TOWN OF COLLINGWOOD
STRATEGIC INITIATIVES STANDING COMMITTEE AGENDA January 15, 2015 "Inspire confidence, wonder and a sense of possibility – deliver today’s services and realize tomorrow’s promise."
A meeting of the Strategic Initiatives Standing Committee will be held Thursday, January 15, 2015 in the Council Chambers, Town Hall, Collingwood commencing at 4:00pm. ORDER OF BUSINESS
1.
CALL OF STANDING COMMITTEE TO ORDER, Clerk Almas
2.
ELECTION OF THE CHAIR & VICE CHAIR, Clerk Almas
3.
ADOPTION OF AGENDA THAT the content of the Strategic Initiatives Standing Committee Agenda for January 15, 2015 be adopted as presented.
4.
DECLARATIONS OF PECUNIARY INTEREST AND/OR RECEIPT OF GIFT (over $200)
5.
DEPUTATIONS
6.
STAFF REPORTS
PW2015-05
Hume Street Reconstruction – Budget Schedule (p.3)
RECOMMENDING THAT the Strategic Initiatives Standing Committee receives the report and recommends the report proceed to Council for consideration of the following: THAT Council receives Staff Report PW2015-03 for information purposes; AND THAT Council authorizes staff to proceed with tendering the project for possible award in April 2015. Assessment of the Town of Collingwood’s Financial Health Report, CAO John Brown (p.11) T2014-24
Strategic Financial Plan - Policy Paper No. 1: Debt (p.40)
RECOMMENDING THAT the Strategic Initiatives Standing Committee receives the report and recommends the report proceed to Council for consideration of the following: THAT Council approve the following recommendations:
A “water debt servicing limit” not to exceed 7% of the water utility own source revenue be adopted. A “wastewater debt servicing limit” not to exceed 7% of the wastewater utility own source revenue be adopted. A “tax supported debt servicing limit” not to exceed 7% of tax supported own source revenue be adopted.
January 15, 2015 Strategic Initiatives Agenda - Page 1 of 2
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T2014-25
Strategic Financial Plan - Policy Paper No. 2: Reserve and Reserve Funds (p.55)
RECOMMENDING THAT the Strategic Initiatives Standing Committee receive Staff Report T2014-25 and provide direction to staff on the recommendations contained within the report, including: Establish Budgeted Capital Levy Collapse and rename noted reserves T2014-26
Strategic Financial Plan - Policy Paper No.3: Capital Asset Management Plan (p.62)
RECOMMENDING THAT the Strategic Initiatives Standing Committee recommends that Staff Report T2014-24 be received for information by Council.
7.
CORRESPONDENCE (nil)
8.
PUBLIC DELEGATION(S) (maximum 5 minutes per delegation)
9.
OTHER BUSINESS Review enhanced Standing Committee Public Participation
10.
ADJOURNMENT
January 15, 2015 Strategic Initiatives Agenda - Page 2 of 2
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STAFF REPORT Report # PW2015-03 January 15, 2015
Submitted to:
Strategic Initiatives Committee
Submitted by:
Brian Macdonald, Director, Public Works and Engineering
Subject:
Hume Street Reconstruction – Budget Schedule
PURPOSE The purpose of this report is to provide Council with the necessary information for early approval of the Hume Street reconstruction budget RECOMMENDATION: THAT Council receives Staff Report PW2015-03 for information purposes; AND THAT Council authorizes staff to proceed with tendering the project for possible award in April 2015
1. BACKGROUND The Hume Street reconstruction project is our number one priority project. It has been contemplated for a number of years and we are proposing construction to take place in the 2015 and 2016 construction seasons. This is a major project in the heart of town with potential impacts to local residences, numerous businesses within the corridor, the YMCA, and the hospital. In order to minimize potential disruptions, we feel that the majority of the works should be constructed in the 2015 construction season, leaving only minor tasks such as top asphalt and boulevard restoration to 2016. This schedule will require us to start construction as early as possible, sometime in April (weather dependant). For this we must proceed with tendering in early February so that the tender can be awarded in early April. Background The Town of Collingwood undertook a Class Environmental Assessment (EA) for the proposed improvements of Hume Street (between Hurontario Street and Pretty River Parkway), and Hurontario Street (from Fourth Street to Sixth Street). In order to best address roadway capacity and pavement condition in the area, a number of improvement alternatives were
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considered as part of the study. Public consultations were conducted on November 22, 2006, and September 15, 2009. An Environmental Study Report was prepared that documented all aspects of the EA process and presented the recommended design. The Environmental Study Report was placed on public record for a 30-day period for review and comment, commencing July 23, 2010 and ending August 22, 2010. The Environmental Study Report provided a preferred alternative that included a three lane cross section (two through lanes and a shared centre left turn lane) with a multi-use trail on one side of the road and a conventional sidewalk on the other side. However, as a result of long term monitoring of the performance of existing multi-use trails within the Town of Collingwood completed since the EA, it was determined that on-road bicycle lanes are a more effective solution to many of the problems facing the existing multi-use trails, including conflicts between pedestrians, cyclists, and vehicles navigating driveway accesses. As a result, an EA Addendum was conducted and made available for public review from November 13, 2013, to December 12, 2013. The revised design has a three lane cross section (two through lanes and a shared centre left turn lane), bicycle lanes, and conventional sidewalks on both sides of the road. Significant utilities (Bell, Rogers, Hydro, and Enbridge) require relocation. This relocation work has already commenced and will continue into the spring. The current project design includes:
Reconstruction from 100m west of Pretty River Parkway to Hurontario Street;
New cross section includes three lanes (two through lanes and a shared centre left turn lane) and on-road bicycle lanes;
New traffic signals at Ste. Marie Street North, Minnesota Street, and Raglan Street South;
Bridge widening to accommodate the widened road platform;
Sanitary sewer replacement from Hurontario Street to Minnesota Street;
Water main replacement from Minnesota Street to Raglan Street North;
Upgraded storm sewers; and
Minor landscaping improvements
Proposed Schedule The following is our draft schedule: Advertise Tender: February 11 Tender Close: March 11 Standing Committee Report: March 23 Council award: April 7 Construction start: Approximately April 20
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Sometime near the end of February we propose to have a public information session where we will provide the residents and businesses along Hume Street the opportunity to see our final construction plans and discuss construction staging, timing etc. As with previous high profile projects such as First Street and the BIA improvements. We will be providing weekly construction updates throughout the duration of the project. 2. INPUT FROM OTHER SOURCES
3. APPLICABLE POLICY OR LEGISLATION
4. ANALYSIS The Hume Street project has been in the works for a number of years and is our number one priority project. The proposed works have been vetted through an open public process and we are ready to proceed with construction. As noted in the background, this is a major project and will require the entire construction season to complete the majority of the works. In order to accomplish this we must start construction as soon as possible this spring. This will require us to go to tender in early February. For this we will need pre-budget approval, or, as a minimum, approval to proceed to tender and an award be subject to budget approval sometime in March. 5. EFFECT ON TOWN FINANCES The total budget estimate for this project is approximately $11.2 million. This includes engineering, utilities and construction. Utility relocations, at an estimated cost of $1.45 million (Town share), began in 2014 as part of last year’s approved budget. The Town has applied for $2 million in funding under the Federal/Provincial Small Communities Fund (SCF). We have been advised that we should find out if we are successful sometime in March / April 2015. Previous Councils have set aside a reserve of approximately $2.2 million for this project. The balance of the project will be funded through Development Charges ($4.2 million), Federal Gas Tax ($1.2 million), Sewer ($0.61 million) and water reserves ($0.61 million). This project is fully funded from reserves and grants. For more details see attached draft budget for Hume Street. Should the Town be unsuccessful in its $2 million SCF funding application, an alternative budget has been prepared. This alternative budget is also fully funded by forgoing our asphalt resurfacing program and drawing additional funds from our Gas Tax and Capital Reserves. This will mean the postponement of some projects; however, we feel that Hume Street is a priority and as such should take precedent.
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6. APPENDICES & OTHER RESOURCES Appendix A Appendix B
Draft Hume Street Budget with SCF funding Draft Hume Street Budget without SCF funding
SIGNATURES Prepared by:
Department head:
John Velick Manager of Engineering
Brian Macdonald Director, Public Works and Engineering
Town of Collingwood
Town of Collingwood
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Town of Collingwood Multi Year Capital Project 2014 Budget Project ID:
2014‐9379
Department:
Transportation‐Roads
Capital Project Name:
Hume Street Widening to 3 lanes PR Parkway to Hurontario Str PW08
Year of Initiation:
2009
Description:
In 2013 we amended the EA and completed 90% of the design. The plan includes servicing improvements and mitigation measures including improved roadway geometric design, storm water treatment, additional traffic signalization, sanitary sewer/watermain replacement. Widening (3‐lanes) requirements for the Pretty River bridge have been identified and further pedestrian facility improvements and on road bike lanes. Minor road profile adjustments will be made to improve drainage and driveway grades. 2014/2015 Completed the design and move utilities and 2015/2016 Construction Note : This budget does not include the pedestrian tunnel. should we wish to proceed with the tunnel at this time it will be an additional $850,000
Priority Rating (0‐5) Category:
Priority:
Comment:
Legislated Requirement Health or Safety Issue
3
Cost Savings/Payback
3
Asset Maintenance/Replacement
3
Growth Related Need
5
Service Enhancement
5
Linked to Other Project/Municipality Budget Description
Total Budget
Prior Year Expenditures
2014 Forecast
2015 Forecast
2016 Forecast
2017 Forecast
2018 Forecast
2019 Forecast
2020 Forecast
2021 Forecast
2022 Forecast
2023 Forecast
Expenditures: Professional Fees Land Acquisition Engineering Construction
733,394
193,394
130,000
9,020,000
300,000
100,000
10,000
8,000,000
1,000,000
20,000
1,100,000
30,000
Asset Purchase Other: Utilities Total Expenditures
1,450,000 11,203,394
193,394
1,000,000
450,000
1,130,000
8,750,000
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Town of Collingwood Multi Year Capital Project 2014 Budget Project ID:
2014‐9379
Description
Total Budget
Capital Project Name: Prior Year Expenditures
2014 Forecast
2015 Forecast
Budget 2016 Forecast
2017 Forecast
Hume Street Widening to 3 lanes PR Parkway to Hurontario Str PW08 2018 Forecast
2019 Forecast
2020 Forecast
2021 Forecast
2022 Forecast
2023 Forecast
Financing: External Financing Other Municipalities Donations Recoveries(Riverside)
150,000
150,000
Federal Funds (SCF)
1,000,000
1,000,000
Provincial Funds (SCF)
1,000,000
1,000,000
Other:
Internal Financing 193,394
Tax Base
193,394
User Fees Allocated Reserve
2,200,000
200,000
2,000,000
Development Charges
4,245,000
500,000
3,000,000
725,000
20,000
Federal Gas Tax
1,195,000
430,000
380,000
375,000
10,000
1,100,000
30,000
Provincial Gas Tax Parkland Levy Debenture Other: Sewer Dept.
