2.3) Town of Bridgewater (2.2) Town of Truro (2.2) Town of New Glasgow (2.1) Town of Middleton (2.1) Town of Digby (1.9) Town of Kentville (1.8) Town of Amherst (1.8) Town of Bridgetown (1.8) Town of Antigonish (1.7) Town of Stewiacke (1.4) Town of Pictou (1.4) Town of Oxford (1.4) Town of Mahone Bay (1.3) Town of Port Hawkesbury (1.2) Town of Trenton (1.1) Town of Parrsboro (1.0) Town of Berwick (1.0) Town of Wolfville (0.9) Town of Lockeport (0.6) Town of Springhill (0.5) Town of Westville (0.1) Town of Windsor Town of Mulgrave Town of Stellarton Town Average (1.8) Town Median (1.6) Source: Province of Nova Scotia Department of Municipal Affairs Financial Condition Indicators and P a g e

14 Financial Implications The applicants have placed extensive financial analysis into evidence. In addition the NSUARB has engaged Levy Casey Carter MacLean Chartered Accountants (LCCM) to undertake an independent evaluation of the Financial Projections prepared by the applicants. LCCM note at page 16 of their report that there are two primary approaches to the preparation of pro-forma financial statements. The first approach is to prepare them to forecast, as accurately as possible, what the future operations of the entity would look like. The second is to prepare the projections to reflect a proposed change so they can be easily compared to another set of financial projections. LCCM go on to state: The decision on how to prepare the projections should be based on which of the two questions the projections are trying to answer: 1. To determine whether the proposed NM would be viable if amalgamation occurs, or 2. To evaluate the advantages or disadvantages of the NM when compared to the status quo To accomplish the first goal the projections should be prepared to most accurately represent the expected future operations of the NM. To accomplish the second goal, the status quo and NM projections should be prepared as consistently as possible, with only significant changes between the projections being included. In this case the projections have been prepared to answer the first question. While this is appropriate when considering the viability of the municipality, it can be difficult to pinpoint whether the NM projections are better than the status quo projections. In view of the legislated test of best interest that the NSUARB must determine, the first question of viability, while obviously a consideration, does not satisfy the requirements of section 363(1) of the MGA. It is therefore respectfully submitted that the applicants have not provided appropriate financial evidence in support of their application. It is further submitted that the applicants have, since the genesis of this voluntary initiative, promised to provide their citizens with clear analysis of the impacts on the financial operations and complete analysis of the impact of amalgamation on the localized tax rates. However the overall impacts of amalgamation have not been presented within the financial information provided and there is no indication that the impact on localized property taxation has been calculated. The LCCM report at page 12 states that It is difficult to determine the exact impact this would have on tax rates.... While the undertakings that have been made to local citizens may well be beyond the scope of the NSUARB considerations, as a minimum the failure to provide the promised analysis tends to significantly negate the value of the plebiscite on this issue since the residents will lack comprehensive information upon which to base their votes. On Page 22 of their report, LCCM observe:...it was very difficult to tie the combined status quo projections into the NM projections P a g e