610,000
Water Dept.
610,000
Total Financing Sources
11,203,394
610,000 610,000 193,394
1,130,000
8,750,000
Reminder: If this project has as operating budget effect remember to include the financial impact in the appropriate operating budget year(s).
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Town of Collingwood Multi Year Capital Project 2014 Budget
OPTION for proceeding without SCF Funding
Project ID:
2014‐9379
Department:
Transportation‐Roads
Capital Project Name:
Hume Street Widening to 3 lanes PR Parkway to Hurontario Str PW08
Year of Initiation:
2009
Description:
In 2013 we amended the EA and completed 90% of the design. The plan includes servicing improvements and mitigation measures including improved roadway geometric design, storm water treatment, additional traffic signalization, sanitary sewer/watermain replacement. Widening (3‐lanes) requirements for the Pretty River bridge have been identified and further pedestrian facility improvements and on road bike lanes. Minor road profile adjustments will be made to improve drainage and driveway grades. 2014/2015 Completed the design and move utilities and 2015/2016 Construction Note : This budget does not include the pedestrian tunnel. should we wish to proceed with the tunnel at this time it will be an additional $850,000
Priority Rating (0‐5) Category:
Priority:
Comment:
Legislated Requirement Health or Safety Issue
3
Cost Savings/Payback
3
Asset Maintenance/Replacement
3
Growth Related Need
5
Service Enhancement
5
Linked to Other Project/Municipality Budget Description
Total Budget
Prior Year Expenditures
2014 Forecast
2015 Forecast
2016 Forecast
2017 Forecast
2018 Forecast
2019 Forecast
2020 Forecast
2021 Forecast
2022 Forecast
2023 Forecast
Expenditures: Professional Fees Land Acquisition Engineering Construction
733,394
193,394
130,000
9,020,000
300,000
100,000
10,000
8,000,000
1,000,000
20,000
1,100,000
30,000
Asset Purchase Other: Utilities Total Expenditures
1,450,000 11,203,394
193,394
1,000,000
450,000
1,130,000
8,750,000
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Town of Collingwood Multi Year Capital Project 2014 Budget Project ID:
2014‐9379
Description
Total Budget
Capital Project Name: Prior Year Expenditures
2014 Forecast
2015 Forecast
Budget 2016 Forecast
2017 Forecast
Hume Street Widening to 3 lanes PR Parkway to Hurontario Str PW08 2018 Forecast
2019 Forecast
2020 Forecast
2021 Forecast
2022 Forecast
2023 Forecast
Financing: External Financing Other Municipalities Donations Recoveries(Riverside)
150,000
150,000
214,000
214,000
Federal Funds Provincial Funds (OCIF) Other:
Internal Financing 193,394
Tax Base
193,394
User Fees Allocated Reserve
2,700,000
200,000
2,500,000
Development Charges
4,411,000
500,000
3,166,000
725,000
20,000
Federal Gas Tax
2,315,000
430,000
1,500,000
375,000
10,000
1,100,000
30,000
Provincial Gas Tax Parkland Levy Debenture Other: Sewer Dept.
610,000
Water Dept.
610,000
Total Financing Sources
11,203,394
610,000 610,000 193,394
1,130,000
8,750,000
Reminder: If this project has as operating budget effect remember to include the financial impact in the appropriate operating budget year(s). Allocated Reserve
Hume St. Capital
2,200,000 500,000 2,700,000
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Assessment of the Town of Collingwood’s Financial Health December 2014 Prepared by BMA Management Consul ng Inc.
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Table of Contents Assessment of the Town of Collingwood’s Financial Health
1
Debt per Capita
21
Debt Outstanding per $100,000 of CVA
21
4
Financial Position
22
Population Changes
5
Taxes Receivable
23
Age Demographics and Quality of Life
6
Municipal Levy
24
Construction Activity
7
Levy per $100,000 of CVA
25
Assessment
8
Levy per Capita
25
Household Income
9
Financial Position Summary
26
Summary Indicators
27
Growth and Socio‐Economic Indicators
Summary Indicators Collingwood's Financial Position
10 11
Tax Reserves and Reserve Funds
12
Tax Discretionary Reserve Ratio
13
Water and Wastewater Discretionary Reserve Ratio
14
Stabilization Reserve
15
Asset Consumption Ratio
15
Operating Surplus
16
Debt Indicators
18
Total Debt Outstanding
19
Debt Prinicipal and Interest as a Percentage of Own Source Revenues
19
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Assessment of the Town of Collingwood’s Financial Health
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Assessment of the Town of Collingwood’s Financial Health
Trend Analysis
“Financial Health” can best be described as a municipality’s ability to finance its services on a con nuing basis. It refers to a municipality’s ability to: Maintain required service levels
The problems that create fiscal challenges seldom emerge overnight, rather they develop slowly, thus making poten al problems less obvious. Analyzing the trends of the Town’s key financial performance and socio‐ economic indicators offer several advantages including:
Withstand local and regional economic disrup ons
It provides informa on on changes in the Town’s financial health,
Meet the demands of natural growth, decline and change In order to maintain a strong financial posi on, municipali es must be able to con nue paying for services that they presently provide. This includes basic services to the public, maintenance and renewal of capital facili es to protect the ini al investment and maintain facili es in useable condi on It is important to understand the Town’s current “Financial Health” and the external factors that impact the Town’s delivery of programs and services. The Town’s “Financial Health” can be best described as its ability to: Achieve its vision vision as iden fied in the Town’s Strategic Plan Maintain required service levels including the maintenance and renewal of capital assets and infrastructure
revealing the most current trends; It shows how quickly a trend is changing; It will form the basis for future forecas ng; It builds awareness and helps iden fy the poten al need to modify
exis ng policies or develop new strategies; and It provides a good indica on of where the Town is heading.
Peer Analysis Peer analysis has also been included to gain perspec ve on the Town’s financial health. The following table summarizes municipali es which are considered good comparators in terms of popula on growth pa erns and proximity. 2014 Peer Municipalities Region Population
Withstand local and regional economic changes
Innisfil
Simcoe
35,091
Prescott & Russell UCO
25,764
Orillia
Simcoe
31,561
Owen Sound
Grey
22,205
Springwater
Simcoe
19,153
Waterloo
21,079
Simcoe
20,976
Prince Edward County
Wilmot Collingwood
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Compara ve Analysis Each year BMA Management Consul ng Inc. prepares a survey of 95 Ontario municipali es. The results of this survey have been included in this report. Key financial and socio‐economic indicators have been included to help economic indicators evaluate the Town’s exis ng financial health and to iden fy future challenges and opportuni es. Industry recognized indicators that are used by credit ra ng agencies and/or recommended by Government Finance Officers’ Associa on (GFOA) have been included. GFOA is a municipal associa on represen ng best prac ces in North America. GFOA has a commi ee dedicated to addressing Canadian issues and has developed recommended best prac ces from a Canadian perspec ve. GFOA has developed a body of recommended prac ces in the func onal areas of public finance. Monitoring indicators contained in this report over me will reveal the progress and success of the plan and provide an enhanced opportunity to both respond to changing circumstances and to con nually improve the effec veness of the plan. This report also provides recommenda ons to build upon the policies already in place in order to ensure fiscal sustainability and maintain flexibility to address future financial and economic condi ons.
Growth and Socio‐Economic Indicators This includes an evalua on of the Town’s growth and socio‐economic indicators which are largely external to the Town’s control but important to understand from a planning and forecas ng perspec ve. Popula on Building Construc on Ac vity Property Assessment Household Income
Collingwood’s Financial Posi on This includes an evalua on of the Town’s financial framework upon which the Town operates. These indicators help determine if modifica ons are needed to the Town’s exis ng financial policies.
Discre onary Reserves Opera ng Surplus Debt Municipal Financial Posi on Taxes Receivable Municipal Levy 3 15 of 65
Growth and Socio‐Economic Indicators Analyzing growth and socio‐economic indicators provide an overview of the internal and external factors that affect the community. They describe and quan fy a community’s wealth and economic condi on and provide insight into the community’s collec ve ability to generate revenue rela ve to the community’s demand for public services.
These indicators are closely interrelated and affect each other in a con nuous cycle of cause and effect. Also important are the Town’s plans and poten al for future development. The diversifica on of the commercial and industrial tax base should be considered for its revenue‐ genera ng ability, employment‐genera ng ability, vulnerability to economic cycles, and rela onships to the larger economic region.
An examina on of economic and demographic characteris cs can iden fy, for example, the following types of situa ons: An increasing tax base and correspondingly, the community’s ability to pay for public services A need to shi public service priori es because of demographic changes in the community A need to shi public policies because of changes in economic and legisla ve condi ons
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Popula on Changes
22,000
Changes in popula on directly impact both revenues (assessment base) and expenditures (service demand). The following summarizes key findings related to the Town’s popula on growth:
20,000
14,000
Collingwood has had steady popula on growth and experienced an increase in popula on of 14,382 in 1991 to 20,796 in 2014 (45.8% increase), higher than the Ontario average popula on increase during this me of 35.6%. This increase in popula on has resulted in substan al new capital infrastructure requirements which ul mately will have to be replaced.
Collingwood Population Trend
18,000 16,000
12,000 10,000 8,000 6,000 1991
1996
2001
2006
2011
2014
Source: Stats Canada, Manifold Data Mining
Over the past 13 years, Collingwood’s popula on growth was second highest in comparison to peer municipali es. Sudden increases in popula on can create immediate pressures for new capital outlay and increased or different demands for service.
The Town of Collingwood is a designated growth node in Simcoe County under the Provincial Growth Plan. Provincial es mates indicate a popula on of 33,400 by 2031 in Collingwood. The con nued need for addi onal infrastructure to accommodate future growth will take place at the same me that exis ng assets are reaching an age where renewal/replacement is becoming cri cal and more costly.
45% 40% 35% 30% 25% 20% 15% 10% 5% 0%
Changes in Population 2001‐2014 Peer Municipalities
Source: Stats Canada, Manifold Data Mining
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Age Demographics and Quality of Life The age profile of a popula on affects Town expenditures. For example, expenditures may be affected by seniors requiring higher public service costs and families with young children desiring enhanced services for recrea onal, and related programs. Collingwood has a diverse demographic, requiring a full range of programs and services.
Compared to the province average, Collingwood’s age profile has some notable differences. The Town has 22.8% of residents that are ages of 65+ compared with the Ontario average of 14.6% in 2011.
From 2006‐2011, there was an increase in the propor on of residents in the age group 65 and older in Collingwood of 2.3%, more than double the average increase in Ontario of 1%. This can increase the need for recrea onal programs and services for seniors.
Change in Collingwood 2006 2011 Age Profile Collingwood Collingwood 2006‐2011
2006 Ontario
2011 Ontario
% Change in Ontario 2006‐2011
Age 0‐14
15.6%
14.4%
‐1.2%
18.2%
17.0%
‐1.2%
Age 15‐19
6.5%
6.1%
‐0.4%
6.9%
6.7%
‐0.2%
Age 20‐44
28.7%
26.7%
‐2.0%
34.8%
33.0%
‐1.8%
Age 45‐54
15.3%
14.7%
‐0.6%
15.3%
16.0%
0.7%
Age 55‐64
13.3%
15.3%
2.0%
11.2%
12.7%
1.5%
Age 65+
20.6%
22.8%
2.3%
13.6%
14.6%
1.0%
100.0%
100.0%
100.0%
100.0%
0.0%
Total
Source: Stats Canada
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Construc on Ac vity Another growth‐related indicator is the Town’s construc on ac vity. Building ac vity impacts other factors such as the employment base, income and property values.
The Town uses supplementary tax revenues from new construc on to fund reserves. As illustrated on the graph, construc on ac vity in the Town decreased from 2011‐2013 which poses a future risk for the Town, especially if the trend con nues as contribu ons to reserves will decrease. Building permit value per capita is used as an indicator of the rela ve construc on ac vity within each peer municipality. The average building permit value per capita over the three year average in Collingwood was the highest in the comparator group, however, as previously men oned, it is trending down.
Construction Activity – Collingwood (000’s) Residential
$80,000
Com/Ind
Instit.
$70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $‐ 2010
2011
2012
2013
Sources: Year End Building Reports
Construction Activity per Capita – 3 Year Avg. (2011‐2013) Peer Municipalities
Generally, a municipality’s ongoing opera ng costs to service residen al development is higher than the net ongoing cost of servicing commercial or industrial development. As illustrated on the graph, the majority of the construc on ac vity is in the residen al sector.
$3,500
The ideal condi on is to have sufficient commercial and industrial development to offset the net increase in opera ng costs associated with residen al development. Non‐residen al development is desirable in terms of developing a strong assessment base upon which to raise taxes and in providing employment opportuni es. An economic development strategy for South Georgian Bay was prepared in June 2011 to support balanced development in all sectors.
$500
$3,000 $2,500 $2,000 $1,500 $1,000 $0
Sources: BMA Municipal Study & FIRs
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2014 Unweighted Assessment Composition %
Assessment Property assessment is the basis upon which the Town raises taxes. Assessment growth, the richness of the assessment base and assessment composi on are important indicators of fiscal strength.
Assessment Composi on—Assessment composi on provides an understanding of the mix of assessment. Collingwood’s propor on of residen al assessment is higher than the peer average. This over‐ reliance on residen al assessment can affect affordability.
Richness of the Assessment Base— Weighted assessment per capita sta s cs have been compared to provide an indica on of the “richness” of the assessment base. Collingwood’s weighted assessment base per capita is above the peer average and also above the BMA survey average. This is an indica on of a community’s ability to pay for services. Note: weighted assessment includes the applica on of tax ra os which are set by Simcoe County.
Growth in Assessment— Assessment increases include changes in assessment related to growth, as well as changes in market value of exis ng proper es (which does not generate addi onal revenues). The assessment increase from 2013 to 2014 in Collingwood was higher than the peer average and slightly above the BMA survey average of 5.2%. Much of this increase in assessment was the result of increases in market value assessment. This price infla on on housing prices may adversely affect future demand.
Source: BMA Municipal Studies
Peer Avg. Residential
Collingwood
81.6%
83.8%
Multi‐Residential
2.3%
1.8%
Commercial
9.3%
12.3%
Industrial
1.2%
1.8%
Farmlands
5.3%
0.1%
Other
0.5%
0.2%
Total
100.0%
100.0%
$180,000 $160,000 $140,000 $120,000 $100,000 $80,000 $60,000 $40,000 $20,000 $0
2014 Weighted Assessment per Capita Peer Municipalities
Change in Unweighted Assessment 2013‐2014 2.7% Orillia 3.3% Owen Sound 4.0% Springwater 4.9% Innisfil 5.6% Wilmot 5.8% Prince Edward County Average
4.4%
Collingwood
5.3%
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Household Income Household income is one measure of a community’s ability to pay.
Credit ra ng firms use household income as an important measure of a municipality’s ability to repay debt and the poten al ability to pay for municipal services. Changes in household income are especially important to municipali es such as Collingwood that have a smaller propor on of Non‐Residen al tax base because this is the primary source from which taxes are levied. Average household gross income in the Town of Collingwood is lower than the peer municipal average. Household income in Collingwood may be lower than average due to the fact that Collingwood has a higher number of re rees on fixed incomes.
Municipality
2013 Average Gross Household Income
Owen Sound
$ 65,931
Orillia
$ 67,009
Prince Edward County
$ 84,782
Innisfil
$ 90,753
Wilmot
$ 107,540
Springwater
$ 129,421
Peer Average
$ 90,906
Collingwood
$ 78,401
Source: Data Manifold Mining 2013
The average annual household income of the 95 Ontario municipali es in the BMA Study was $93,038.
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Summary—Growth Related Indicators Indicator Popula on Growth
Demographics
Trend, Observa on
Ra ng
Collingwood’s popula on increase over the past 20 years was higher than the Ontario popula on increase. And is higher than the average increase in peer municipali es
Neutral
Collingwood has a higher propor on of seniors popula on compared to the Ontario average. This can increase the need for services to support seniors.
The Town’s rela ve construc on ac vity is primarily in the residen al sector which is generally more costly to Construc on Ac vity—Mix service. Construc on ac vity for the past 3 years has been trending down. This poses a risk to the Town as it relies on supplementary taxes resul ng from new construc on to fund reserves. Construc on Ac vity— Comparison Assessment Composi on
The Town’s rela ve construc on ac vity, as measured on a per capita basis, was the highest in the peer survey over the past 3 years. Propor on of residen al assessment is higher than the peer average. An over‐reliance on residen al assessment can affect affordability.
Richness of the Assessment Base
The Town’s assessment base, on a per capita basis is the highest in the survey of peer municipali es.
Assessment Growth
The Town’s assessment growth from 2013‐2014 was amongst the highest in the survey. The majority of the growth is in the residen al sector.
Household Income
Average gross household income in Collingwood is below the peer municipali es.
Neutral
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Collingwood’s Financial Posi on Reserves/Reserve Funds are an important financial indicator in a Town’s Reserves/Reserve Funds overall financial health. By maintaining reserves, the Town has the capability to fund future liabili es; a key link to long‐term financial planning prac ces. They also provide a cushion to absorb unexpected shi s in revenues and expenditures. The availability of reserves also reduces the cost of financing capital as it allows the Town to avoid debt interest payments. Credit ra ng agencies consider municipali es with higher reserves more advanced in their financial planning. Debt is also an important indicator of the Town’s financial health and is Debt an appropriate way of financing longer life infrastructure and infrastructure related to growth that is not fully recovered through DCs. However, when debt levels get too high, it compromises the Town’s flexibility to fund programs and services.
The condi on and state of municipal infrastructure is an important factor in assessing a community’s overall quality of life and economic health. Collingwood has over over $259 $259 million dollars (excluding land) on a million dollars (excluding land) on a historical cost basis in infrastructure and is significantly higher on a replacement cost basis, basis which will require eventual replacement to sustain the community’s overall quality of life and the economic health for future genera ons. Consequently, it is cri cal to understand that there is a great need and benefit for further infrastructure investment in order to protect, sustain, and maximize the use of Collingwood’s infrastructure assets. infrastructure assets
Opera ng Posi on of the Town considers the opera ng revenues against expenses (including amor za on expense). This helps to determine whether the Town is contribu ng enough funds for the replacement of assets as they come due for replacement. Financial Posi on of the Town is important to consider as this takes into on considera on the Town’s total assets and liabili es. Taxes Receivable Receivable as a percentage of taxes levied is an indicator of the overall economic health whereby trends and industry benchmarks can be evaluated.
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Tax Reserves and Reserve Funds Reserves are a cri cal component of the Town’s long‐term financial plan. The purpose for maintaining reserves includes: To provide tax stabiliza stabiliza on in the face of variable and uncontrollable on
There are two types of Reserves and Reserve Funds:
Obligatory Reserve Funds are created whenever a statute requires revenue received for special purposes to be segregated from the general revenues of the Town and includes reserve funds for development charges and developer agreements. Given that these are not available for use at the discre on of the Town or to support exis ng opera ons, they have not been included in this sec not been included in this sec on of the analysis. Obligatory reserves include development charges to offset analysis the cost of infrastructure related to new growth, however, under the Development Charges Act, not all growth related capital costs are recoverable. For example, for many services, the Town can only collect 90% of the costs.
Discre onary Reserve Funds are established whenever the Town wishes to earmark revenues to finance a future expenditure for which it has the authority to spend money, and physically set aside a certain por on of any year's revenues so that the funds are available as required. The focus of the reserve analysis is on discre onary reserves, as this is an area where the Town can readily modify its exis ng policies to help ensure financial sustainability.
factors (growth, interest rates, changes in subsidies) and to ensure adequate and sustainable cash flows; sustainable cash flows; To provide financing for one‐ me me or short term requirements
without permanently impac ng the tax rates thereby reducing reliance on long‐term debt; To make provisions for replacement of assets/infrastructure on a
mely basis; To provide flexibility to manage debt levels and protect the Town’s flexibility
financial posi on; and To provide for future liabili future liabili es incurred in the current year, but paid es
for in the future like post re rement benefits.
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Tax Discre onary Reserve Ra o
The tax discre onary reserve ra o is the total of tax discre onary reserves as a percentage of own source revenues. In 2012, tax discre onary reserves totaled $26.1 million. In 2013, the tax discre onary reserves decreased by approximately $9 million to $17 million and, based on the 2014 budget, the tax discre onary reserves are projected to decrease a further $2 million to $15 million. In the past three years, tax discre onary reserves decreased by $11 million. 2013 Tax Reserves as a % of Own Source Revenues 140% 120% 100% 80% 60% 40% 20% 0% ‐20%
Reserves and reserve funds serve as a mechanism to plan financially for both today and in the future. Currently, reserves are primarily funded from opera ng surpluses generated mainly from supplementary taxes, which is not a best prac ce and not sustainable, especially if construc on ac vity declines. It is recommended that each of the Town’s reserves and reserve funds be reviewed at least on an annual basis to ensure future liabili es can be met, that capital assets are properly maintained and replaced on a mely basis and that the Town maintain sufficient flexibility to respond to economic cycles.