15 One does question whether this is a result of poor analysis by the applicants or a result of a deliberate effort to obscure what should be a transparent presentation. In any case, it is possible with effort to tie in the two sets of projections and complete a detailed analysis of the projected financial impacts of the amalgamation. In the analysis that follows, the combined totals for the existing municipalities are reconciled to the projections that have been presented for the proposed amalgamated municipality. Many of the financial changes that have been identified for the amalgamated municipality are, in fact, independent of the amalgamation, and can equally be achieved through decisions of existing Councils. These amounts have been separated from the revenues, costs and cost savings that are dependent upon the amalgamation. This separation permits a more reasonable view of the financial impacts of the proposed amalgamation. Capital Spending and Funding Projections Table 4 sets out a detailed reconciliation of capital spending and funding between the combined status quo and the amalgamated projections. This reconciliation allows a more thorough understanding and analysis of the financial impacts of amalgamation. Water utility capital spending has been excluded from the applicant s financial projections and is similarly excluded from Table 4 data. Table 4 shows the following: 1. Capital spending by the four existing municipalities is projected by the applicants to be $32,322, Incremental capital spending of $16,810,346 that is totally independent of the amalgamation process has been incorporated in the amalgamated projections. It is possible that some of this incremental spending is necessitated to support the amalgamated operational structure, but the publically available information is insufficient to allow this level of analysis. If this is the case, the projected benefits attributable to amalgamation would be reduced by the necessary spending. 3. New capital spending of $9,631,000 that is made possible by the provincial letter of intent (LOI) funding has also been added to the projected capital spending. 4. The proposed incremental spending of $16,810,346 will be financed through: a. Increase in the utilization of gas tax reserve funds of $3,867,788 b. Drawdown of other capital reserves of $4,262,586, partially offset by reduced use of operating reserves of $731,000 (Net drawdown of reserves of $3,531,586). c. Reduction of transfers from operations of $219,478. d. Incremental Build Canada Fund (BCF) grants of $3,955,355. e. Other unspecified sources $1,996,400. f. Increased long term debt borrowings of $3,678, P a g e

16 In addition to the new BCF grants and other source funding noted in items d. and e. above, the water utility capital spending also includes projected BCF grants of $6,966,667. If these BCF and other source grants are currently committed by the funding parties they should be included in the status quo projections. If the funding has not yet been committed, it would still be reasonable to include the tentative funding in the status quo projections unless the applicants establish a direct linkage between amalgamation proceeding and receipt of the funding. It would be highly unusual for municipal amalgamation to be a criterion for this type of funding. The use of existing reserve funds of $7.4 million and new borrowing of $3.7 million is clearly independent of the amalgamation process. As noted in the applicants submissions to the NSUARB and in the LCCM report to the NSUARB, the individual applicants all have significant room in their debt service ratios to enable the added borrowing without amalgamation. Further, since the use of existing reserve funds is restricted to capital projects undertaken within the boundaries of the originating municipality (and therefore cannot be pooled or transferred to another area), the projected drawdown of reserves would be equally feasible without amalgamation. In their Report to the NSUARB of February 5, 2016, the applicants state on page 3: the Applicants contend that a wholesale shift in approach to financing of TCAs is a critical component to regional growth. With respect, spending $7.4 million of reserve funds and incurring additional long term debt of $3.7 million is hardly innovative thinking. It should be obvious that the increased capital spending within the amalgamated municipality would, except for $9.6 million, be equally feasible without amalgamation. The $9.6 million of LOI funding (and the additional $3.5 million LOI funding for the water utilities) would, however (subject to the caveats associated with the incremental spending noted in item 2 above), be a tangible benefit for the proposed amalgamated municipality. In table 7 on page 18 of their February 5, 2016 report to NSUARB the applicants set out several of the projected financial condition indicators for the first five years. Five of the six indicators presented relate to capital expenditures. Three of those five indicators show deterioration over the five years, with two of the indicators falling below the provincial threshold in year 5. Despite a significant injection of new money from the province and new debt and reserve spending, the new municipality will fail to meet 2 of 5 indicator targets. The applicants have not presented any analysis of the impact the new capital debt servicing costs and reduced reserve balances will have on the financial condition indicators in years beyond year 5. It is possible that even the healthy indicators calculated during the 5 year test period will not be maintained in subsequent periods. Reserve Fund Projections 14 P a g e