As shown above, the Town’s reserves in rela on to own source revenues (40%) is below the survey (49%) and BMA average (50%).
The need for reserves will vary based on services provided by the Town and the age, composi on and amount of assets and infrastructure that each Town supports as well as the type of liabili es.
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Water & Wastewater Discre onary Reserve Ra o
2013 Wastewater Reserves as a % of Own Source Revenues
2013 Water Reserves as a % of Own Source Revenues 60% 40% 20% 0% ‐20% ‐40% ‐60% ‐80% ‐100% ‐120%
250% 200% 150% 100% 50% 0%
Collingwood’s water reserves as a percentage of own source revenues is the lowest in the peer municipali es. Conversely, the Town’s wastewater reserves are amongst the highest in the survey.
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Asset Consump on Ra o Stabiliza on Reserves
The Town maintains stabiliza on reserves to offset extraordinary and unforeseen expenditure requirements, revenue shor alls and to manage cash flows. At the end of 2013, working fund reserves totaled $1.9 million.
GFOA recommends that municipali es maintain Stabiliza on Reserves/Reserve Funds for the general tax base within a target range of 5%‐15% of own source revenues to provide sufficient liquidity and 15% protec on against unforeseen events. The Town of Collingwood with an uncommi ed Stabiliza on Reserve balance of 4.4% which is below the lower end of the recommended range.
The asset consump on ra o shows the wri en down value of the tangible capital assets rela ve to their historical costs. This ra o seeks to highlight the aged condi on of the assets and the poten al asset replacement needs, however, it should be noted that there is no standardized approach for amor zing assets and therefore, the approach varies amongst the municipali es.
A higher ra o may indicate significant replacement needs. However, if assets are renewed and replaced in accordance with an asset management plan, a high ra o should not be a cause for concern. The Town has prepared an asset management plan Municipality
Stabiliza on reserves should be reviewed for adequacy on an annual basis.
Source: Town Reserve Report and FIR
Tax
Water
WW
Innisfil
29.3%
19.0%
27.9%
Orillia
35.7%
37.1%
40.4%
Owen Sound
37.6%
54.6%
53.9%
Prince Edward County
40.8%
31.8%
17.6%
Springwater
29.5%
22.4%
26.0%
Wilmot
39.0%
28.3%
28.8%
Average
35.3%
32.2%
32.4%
Collingwood
35.3%
48.2%
36.2%
Collingwood’s tax asset consump on ra o is 35% , the same as the peer average.
Collingwood’s water asset consump on ra o is 48%, the second highest in the average, indica ng the poten al for significant capital needs. This is significant since there are no water reserves and in fact, there is a liability to the wastewater reserve of $6 million. The wastewater asset consump on ra o is 36%, close to the average 15 27 of 65
Opera ng Surplus The opera ng surplus ra o is the opera ng surplus (deficit) expressed as a percentage of Own Source Revenues. A nega ve ra o indicates the percentage increase that would be required to achieve a break‐even opera ng result. A posi ve ra o indicates the percentage of Own Source Revenue to help fund capital expenditures. Municipali es consistently achieving opera ng surpluses, with regard to asset management and mee ng service level needs, are a good indica on of financial sustainability.
Iden fying the appropriate level of surplus must be done as a long term forward looking planning process that takes into account future capital investment needs.
In 2013, Collingwood had a tax opera ng deficit ra o of 2.0%. The 2012 the opera ng deficit ra o was 0.7%. 2013 Tax Operating Surplus 0% ‐5% ‐10%
An opera ng surplus (deficit) arises when opera ng revenue exceeds (is less than) opera ng expenses including amor za on. When an opera ng surplus is achieved, the amount is available for capital expenditure over and above amor za on expenses. Long term financial sustainability is dependent upon ensuring that, on average, over me, expenses are less than revenues. In essence, this requires current taxpayers to fully meet the cost of services. Municipali es opera ng with a deficit over several years should ensure that the long range financial plan provides clear direc on to turn this around. The presence of an accoun ng surplus does not necessarily represent financial sustainability. While a surplus is clearly be er than a deficit, the accoun ng surplus may not be large enough for future asset replacement. Amor za on expense is based on historic cost and will not reflect increased cost of replacement in the future. Taking into account future replacement costs in determining the appropriate level of surplus is a cri cal step towards financial sustainability. Some level of surplus is both appropriate and required.
‐15% ‐20% ‐25% ‐30%
While there is no specific target, municipali es should, at a minimum, operate at a break even posi on which would mean that revenues are sufficient to recover the cost of opera ons, including annual amor za on on a historical cost basis.
The asset management plan and strategic financial plan should be used to determine the appropriate surplus that is required by the Town.
Source: BMA Municipal Study, FIRs
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2013 Water Operating Surplus 30% 20% 10% 0% ‐10% ‐20% ‐30%
2013 Wastewater Operating Surplus 25% 20% 15% 10% 5% 0% ‐5% ‐10% ‐15% ‐20% ‐25%
As shown in the above two graphs, Collingwood also has an opera ng surplus in water (marginal 1%) and wastewater opera ons of 18% which exceeds the survey average in wastewater.
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Debt Indicators Using debt strategically can provide capital funding flexibility by allowing certain infrastructure to be built and used before sufficient revenue has accumulated to offset the needed investment. Debt is frequently issued and considered a standard prac ce in municipali es for capital projects that are long term in nature and that benefit future taxpayers, thereby spreading the costs across future years. High debt levels, however, reduce flexibility, can increase the cost of borrowing and could impair financial sustainability if debt repayments cause or contribute to future revenue inadequacy. A comprehensive and rou ne analysis of debt capacity provides assurance that the amount of debt required by a municipality is affordable and cost effec ve. A debt management policy improves the quality of decisions, iden fies policy goals and demonstrates a commitment to long‐term financial planning, including a mul ‐year plan. Adherence to a debt management plan signals to ra ng agencies and capital markets that the municipality is well managed and is well posi oned to meet its obliga ons in a mely manner. Prior to the implementa on of any new capital financing, considera on should be given to its impact on future taxpayers. The Province regulates the amount of debt municipali es issue by se ng an annual repayment limit for each municipality at 25% (principal and interest) of a municipality’s own source revenues.
The Government Finance Officers’ Associa on (GFOA) recommends that municipali es adopt policies to iden fy the maximum amount of debt that should be outstanding at any me. The Town has a debt management policy, however, it does not address the maximum amount of debt. It is recommended that a limit for overall debt be established using the various debt related financial indicators. In reviewing various Ontario municipali es debt policies, they are significantly more stringent than the Province’s regula on for debt. In addi on to a debt guideline, monitoring also becomes important, when considering the idea of the increased use of debt as a funding source to ensure that it is being used in a fiscally responsible manner. GFOA also recommends that municipali es adopt policies that specify appropriate uses for debt. Debt ra os are the key analy cal measures used by credit ra ng agencies to evaluate the credit worthiness of a municipality. Three key debt ra os for evalua ng debt include: 1.
Debt interest as a percentage of own source revenues
2.
Debt principal and interest as a percentage of own source revenues
3.
Debt per capita
4.
Debt outstanding per $100,000 of assessment
The use of these indicators allows the Town to con nually monitor its debt posi on and provide a mechanism for calcula ng theore cal debt capacity and assist in the capital budget decision‐making process.
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Total Debt Outstanding
Debt Principal and Interest as a Percentage of Own Source Revenues
$50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $‐
Although the Province regulates debt principal and interest at 25% of own source revenues, credit ra ng agencies recommend that debt charges not exceed 7%. The Town’s debt charges as a percentage of own source revenues is 10.0% amongst the highest in the BMA survey. Debt Outstanding
2013 Tax Principal and Interest as % of Own Source Revenues 12% 10% 8% 2008
2009
2010
2011
2012
2013
6% 4%
Collingwood’s debt outstanding from 2008‐2013 is shown above. The total debt outstanding and items commi ed to debt at the end of 2013 is approximately $41.7 million.
2% 0%
This indicator shows the extent to which a municipality must use revenue to pay principal and interest costs rather than pay for programs and services. Financial flexibility is the ability to respond to changing circumstances which may relate to economic, social or environmental condi ons. The higher the percentage required by debt service, the less financial flexibility available for responding to economic slowdowns, unexpected expenditures or changes in services.
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2013 Water Debt Interest as % of Own Source Revenues 10% 9% 8% 7% 6% 5% 4% 3% 2% 1% 0%
2013 Wastewater Debt Interest as % of Own Source Revenues 16% 14% 12% 10% 8% 6% 4% 2% 0%
Water/Wastewater debt interest as a percentage of water and wastewater revenues ranged from a low of 0% to a high of 15.6%. As shown in the graphs, Collingwood’s water debt interest of 1.7% is below the peer average. Collingwood’s wastewater debt interest at 7.0% is above the survey and peer average.
Source: BMA Municipal Study, FIRs
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Debt per Capita
Debt Outstanding per $100,000 of CVA
Debt per capita is another financial indicator that should be monitored according to GFOA. The debt outstanding per capita relates increases in debt to changes in popula on. As the popula on increases, capital needs and, therefore, long‐term debt would be expected to increase. However, if debt is increasing at a greater rate than its popula on, debt levels may be reaching or exceeding the Town’s ability to pay.
Debt outstanding per $100,000 of assessment should be monitored to ensure that the debt load is not exceeding the municipality’s ability to pay for debt servicing costs. Debt outstanding including unfinanced capital per $100,000 of assessment is $1,217.
2013 Debt per Capita
2013 Debt per Capita
$2,000 $1,800 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $0
$2,500
Debt
Unfinanced Capital
$2,000 $1,500 $1,000 $500 $‐
Debt per capita in 2013, including unfinanced capital is $2,042.
Source: BMA Municipal Study, FIRs
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Financial Posi on A Town’s financial posi on is defined as the total fund balances including equity in business government business enterprises less the amount to be recovered in future years associated with long term liabili es including water and wastewater opera ons. Net financial posi on is a broader and more appropriate measure of indebtedness than debenture debt as it includes all of a municipality’s financial assets and obliga ons. At the end of 2013 Collingwood had a net financial liability of $7.5 million, a steady improvement since the year 2009.
A comparison was made of financial posi on per capita with the peer municipali es. As illustrated below, Collingwood’s financial posi on on a per capita basis is below the survey average. In a broader survey of 95 Ontario municipali es represen ng over 85% of the Ontario popula on, Collingwood’s net financial posi on per capita is in the bo om quar le. The trend of this financial indicator needs to be monitored, on an ongoing basis.
$0 ($2,000,000)
Collingwood’s Financial Position Trend 2009
2010
2011
2012
2013 Financial Position Per Capita 2013
($4,000,000) ($6,000,000)
$1,500 $1,000 $500 $‐
($8,000,000)
$(500)
($10,000,000)
$(1,000)
($12,000,000)
$(1,500)
($14,000,000) ($16,000,000) ($18,000,000) ($20,000,000)
Collingwood issued addi onal debt in 2013 and an cipates a further debt issuance in 2014. As such, it is an cipated that the financial posi on will decrease in 2014.
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Taxes Receivable
Every year, a percentage of property owners are unable to pay property taxes. If this percentage increases over me, it may indicate an overall decline in the Town’s economic health. If uncollected property taxes rise to more than 8%, credit ra ng firms consider this a nega ve factor because it may signal poten al instability in the property tax base.
Collingwood’s ra o has fluctuated considerably over the past eight years, but has shown a recent downward trend. The current 7.9% ra o is at the high end of what is considered an acceptable range.
Collingwood’s ra o of taxes receivable to taxes outstanding in 2013 was 7.9% compared with the peer survey average of 8.7% and the BMA median of 6.3%. 2013 Taxes Receivable Ratio 14% 12% 10% 8% 6% 4% 2% 0%
Collingwood’s Taxes Receivable as a % of Taxes Levied 14% 12% 10% 8% 6% Expected Uncollectible
4% 2% 0% 2006
2007
2008
2009
2010
2011
2012
2013
Source: FIRs
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Municipal Levy Per Capita and Per $100,000 of Assessment Comparison It is important to understand the cost of municipal services as well as affordability metrics to ensure that there is an alignment between the cost of municipal programs and services and the ability and willingness of taxpayers to support the exis ng service levels.
In order to be er understand the rela ve municipal tax posi on for the Town and to take into considera on the impact of growth, a comparison of net municipal levies on a per $100,000 of assessment and a per capita was used. This analysis does not indicate value for money or the effec veness in mee ng community objec ves as net municipal expenditures may vary as a result of:
Different service levels
Varia ons in the types of services
Different methods of providing services
Different residen al/non‐residen al assessment composi on
Varying demand for services
Loca onal factors
Demographic differences
Socio‐economic differences
Urban/rural composi on differences
User fee policies
Age of infrastructure
Use of reserves
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Levy per $100,000 of Weighted CVA
Levy per Capita
A comparison of the 2014 levy per $100,000 of weighted assessment provides an indica on of the levy in rela on to the assessment base upon which taxes are raised. As shown below, the Town of Collingwood has above average levies per $100,000 of assessment of peer municipali es and approximately at the median of municipali es surveyed in the BMA Study.
An analysis was undertaken on the total municipal 2014 levy (upper and lower er) per capita across the peer municipal group. As shown in the following graph, the Town of Collingwood’s levy per capita is the highest in the peer group, the highest in the peer group, and 6th highest in the BMA Study. and 6th highest in the BMA Study.
Municipal Levy per Capita
Municipal Levy per $100,000 CVA $2,000
$1,600
$1,600
$1,200
$800
$400
$400
$‐
$‐
Source: BMA Municipal Study using Levy By‐laws
$1,200
$800
Similar to other municipali es, the Town of Collingwood faces mul ple pressures annually related to costs that are not readily controllable by the Town and that are increasing at a rate faster than infla on. As expenditure demands increase, the Town’s op ons to meet those demands are restricted to efficiencies, user fees, and lastly taxa on. This is exacerbated by declining opera ng grants from the Province.
Municipal levy increases are also influenced by the internal policies and programs of the municipality and the overall health of the municipality. For example, some municipali es have developed financial plans to support ongoing contribu ons to reserves which will impact the levy in the short term and will help in the long term. The Town of Collingwood is currently undertaking an opera onal review of corporate expenditures to help ensure that taxpayers are receiving value for money.
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Financial Posi on Evalua on Summary The Town of Collingwood, like many other Ontario municipali es, is facing a number of challenges which could threaten the future financial sustainability. At the end of December 2013, the Town of Collingwood had an overall nega ve financial posi on (financial assets less financial liabili es) of $7.5 million (approximately $369 per capita). In addi on, the Town con nues to face significant capital budget pressures which will further impact the Town’s financial posi on. On a per capita basis, the exis ng debt obliga on amounts to approximately $1,807.
To improve the understanding of the Town’s financial situa on and favourably influence its financial future, the Town will now be taking the results of these studies and other challenges and opportuni es and prepare a Long‐Term Strategic Financial Plan. The outcome of the Long‐ Term Strategic Financial Plan will be the establishment of specific policies, plans and programs necessary to ensure financial sustainability.
Without ac on to address the Town’s financial posi on, the Town will become increasingly challenged to provide the services and infrastructure that ci zens expect and value. The Town recognizes that the status quo is not a viable op on and, as a result, is proac vely planning for its future and is in the process or has completed a number of planning documents including but not limited to:
Development Charge Background Study
Water Sustainability Plan
10 Year Capital Forecast
Asset Management Plan
Water and Wastewater Rate Strategy
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Summary—Financial Indicators Indicator Tax Reserves as a % of Own Source Revenues
Trend, Observa on
Ra ng
Reserves are below the survey average and are trending down.
Water Reserves as a % of There are no reserves to support water opera ons which, for a capital intensive opera on poses a high risk. In Own Source Revenue fact, the waterworks opera on has an overall nega ve liability of $6 million. Wastewater Reserves as a The wastewater reserves are amongst the highest in the peer comparator group however this may not meet % of Own Source Revenue future capital requirements based on the 10 year forecast.
Stabiliza on Reserves
Stabiliza on reserves as a percentage of own source revenues (4.4%) is below the target range of 5%‐15%.
Debt Outstanding
Debt outstanding increased slightly in 2013 which includes the $4.8 million in unfinanced debt. Debt per $100,000 of CVA exceeds the survey average as does the debt per capita.
Debt per Capita
Debt per capita is the largest in the peer group and greater than the BMA median
Debt Interest as a % of Own Source Revenues
The Town’s tax, water and wastewater debt as a percentage of own source revenues is above the peer average and median.
Financial Posi on
The Town’s financial posi on has been gradually improving but con nues to be lower than the peer municipal average and BMA survey average of 95 municipali es.
Taxes Receivable
Taxes receivable are within the range considered to be acceptable and has been trending downward since 2011. The Town’s taxes receivable are lower than the peer municipal average.
Municipal Levy Per $100,000 of CVA
The municipal levy per $100,000 of assessment is higher than the survey average. An opera onal review is currently being undertaken which may poten ally iden fy efficiencies.
Municipal Levy per Capita The municipal levy per capita is higher than the survey average.
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STAFF REPORT Report #T2014-24 January 15, 2015
Submitted to:
Strategic Initiatives Standing Committee
Submitted by:
John Brown, CAO Marjory Leonard, Treasurer Debt
Subject:
PURPOSE The purpose of this report is to provide the Committee with information regarding: Current and historical external debt; Current internal (interfund) loans and notes; Committed debt; Potential debt; Risks that may impact our debt position; Debt servicing costs; and Debt as a % of own source revenues; Recommend policies to reduce external debt, avoid, where possible, future external debt and formalize internal loans and notes policies.
RECOMMENDATION: That Council approve the following recommendations:
A “water debt servicing limit” not to exceed 7% of the water utility own source revenue be adopted. A “wastewater debt servicing limit” not to exceed 7% of the wastewater utility own source revenue be adopted. A “tax supported debt servicing limit” not to exceed 7% of tax supported own source revenue be adopted.
1. BACKGROUND External Debt The Municipal Act, 2001 and the Ministry of Municipal Affairs and Housing (MMAH) define debt within the context of long term liabilities: “Long term liabilities are defined to include all types of debentures, mortgages and capital lease agreements.
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In addition, bank loans are considered long term liabilities if the following conditions are met: The loan is made for capital purposes; and The bank cannot, under normal circumstances, demand payment before maturity of the promissory note; and The municipality does not intend to issue debentures, but has instead set up a plan to repay the loan out of general revenues over a period exceeding one year, with the approval of Council or the 1 Ontario Municipal Board (OMB), as the case may be.” This is the definition used by MMAH when calculating the Annual Repayment Limit (ARL) which will be discussed prior to the introduction of the 2015 – 2018 budget documents. In response to several requests for information on the Towns debt levels during the election campaign, our auditors provided the following definition of what they consider to be debt: “Our professional opinion is that debt is external, contractual debt, typically in the form of bank loans, debentures and mortgages. This definition is in keeping with the presentation of debt on the Financial Information Return prepared annually for the Ministry, as well as the Ministry’s calculation of the Annual Repayment Limit… …like many municipalities, the Town has some internally financed debt. We have not included this in our definition of debt as Council has the flexibility and authority to change the nature of these amounts by Council motion, unlike the external debt that must be repaid based on a legal contract.” For all external reporting functions, this is the definition that is required to be used. It must be used for calculating the updated ARL before Council approves any capital project that requires long-term financing; it is used in the audited financial statements; it is used in the Financial Information Return (FIR); it is used in 2 the Assessment of the Town of Collingwood’s Financial Health ; it is used by Infrastructure Ontario (OILC) when reviewing our credit applications; and, it is used by the external legal counsel we retain for debenture transactions. Using the above definition of external debt, the following chart shows our historic levels:
External Debt $50,000,000 $45,000,000 $40,000,000 $35,000,000 $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014
1
Schedule 74: Long Term Liabilities and Commitments, FIR 2013, Ministry of Municipal Affairs and Housing. “The term “long term liabilities” reflects the debt position of a municipality and its local boards.” 2 “Assessment of the Town of Collingwood’s Financial Health”, BMA Management Consulting Inc., January 2014 and updated December 2014
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The above graph shows the consolidated balances which include the demand bank loan carried by the CPUSB from 2006 to 2011, the BIA portion of the Downtown Revitalization project, and the mortgage payable to F. W. Fisher Foundation.
Total External Debt at December 31, 2014
$37,022,620 10.70
Details of each of the outstanding debentures are provided in Appendix A. Repayment of the 2014 outstanding balance will come from:
Source of Funds to Retire Existing External Debt Water Rates Less than 1%
Taxation 52%
Wastewater Rates 32% BIA 2%
Land Acquisition Reserve 1%
South Servicing Properties 13%
Internal Loans and Notes Municipal accounting and reporting, historically, was a modified cash basis of accounting whereby payables and receivables were accrued at year end but items such as capital assets or post-employment benefits were simply expensed in the period they were incurred. The resulting model used for budgets and internal reporting was fund3 based . In general, the “Operating Fund” was used for calculating the tax levy because it contained provisions for debenture and other debt principal and any amounts necessary to fund capital expenses and transfers to reserves. The “Capital Fund” included acquisition or rehabilitation of capital assets and the associated financing necessary to complete the project. Collingwood, along with many other municipalities has maintained the fund accounting concept. With the exception of the amounts loaned to the CPUSB (see Appendix B), all other interfund loans are notional in nature. They represent a loan to the capital fund from reserves. Reserves are created through the budget process 3
The clearest definition of Fund Accounting can be found in the Public Sector Glossary from Statistics Canada (http://www.ststcan.gc.ca/nea-cen/gloss/pss-ssp-eng.htm). “Fund accounting: an accounting system in which a self-balancing group of accounts is provided for each accounting unit established by legal, contractual or voluntary action, especially in government units and non-profit organizations. Examples of the types of funds that are accounted for separately by government units are the capital fund, the reserve fund, the current, operating, general or revenue fund, the sinking fund, and the trust fund.”