17 Table 5 sets out a reconciliation of the combined status quo to the amalgamated projections of reserve fund balances and usage. This analysis has been summarized in total for the 5 year test period since the year-by-year analysis does not appear to provide any added clarity. As detailed above, status quo reserves of $7.4 million will be drawn down to support the incremental capital spending. Partially offsetting this will be a planned increase of $1 million in transfers to reserves out of general operations. However, the fact remains that combined status quo reserves of $11.7 million will be eroded to $5.3 under the amalgamation plan. It is difficult to characterize this as an improvement or benefit for the area residents. General Operating Revenues and Expenditures In Table 6 operating revenues and expenditures are reconciled between the combined status quo and the projections for the amalgamated municipality. Generally speaking the reconciling items are as set out by the applicants in their amalgamation adjustments. The analysis in Table 6 breaks down the adjustments between those that are not dependent upon amalgamation (non-amalgamation adjustments) and those that are only achievable or caused by the amalgamation. The amalgamation adjustments are further separated into those that are of limited duration (temporary) and those that do not have a finite term attached (permanent). The applicants have adopted an approach of adjusting net property tax revenues for any increase/decrease in net revenues and expenses. In essence the increase or decrease is the measure of cost or benefit to be derived from the amalgamation (based on the projections). For consistency this approach has been maintained in the Table 6 analysis. For this presentation the adjustment to property taxes has been allocated between non-amalgamation and amalgamation revenue adjustments based on the classification of the underlying revenue and cost adjustments. Based on the applicants status quo and amalgamated projections, total savings of $4,517,103 are projected in the first five years. Of that amount $1,204,663 is attributable to adjustments that are independent of the amalgamation process, and $3,312,440 is attributable to the amalgamation process. The following discussion addresses only those amalgamation adjustments which require some clarification: 1. Revenues: a. Permanent reduction - equalization grant of $1,689,484 per year represents the expected equalization grant reduction as detailed in the applicants November 20, 2015 report (Page 12). As they indicate, this represents a permanent revenue loss due to the operation of the equalization grant formulae. b. Temporary increase LOI funding of equalization grants of $1,689,484 per year represents the amount of special funding for transitional equalization grants under the LOI. The balance of the LOI equalization grant of $682,756 per year is funding that is currently received and which will continue indefinitely. This amount is included in the status quo revenues and requires no adjustment for amalgamation projection purposes. 15 P a g e

18 2. Expenditures: c. Non-amalgamation adjustment - elected officials represents the portion of the projected total savings in remuneration for elected officials that is attributable to the reduction of 2 councillors that has been ordered for the County council effective November 1, The remaining projected savings have been allocated to amalgamation adjustments. d. Non-amalgamation adjustment - reduction in interfund loan interest arises from the proposed cancellation of the County s $800,000 capital debt to their reserve fund. This debt cancellation and the resultant interest cost reduction are discretionary and do not arise as a result of amalgamation. e. Reduction of $1 million in the County s property tax valuation reserve is not driven by the amalgamation process, and is therefore categorized as non-amalgamation. LCCM discuss this amount on page 26 of their report. It can be argued that this adjustment should be made pre-amalgamation with the result being an increase of $1 million in the County section of reserve funds. f. Reduction of $150,000 per year (years 2 through 5) in the Wellness Centre deficit. There is no direct linkage in operations or other structures between the applicant municipalities and the Wellness Centre and it is not possible to conceive of an amalgamation-driven reduction in deficits of the centre. This adjustment might be best categorized as wishful thinking, but for simplicity has been included as a non-amalgamation adjustment. g. Increased interest on long term debt totalling $769,580 is a direct result of the new long term debt expected to be required to fund additional capital assets. This spending has been discussed above, and the spending related costs appear to be unrelated to the amalgamation process. h. All remaining adjustments are described by the applicants in their projections and there does not appear to be a need for further clarification or interpretation. 3. Financing and transfers: i. The increase of $200,000 per year in transfers to reserves has been classified as a nonamalgamation adjustment since it is purely discretionary and could be enacted by existing Councils. In any case, this presentation results in the most advantageous presentation of the amalgamation benefits. In summary, the analysis in Table 6 shows: 1. Net revenue increases of $2,906,000 over 5 years, with property tax revenues reducing by a total of $4,517,103 over the same period. This results in status quo revenues of $270,440,748 being reduced to $268,829,645 for the amalgamated municipality over the five years. 2. Discretionary expenditure reductions of $1,168,223 that are achievable by existing Councils without amalgamation, bringing status quo expenditures down from $256,596,791 to $255,428,568 for the status quo over 5 years. 3. Amalgamation related expenditure reductions of $406,434 resulting in projected amalgamated expenditures of $255,022,134 over 5 years. 4. A reduction of $16,962 in long term debt repayments over 5 years. 16 P a g e