-3-
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or by motion of Council and simply require a motion of Council to redirect those funds to whatever is deemed appropriate provided that it is done for a bona fide public purpose. However, it is assumed that these notional reserves were established and contributed to on the basis of a pre-determined future need for the funds. Accepting this, the amount(s) borrowed from reserves, through interfund notes, need(s) to be repaid requiring funds to be included in the operating budget. The Town has been using internal borrowing since 2010. Currently, the Town has the following outstanding internally financed loans and notes: Annual Repayment $ 50,000 $ 50,000 $ 50,000 **$ 83,456 $ 10,000 $ 347,095 $ 590,551
Heritage Park Wellness Centre Concept Waterfront Trail OPP Renovations* maximum estimate 507 Tenth Line Sunset Point Canteen* maximum estimate CPUSB Promissory Note Total Internal Loans and Notes
Balance $ 592,429 $ 901,925 $ 500,000 $ 1,100,960 ***$ 100,000 $ 5,739,959 $ 8,935,273
*Project is not complete at December 31, 2014. The costs incurred to date are $100,711. ** Amount is regulated by the OEB and subject to change annually. This is the 2014 interest on the CollusPowerstream note. ***Contract was awarded October 20, 2014.
Details of the internal loans and notes are provided in Appendix B.
Total Internal Loans and Notes at December 31, 2014 Cumulative Balance
$ 8,935,273
1.21
$ 45,957,893
11.91
Source of Funds to Retire Existing Internal Loans and Notes User Fees Taxes 22%
1%
Collus PowerStream Note Interest 13%
Water Rates 64%
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Committed External Debt Committed external debt refers to capital projects that are completed or underway and were approved based on debenture financing which has not yet been placed. The following projects have been committed to be funded by debenture:
Proceeds Will Be Used to Fund
Raglan Street (Hume to Ron Emo) Eddie Bush Arena – Phase 1 Curling Club Partnership Total Committed Debt
Potential Terms Potential Annual Interest Rate – 3.33% Serial debenture – 20 year term Potential Annual Interest Rate – 2.67% Serial debenture – 10 year term Potential Annual Interest Rate – 2.67% Serial debenture – 10 year term
Maximum Balance Committed
Estimated Repayment $ 124,324
$ 1,500,000
$ 63,015
$ 500,000
$ 63,015 $250,354
$ 500,000 $ 2,500,000
The funding for this new debt will be raised through tax revenues.
Total Committed External Debt at December 31, 2014 Cumulative Balance
$ 2,500,000
0.51
$48,457,893
12.42
Potential Debt Potential debt amounts are based on the 2014 capital budget requests and reflect projects that: have been committed but timing is unknown – Waterfront Trail phase 2 – committed in the Master Development Agreement; have one or two phases of the project completed – mainly roads such as High Street; are awaiting provincial or federal funding; and, allow PRC to fully develop or redevelop parks to meet the changing needs of the community. The majority of these projects could be within the term of this Council and require to be considered within the context of this report. Council may or may not proceed with any of the following items: Roads Hwy 26 West Repaving - $3,890,000. This project was initiated based on the Connecting Link program. We have been informed that this program is no longer in existence and would require the Town to fully fund the project increasing the potential debenture amount to $3,890,000 rather than the $389,000 if Connecting Link funding still existed. We have submitted an Expression of Interest under the Ontario Community Infrastructure Fund and have been asked to proceed to the next step. We do not have a guarantee of funding at this point and, without provincial funding, staff will not bring this project forward until it becomes a critical priority. High Street Widening – Tenth to Poplar - $3,129,623. This project includes a substantial portion of DC funding ($4.3 million) which may or may not be available when the anticipated start date of 2016 is reached.
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10 Line Urbanization - $500,000. This project is anticipated to begin in 2015 with completion in 2016. The developers of Mair Mills and Consar will be responsible for 50% of the costs.
Sunset Point Park Redevelopment - $500,000 – estimated completion 2016. Waterfront Master Plan and Development - $3,677,500 – estimated completion 2018. Eddie Bush Refurbishment Phase 2 - $1,000,000 – estimated completion 2015. Eddie Bush Refurbishment Phase 3 - $1,000,000 – estimated completion 2016. Eddie Bush Refurbishment Phase 4 - $1,000,000 – estimated completion 2017. Shipyards Walkway Phase 2 - $1,400,000 – estimated completion is dependent on the Shipyard development build out.
th
PRC
The total potential new debt that could be contemplated over this term of Council is $ 16,097,123. All of these funds would be Tax Supported debt. Annual payments on this additional debt, based on the October 31, 2014 Infrastructure Ontario rate of 3.33% for a 20 year term, would be $1,336,997.
Total Potential Tax Supported New Debt at December 31, 2014
Cumulative Balance
$16,097,123
2.74
$64,555,016
15.16
Water There are several projects in the Rate Study and Development Charge Study that indicated external financing would be required. The COO and CFO of the Collingwood Public Utilities Service Board have reviewed their capital plan and are certain that this financing will not be required within the next five years.
Risks That May Impact our Debt, Loan and Note Position The risks identified cannot be quantified but they should be acknowledged and taken account of before they can become a reality. Affordability The BMA reports and the Municipal Study - 2014 (prepared by BMA) indicates that our tax rates are high, specifically for residential properties. Affordability is not a measure of the total debt, loans and notes outstanding rather it is the ability of the Town and its’ citizens to pay for debt. Two measures – debt per capita which measures the affordability across municipalities and debt per capita as a percent of household income which provides some indication of the citizens’ ability to pay, are integral measures in determining affordability. In both instances, the Town is, again, high. With 10.70 % of every dollar raised going to external debt servicing and an additional 1.21% going to service internal loans and notes, at existing 2014 levels, our ability to maintain current services levels and rehabilitate capital assets is impaired. Increase in borrowing rates We have been in an historic and prolonged period of low interest rate borrowing which has created a more favourable environment to issue debt. How long this environment will continue depends on the fiscal policy of the Bank of Canada. The latest forecast is that an upward rate adjustment will occur in the third quarter of 2015. To put an interest rate increase in perspective, a 1% rise in rates for a 20 year term debenture would increase the annual repayment requirement by $9,875 per each $1 million borrowed or an additional $102,565 in interest payments over the 20 year term. Inadequate reserve and reserve fund levels and funding mechanisms Since 2010 reserve and reserve fund contributions have come from the operating surplus at year end and have not been included in the budget. This type of funding places reliance on uncertain and unstable cash flows to fund future capital rehabilitation and improvements. In order to meet future capital needs as addressed in the Capital Asset Management Plan the funding of reserves needs to increase and become stable and predictable. In the 2014
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budget, Council established a Capital Levy transfer to reserve in the amount of $140,000. While this amount will be included in the base budget for future years, it is not sufficient to meet our needs. CPUSB use of MEARIE insurance MEARIE is an insurance reciprocal created in 1987 with a focus on the energy sector. Subscribers include electrical utilities, municipalities, small hydro and gas generation, telecommunications, fiber optics and water distribution. However their main focus and target market is the electrical sector. The philosophy behind a reciprocal insurance exchange is an unincorporated group or pool of organizations with similar risks agree to share those risks with each other. A contract is signed by each member of the group, which essentially "reciprocates" the agreement to share in each others' losses. The "down side" facing reciprocal members is the possibility of being retro-assessed to make up for any shortfall in claims funding which can occur if a large claim occurs, an unusual number of moderate to large claims occur in a given operating period, or there is an adverse development on any outstanding claims. If any of these situations occurs, the reciprocal can call on each member for additional funding to compensate for any deficiency in the underwriting pool. Regardless of the stability or financial foundation of the reciprocal pool, there is a possibility that the Town, through the CPUSB, could become liable for an unexpected or unknown claim. Retroactive claims can be made from historical involvement under these schemes. The balance of the Town’s insurance (the exception is the CPUSB) is placed with an insurer which does not have historical risk or shared liability. Capital call from Collus PowerStream A “capital call” is a request for additional equity investment by shareholders or partners in order to fund cash shortfalls in operations, fund acquisitions or to compensate for the falling value of non-cash assets and the need to increase cash so that liabilities do not exceed assets. With the sale of 50% of our shares in Collus, the Town no longer controls the direction the company may take. The share sale agreement does indicate that an acquisition action cannot be taken without the approval of all shareholders. It is unknown if this is a potential direction for the corporation to take however, it is a risk in terms of potential cash requirements on the part of the Town.
2. INPUT FROM OTHER SOURCES Municipal Act, 2001 as amended; “Assessment of the Town of Collingwood’s Financial Health”, BMA Management Consulting Inc., January 2014 (referred to as The BMA Report); “Assessment of the Town of Collingwood’s Financial Health”, BMA Management Consulting Inc., December 2014; Municipal Study – 2014, BMA Management Consulting Inc., November 2014; This report was reviewed by Department Heads December 9, 2014, and recommended to proceed to Council.
3. APPLICABLE POLICY OR LEGISLATION Municipal Act, 2001 as amended
4. ANALYSIS There are several common measures of a municipality’s debt burden which are referred to in the BMA reports. These key analytical measures of flexibility, affordability and sustainability are: Debt interest as a percentage of own source revenues; Debt per capita; Debt outstanding per $100,000 of assessment; and Debt principal and interest as a percentage of own source revenues.
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In all cases, the higher the percentage or the dollar figure generated from the calculation the more impairment in flexibility, affordability and sustainability are experienced. Throughout this analysis, the term “debt servicing costs” will refer to debt principal and interest.
External Debt Servicing Costs Historical debt servicing costs are illustrated in the following graph. It should be noted that not all of these costs are paid directly from taxes. Water, wastewater, BIA, development charges and recoveries from South Servicing properties account for about 48% of the annual repayments. The sources of funding were shown above in the pie charts. It is evident from those charts that tax revenues do form the largest portion of the funds for repayment. The large increase in 2009 payments reflects the debentures issued in 2008 as well as a lump sum payout of $3,775,000 (made from sewer reserve funds) to pay out the balance of the 1999 debenture for upgrades to the wastewater treatment plant. The increase in 2011 is due to the 2010 debenture issues coming on line.
External Debt Servicing Costs $10,000,000 $9,000,000 $8,000,000 $7,000,000
$6,000,000 $5,000,000 $4,000,000 $3,000,000 $2,000,000 $1,000,000 $0 2005
2006
2007
2008
2009
-8-
2010
2011
2012
2013
2014
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Debt Servicing Costs as a % of Own Source Revenues The municipality must raise enough cash to pay both the principal and interest portion of any outstanding debt, loan, mortgage or internal loan/note. It, therefore, makes this indicator the most relevant in terms of determining limits for external debt and internal loans and notes. The amount of money necessary to be raised to pay down principal and interest costs is not available for the provision of other services to the public. The BMA Report uses “Debt Principal and Interest as a % of Own Source Revenues” as a component of the financial health of a community. It is a measure of financial flexibility and the ability of the community to respond to changing economic, social or environmental conditions. The higher the percentage of revenues required to service debt through principal and interest payments, the less financial flexibility is available to respond to unexpected 4 and uncontrollable events. The basis of some of the calculations is “Net Own Source Revenues” as per Schedule 81 of the Financial Information Return (FIR). This figure is also the basis for the calculation of the Annual Repayment Limit which means that only external debt, both issued and committed, is included. In order to provide some historical context, the figures for own source revenues have been recalculated in accordance with the methodology applied in the BMA Report. At this time, the 2014 own source revenues have been estimated from a review of current actual results.
Historical Debt Servicing Costs as a % of Own Source Revenues External Debt Servicing Costs Year 2005 2006 2007 2008 2009* 2010 2011 2012 2013 2014
$ 3,623,397 $ 3,500,287 $ 3,219,791 $ 3,308,594 $ 4,604,726 $ 4,164,008 $ 6,297,722 $ 6,009,806 $ 5,617,042 $ 5,218,547
Own Source Revenues $ 30,353,759 $ 32,524,597 $ 33,946,267 $ 37,393,393 $ 41,270,314 $ 45,238,665 $ 45,229,947 $ 44,817,746 $ 46,847,437 $ 48,786,746
External Debt as a % of Own Source Revenues 11.94% 10.76% 9.48% 8.84% 11.16% 9.20% 13.93% 13.41% 12.00% 10.70%
Internal Loans and Note Servicing Costs
$ 50,000 $ 50,000 $ 590,551
Combined Debt, Loans and Notes
13.52% 12.10% 11.91%
*The 2009 debt servicing costs have been adjusted to remove the large balloon payment of $3,775,000 to provide a more appropriate year to year comparison. If this lump sum payment is included in the figures, the 2009 percentage is 20.34%.
The January 2014 BMA report indicated that the estimated 2014 debt servicing costs as a percentage of own source revenues will be approximately 12%. The actual results will vary from this estimate since the calculation is a function of own source revenues. At this point in the year, estimated own source revenues are $48,786,746.
Including external debt servicing costs only the percentage is Including internal loans and note servicing costs the percentage is
10.70% 11.91%
4
“Assessment of the Town of Collingwood’s Financial Health”, BMA Management Consulting Inc., January 2014, pgs. 19-20; and
“Assessment of the Town of Collingwood’s Financial Health”, BMA Management Consulting Inc., December 2014, pgs. 19-20
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Including committed debt servicing costs the percentage is Including potential debt servicing costs the percentage is
12.42% 15.16%
These would be the overall percentages for water, wastewater and tax supported debt. However, BMA does further analysis on the constituent parts of own source revenues and debt. Applying this concept to the estimated 2014 own source revenues will allow a disaggregation of the debt servicing percentages and determine if limits on the debt levels of the constituent parts would be prudent. It should be noted that the following chart is based on information previously presented in this policy paper. The most nebulous element is the potential external debt amounts since the completion of any of these projects is dependent on future decisions of Council. However, to restate the assumptions, these figures are based on: Potential external new debt for the Town has been based on the 2014 capital budget and could reach $16,097,123.
Estimated own source revenues Debt servicing costs: Existing external debt Internal loans and notes Committed external debt Potential external debt Total Potential Debt servicing costs
Water
Wastewater
Tax Supported
$ 6,240,827
$ 7,953,111
$ 34,592,808
$48,786,746
$ 147,193 $ 347,095
$ 1,761,995
$ 494,288
$ 1,761,995
$ 3,309,359 $ 243,456 $ 250,354 $ 1,336,997 $ 5,139,966
$ 5,218,547 $ 590,551 $ 250,354 $ 1,336,997 $ 7,396,449
2.34% 5.56%
22.15%
7.90%
22.15%
9.57% 0.70% 0.72% 3.87% 14.86%
10.70% 1.21% 0.51% 2.74% 15.16%
% of own source revenues: Existing external debt Internal loans and notes Committed external debt Potential external debt Cumulative % of own source revenues 5
The Municipal Study – 2014 provides comparative information in relation to the level of our tax, water and wastewater rate burden. The Town is in the high range of the comparators. One of the factors that contributes to the high levels is the amount of debt we carry. From the analysis above, it is evident that no more external debt or internal loans and notes should be incurred for wastewater projects. Both the Water and Wastewater Rate Study and the Development Charge Background Study do not rely on debt issuance to complete the wastewater projects that have been contemplated. It should also be evident that as our tax levy, water rates and wastewater rates increase, the debt as a percentage of own source revenues will decrease given that no additional debt is issued Administration is sensitive to borrowing for unsustainable purposes and feels that a well-planned strategic approach is warranted at this stage in the evolution of the Town’s financial planning. In the past, external debt has been the funding mechanism “of choice” for capital projects as opposed to the budgeting of reserve and reserve fund contributions in the operating budget. This focus needs to change to incorporate the consideration of external debt as only one component in a strategically planned capital asset management plan. The debt limits proposed are, essentially: 5
Municipal Study – 2014, BMA Management Consulting Inc., pages 256 to 421.
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re-positioning debt as a financing tool for the Town; supporting the Town’s ability to meet current and future infrastructure challenges; preserving borrowing capacity for future capital assets; increasing flexibility of current operating funds; and limiting the impact that debt charges will have on future tax rates.
It should be noted that, notwithstanding any limits that Council may approve to limit increasing debt, the ultimate decision on any recommended debt or borrowing rests solely with Council. Debt decisions will be considered through the municipal budget process and will require bylaw approval to apply for any debentures. Recommendations: 6 Set a “water debt servicing limit” not to exceed 7% of the water utility own source revenue. Given that the Water and Wastewater rate study recommended that water rates increase 2.5% annually from 2014 to 2022, the water utility would not be in a position to contemplate additional debt until around 2019.
Set a “wastewater debt servicing limit” not to exceed 7% of the wastewater utility own source revenue. Given that the rate study recommended wastewater rates to increase 3.5% from 2014 to 2018 and then decrease to 2.5% until 2022, the wastewater utility would not be in a position to increase their debt level until around 2026.
Set a “tax supported debt servicing limit” not to exceed 7% of tax supported own source revenue. Based on the Capital Asset Management Plan assumptions, tax supported revenues would need to increase 3.6% annually. If this were the case, tax supported revenues would not be in a position to contemplate issuing new debt until 2018 based on the current repayment schedules.
5. EFFECT ON TOWN FINANCES The purpose of this report was to provide Council with information regarding our current and potential external debt and internal loans and note position. As part of the strategic financial planning process staff are requesting that Council approve the debt limits as outlined above and direct staff to proceed developing policy and procedures for internal loans and notes as an external debt avoidance strategy and to investigate mitigation options for potential risks.
6. APPENDICES & OTHER RESOURCES Appendix A Appendix B
Current Outstanding External Debt Instruments Details of Internal Loans and Notes
6
“Assessment of the Town of Collingwood’s Financial Health”, BMA Management Consulting Inc., December 2014, has provided a range of 5-10% for water and wastewater supported debt and 7% for tax-supported debt.
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Resource 1 Resource 2 Resource 3
BMA Report, January 2014 Municipal Study – 2014 BMA Report, December 2014
SIGNATURES Prepared by: Marjory Leonard, MBA, CPA, CMA, CFP Treasurer
Department head: John Brown Chief Administrative Officer
Town of Collingwood
Town of Collingwood
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Appendix A – Current Outstanding External Debt Instruments
By-law No.
Proceeds Were Used to Fund:
Terms
04-103
Annual Interest Rate – 5.58% Issued through Capital Markets Amortizing debenture Due – December 9, 2024
2008139
Purchase of Annex building – $ 995,000 Black Ash Creek Channelization $6,250,000 East End Force main $6,100,000 Airport Terminal - $ 384,744 South Servicing - $8,670,000 Mountain Road Realignment $388,539 Cambridge/First Extension $246,103 Sanitary Sewer Renewal Phase 1 - $3,762,821
2010117
Sewer Renewal Program Phase 2
2010135
First/Huron Streets Reconstruction
2010136
Downtown Revitalization
2010137
Downtown Revitalization – BIA portion
2010138
Library/Municipal Office Building
2013102
Sewer Renewal Program Phase 3
2014082
New Fire Station
2012112
Purchase of Fisher Field
Annual Interest Rate – 5.57% Serial debenture Due – November 1, 2028
Annual Interest Rate – 3.07% Serial debenture Due – November 2, 2020 Annual Interest Rate – 3.55% Serial debenture Due – November 2, 2020 Annual Interest Rate – 3.55% Serial debenture Due – November 2, 2020 Annual Interest Rate – 4.30% Serial debenture Due – November 2, 2030 Annual Interest Rate – 4.30% Serial debenture Due – November 2, 2030 Annual Interest Rate – 3.09% Serial debenture Due – November 2, 2023 Annual Interest Rate – 3.22% Serial debenture Due – November 2, 2034 Non-interest bearing mortgage Due Date – March 1, 2022
Total
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2015 Repayment Required
Outstanding Balance December 31, 2014
$1,115,804
$ 8,463,647
$1,186,004
$ 9,415,145
$639,919
$ 3,263,612
$419,712
$ 2,091,412
$326,125
$ 1,625,070
$62,896
$ 600,000
$611,026
$ 5,828,934
$286,084
$ 2,026,800
$269,921
$ 3,300,000
$51,000
$ 408,000
$ 4,968,491
$ 37,022,620
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Appendix B – Details of Internal Loans and Notes 7
1.
Heritage Park Wellness Centre Concept This project was initiated in 2009 as part of the “Heritage Park Master Plan”. Phase 1 of the 4 phase park redesign was included in the 2009 capital budget. The project was shelved in 2010 which changed the nature of the expenditures to date ($841,141) from capital expenses to operating expenses however, we had to wait for the Fitness Centre sale proceeds to determine the net amount that had to be recovered from taxes. The outstanding amount must be recovered from the tax levy since it has now become operational in nature.