19 5. A 5 year reduction of $800,000 in interfund debt repayments due to discretionary cancellation of the debt. 6. An increase of $1,000,000 transfers to reserve funds over 5 years. 7. A 5 year reduction of $219,478 in capital expenditures out of revenues. At this level of analysis it would appear that the short term gains from amalgamation would amount to $3,312,440, with most of the benefit stabilizing at approximately $835,000 per year over years 3 through 5. This analysis is consistent with the LCCM concluding remarks on page 30 of their report, but does isolate cause and effect to a greater extent than has been attempted in the LCCM report. Using published financial condition indicator data (FCI) published by the province, it is possible to calculate the average municipal tax burden per residential household as set out in Table 7. The average tax burden per household removes income variations from the data and provides a measure of the actual municipal expenditures per household - one indicator of municipal government efficiency. There are three regional governments in Nova Scotia, all of which were formed over 15 years ago. Given the age of these regional governments, it is reasonable to assume that sufficient time has passed since their formation for efficiencies to be fully realized. Interestingly, the Region of Queens, which is predominantly comparable to the rural municipalities, has an average tax burden per household of $1,172 - higher than 15 of the 21 rural municipalities. Also of note is the average residential tax burden in the Halifax Regional Municipality of $2,048 per household, higher than all but three of the towns in Nova Scotia. While not definitive, these comparisons do raise questions as to the efficiencies that are being achieved through regionalization. Will it work in Pictou County? Maybe not. Has the MOU Steering Committee provided evidence to support its assumption that regionalization or amalgamation will indeed lead to efficiencies that make the new Pictou County a financial leader in the province? Quite simply NO. To translate the average tax per household information into budget dollars - ultimately the measure of efficiency that is of significant concern to the taxpayer bank account - let us look at what cost savings would be necessary for the individual or combined Pictou County municipal units to join the ranks of the mediocre or best performing municipalities in the province. If we define mediocre as being better than half of the comparable municipalities (i.e. at the median level of municipal taxes per household) we find that Pictou County is currently operating at slightly better (i.e. lower tax burdens) than this level, and three of the five Pictou County towns are well below the median level with a fourth, Westville, very close. New Glasgow is currently levying $224 in taxes - 15% per household above the median tax burden of all towns in the province and more than $450 above both the Towns of Trenton and Pictou, placing it close to the 25% most expensive towns in the province. In order to even join the ranks of the mediocre, New Glasgow must reduce its expenditures by over $1 million, with all savings passed on to the residential taxpayers. Clearly, if half of the towns are at and below this level, this should not be a significant challenge, and obviously does not require a change in municipal structure to be achieved. 17 P a g e

20 If we push the target to a level that is better than mediocre - say to a level that is better than 75% of the comparable municipalities (still a long way from the best performers), we find that the County would need to reduce expenditures by $600,000, Stellarton by $200,000 and New Glasgow by $2.1 million. The Town of Pictou is already achieving this level of expenditure control (of note: Trenton expenditures are even further below this level). If one quarter of all towns and rural municipalities are able to achieve this level of expenditure control, including two within Pictou County, surely this is not impossible for our local municipalities. In summary, a combined expenditure reduction of just under $3 million for the four participating municipalities is required to be among the 25% most efficient provincial municipalities. Others have demonstrated that this is achievable without any form of regionalization. Rather than the blind pursuit of amalgamation, since Trenton and Pictou are already at this level, perhaps the participating units should simply ask the Trenton and Pictou elected officials and staff how to achieve these results and implement changes based on the proven wisdom and insights that they can share. 18 P a g e

21 Table 4 Pictou County Proposed Amalgamation Reconciliation of Combined Status Quo Capital Spending and Funding to Amalgamated Pro-forma Capital Asset Additions Year 1 Year 2 Year 3 Year 4 Year 5 Cumulative Combined Status Quo Total Capital Spending 8,584,309 11,201,410 6,263,653 2,823,500 3,450,000 32,322,872 Non-amalgamation adjustments Discretionary capital spending 4,686,747 5,161,843 2,142,097 2,859,769 1,959,890 16,810,346 Adjusted Combined Status Quo Total 13,271,056 16,363,253 8,405,750 5,683,269 5,409,890 49,133,218 Amalgamation adjustments Incremental capital spending 2,791,699 3,117,840 1,845, , ,400 9,631,000 Projected Amalgamated Capital Spending 16,062,755 19,481,093 10,250,790 6,662,290 6,307,290 58,764,218 Capital Asset Funding Combined Status Quo Total Capital Funding 8,584,309 11,201,410 6,263,653 2,823,500 3,450,000 32,322,872 Non-amalgamation adjustments Discretionary capital funding changes Gas Tax (147,462) 988, , ,950 1,203,950 3,867,788 Other Capital Reserves 1,308,766 1,462, , , ,934 4,262,586 Operating Reserves (556,000) - - (175,000) - (731,000) Capital out of Revenue (103,628) (3,850) (89,000) (54,000) 31,000 (219,478) Build Canada Funds 831, , ,398 1,423, ,333 3,955,355 Other Sources 996,400 1,000, ,996,400 Long Term Debt 2,357,607 1,531,670 (322,928) 416,673 (304,327) 3,678,695 Adjusted Combined Status Quo Total 13,271,056 16,363,253 8,405,750 5,683,269 5,409,890 49,133,218 Amalgamation adjustments LOI Funding 2,791,699 3,117,840 1,845, , ,400 9,631,000 Projected Amalgamated Capital Funding 16,062,755 19,481,093 10,250,790 6,662,290 6,307,290 58,764, P a g e

22 Table 5 Pictou County Proposed Amalgamation Reconciliation of Combined Status Quo Reserves to Amalgamated Pro-forma Reserves Cumulative Total Reserves Combined Status Quo Total Reserves, end of year 5 11,679,021 Non-amalgamation adjustments Gas tax revenue difference 15,002 Increase transfers from operations 1,000,000 Decrease (Increase) transfers for capital spending Gas tax Reserve (3,867,788) Capital Reserve (4,262,586) Operating Reserve 731,000 Other (30,000) Amalgamated Total Reserves, end of year 5 5,264, P a g e

23 Table 6 (Page 1) Pictou County Proposed Amalgamation Reconciliation of Combined Status Quo Operations to Amalgamated Pro-forma Operations Revenues Year 1 Year 2 Year 3 Year 4 Year 5 Cumulative Combined Status Quo Totals 52,004,311 52,880,692 54,099,902 55,301,759 56,154, ,440,748 Non-amalgamation adjustments Property tax adjustments (1,170,568) (94,115) (42,175) (92,552) 194,747 (1,204,663) Adjusted Combined Status Quo Total 50,833,743 52,786,577 54,057,727 55,209,207 56,348, ,236,085 Amalgamation adjustments Permanent changes Reduction in Equalization Grant (1,689,484) (1,689,484) (1,689,484) (1,689,484) (1,689,484) (8,447,420) Permanent amalgamated revenues 49,144,259 51,097,093 52,368,243 53,519,723 54,659, ,788,665 Amalgamation adjustments Temporary changes LOI Funding - Equalization Grants 1,689,484 1,689,484 1,689,484 1,689,484 1,689,484 8,447,420 LOI Funding - NSTIR Grants 241, , , , ,200 1,206,000 LOI Funding Pre/Post Transition Costs Grants 1,016, , ,700,000 Total temporary changes 2,946,872 2,614,496 1,930,684 1,930,684 1,930,684 11,353,420 Projected amalgamated revenues before property tax adjustments 52,091,131 53,711,589 54,298,927 55,450,407 56,590, ,142,085 Projected property tax adjustment (25,261) (783,866) (834,221) (833,779) (835,313) (3,312,440) Projected Amalgamated Revenues 52,065,870 52,927,723 53,464,706 54,616,628 55,754, ,829, P a g e