2.
Waterfront Trail This project is defined in the Master Development Agreement for the Shipyards property. Under the terms of the agreement, the developer is responsible for the construction of the walkway to the Town’s specifications and then the Town reimburses the developer. The total estimated project cost was $2.4m. The terms available to the Town from the developer were to repay the cost over 5 years (their projected build out time) at 7.0% or debenture the costs for a similar interest rate over a longer period of time. The developer ran into financial difficulties in 2010 and, since the time to restart the project was unknown, we have started to pay down the balance. We can, however, debenture any remaining balance plus the additional costs that will be incurred to complete the project when it is completed.
3.
OPP Detachment Renovations The Town is responsible for providing premises for the OPP detachment. The existing building requires an upgrade to the cell area, replacement of the roof top unit and, the removal of the in ground gas tanks that are no longer needed. This project is eligible for 64.45% development charge funding. It is anticipated that the amount of the internal loan after development charges will be under $500,000.
4.
507 Tenth Line The purchase of the land and building at 507 Tenth Line was presented to Council September 12, 2011 showing the majority of the funds coming from the promissory note with COLLUS Power Corp. At the Council meeting of April 12, 2012, Council passed the following motion: “THAT Council authorize not calling the promissory note held by Collus, and monies be allocated from the sewer reserve to offset the cost of the 507 Tenth Line property acquisition.” There is no indication from this motion that the monies are to be repaid to the sewer reserve however, given that the reserve was created to ensure that funds were available for future expansion and upgrades to the wastewater collection and treatment systems, staff are recovering these funds from the interest received on the promissory note. The amount of interest that we receive varies each year and is consistent with OEB regulated cost of long-term borrowing rate (4.88% in 2014).
5.
Sunset Point Canteen Renovations During the 2014 budget deliberations, Council approved renovations to the existing canteen to improve efficiencies for vendor operation and upgrade accessibility features and washroom facilities. These funds will be recovered through increased rental income.
7
7
It should be noted that repayment of the funds advanced to the capital fund for these two projects has not increased the amount to be raised from the tax levy. Debenture By-law No. 98-48 was paid in full in 2013 and required $193,000 to be raised from the tax levy each year. The repayment amounts being applied to these projects do not carry a component of interest and total $100,000 per year.
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6.
Promissory Note from the Collingwood Public Utilities Service Board It has been customary for the Town and CPUSB to work cooperatively in times of short term funding needs. It has worked well for both parties and reduced the borrowing costs for the taxpayers and ratepayers. The sewer reserve has advanced the CPUSB $6,000,000 to fund accumulated operating deficits from 2009 to 2013, past capital projects and cash flow requirements and has taken back a formal note on these funds. The interest rate, established by mutual agreement, is 1.5% and is equivalent to the approximate interest the Town could earn on those funds and approximately half of the rate that the CPUSB would pay if the funds were debentured. The repayment of principal and interest began in 2014 and has been included in the water rate study completed in 2014.
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Staff Report T2014-25 Strategic Financial Plan Policy Paper No.2 Reserve and Reserve Funds January 15, 2015
Submitted to:
Strategic Initiatives Standing Committee
Submitted by:
John Brown, CAO Dennis Sloan, Deputy Director Financial Planning and Policy Development Review of Reserves and Reserve Funds
Subject:
PURPOSE To provide Council with an overview of reserves and reserve funds and provide recommendations on consolidation of current accounts.
RECOMMENDATION: That the Strategic Initiatives Standing Committee receive Staff Report T2014-25 and provide direction to staff on the recommendations contained within the report, including: Establish Budgeted Capital Levy Collapse and rename noted reserves
1. BACKGROUND The effective use and management of Reserves and Reserve Funds is a critical aspect of an organization’s Strategic Financial Plan (SFP) and continued long-term financial sustainability. “A Strategic Financial Plan is a statement of principles, programs and policies formally approved by Council that serves as a framework for Council to make financial decision and provides a guide for the Town’s overall financial Strategy” The development of a SFP is an incremental process and a review and analysis of the relevancy and adequacy of the Town’s Reserves and Reserve Funds is an important step in that process. Other steps currently underway include Operational Review Phase ll, the development of Debt Controls and the continued development and refinement of an Asset Management Plan.
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This analysis of Reserves and Reserve Funds will assess and confirm: 1. Continued relevancy with to respect Council’s priorities and needs and, 2. Adequacy of current funding levels to meet intended need
2. INPUT FROM OTHER SOURCES BMA Management Consulting Inc. 2014 Municipal Study 1. BMA Management Consulting Inc. Assessment of the Town of Collingwood’s Financial Health, January 2014 2. BMA Management Consulting Inc. Assessment of the Town of Collingwood’s Financial Health, November 2014 3. Watson and Associates, Town of Collingwood Asset Management Plan June 24, 2014 4. This report was reviewed by Department Heads December 9, 2014 and recommended to proceed to Council.
3. APPLICABLE POLICY OR LEGISLATION N/A. 4. ANALYSIS Contrary to popular belief, Reserves and Reserve Funds do not serve as a “rainy day” fund. This is in fact far from accurate as reserves fulfill a critical financial need for municipalities. They:
Make provisions for the replacement / rehabilitation of existing Town assets; Provide for future liabilities; Provide a source of contingency funding for one time and unforeseeable events; and, Provide flexibility to manage debt levels and protect the Town’s financial position.
A Reserve is an allocation of revenues set aside at the discretion of Council to provide for future expenditure requirements such as working funds, contingencies, equipment replacement or any other municipal need. They are generally used in conjunction with the Operating Program to support or supplement activities which are normally funded from general revenues. They are typically used either to mitigate the impact of fluctuations in operating costs and revenue or to accumulate funds for future or contingent liabilities. In addition:
Reserves are part of the accumulated surplus and are not segregated. Council has discretion to redirect the funds in a Reserve for any purpose that is of general benefit to the municipality at large. Reserves are created by provision in the current budget or by transferring unexpected or surplus funds via a resolution or motion.
Reserve Funds on the other hand are segregated from the general assets of the municipality and, as such, are placed in a separate bank account with all/any interest earned added to the reserve fund. They are established by By-Law and are restricted to meet a specific purpose but are generally associated -2-
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with the capital program. There are two types of reserves funds, Discretionary and Obligatory. Obligatory Reserve Funds are mandatory reserves created by statute such as Development Charges, Cash in Lieu of Parkland and Gas Tax funding. Council has no control over the use of the funds and the funding is though transfers from Federal or Provincial governments as in the case of Gas Tax funding or collected as a charge on development as is the case with Development Charges and Cash in Lieu monies. Conversely, discretionary reserve funds are created by council through By-Law for a specific use defined by council and their use is entirely at the discretion of council. Typically discretionary reserve funds are associated with large capital asset requirements and the funds would be accumulated via transfers from the operating fund over a number of years. As of December 31, 2013 the Town had $25.7MM in Reserves, $6.3MM in Discretionary Reserve Funds and $8.4MM is Obligatory Reserve Funds for a total of $40,380M. Generally, as was highlighted in the BMA Health of the Town study January 2014, the Town’s Reserves are considered inadequate , particularly so with respect to the Town’s Capital Asset Management Plan (AMP) needs. In the most recent update to the Assessment of the Town of Collingwood’s Financial Health by BMA Consulting Inc., the Town of Collingwood’s Tax Discretionary Reserve Ratio as of Dec 31, 2013 was 37% whereas the average for our peer municipalities was 40%. Furthermore, based on the 2014 Budget projections, the total 2014 year end Reserve values are expected to be lower by $2MM and a significant portion of the current Discretionary Reserves ($2MM COLLUS Sale proceeds) are already committed to the Hume Street widening project in 2015. Taking this into account, the Town’s Tax Discretionary Reserve Ratio would then be even lower at 27%.
Capital Asset Reserves The Town of Collingwood’s Capital Reserves are comprised of the following Reserves and Reserve Funds:
Type
Category
Reserve Reserve Reserve Reserve Reserve Reserve Reserve Reserve
Working Funds General Government General Government General Government Protection Services Transportation Services Transportation Services Environmental Services
Reserve
Parks, Recreational and Culture Library Discretionary: Financial Policy
Reserve Reserve Fund Total
Name
2013 Balance
2014 Estimated Balance
General Computer Systems Fleet COLLUS Sale Proceeds Fire Equipment Roadways Transit Sewage Lagoon , Treatment, Service Charge Harbourlands, General
$625,031 $144,697 $33,264 $2,200,000 $217,278 $916,555 $144,700 $15,348,544
$377,031 $ 120,467 $ 42,263 $2,000,000 $317,277 $430,555 $19,603 $14,241,320
$8,606
$8,606
Capital, General, Internet Lifecycle Replacement
$62,900 $1,871,659
$48,900 $1,277,075
$21,573,234
$18,883,098
The Town of Collingwood’s Reserves are particularly inadequate with respect to provisions for the rehabilitation and replacement of existing capital assets. This is true relative to the current level of the fund, the amount of funding that is occurring annually and the method by which they are funded. The -3-
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AMP prepared by Watson and Associates in June 2014 highlighted a considerable funding deficit for which they recommended for the Town’s Tax Based Assets a Taxation Levy increase of 3.6% for the next eight years decreasing to 1.8% in the following 12 years in order to bring funding up to adequate levels. For Water and Wastewater Rate based assets there was a similar proposal requiring a 2.5% increase for Water and 3.5% increase for Wastewater over the next ten years. These are very significant increases for the Town’ residents whose tax levy per capita is already the sixth highest in the 2014 BMA Ontario Municipal Study of 95 Ontario Municipalities. Other commonly used indicators of Capital Asset Reserve health and adequacy are:
Capital Reserve Contributions as a ratio to Capital Asset Value Compares level of reserve funding with the gross book value (historic cost) of capital assets. Town of Collingwood 2013: $8.6MM vs. $237MM or 2.9% General guideline 2-3% Capital Reserve Contributions as % of Amortization Provides insight on the level of reserve funding for future capital purposes compared to the total amortization in the current year. In general capital reserve contributions should be at least equal to the amount of amortization that occurs annually. Town of Collingwood’s amortization for 2013 amounted to $8.6MM whereas contributions to Capital Reserves were $5.7MM or 66% ($1.4 Discretionary Reserve Funds and $4.3MM Reserves)1 Asset Consumption Ratio Unamortized balance of Capital Assets relative to historical cost. This ratio is an indicator of the relative age of the Town’s assets and replacement needs. Higher ratios indicate increasing asset replacement needs. December 31, 2013 Collingwood ratio was 35% As compared to average of 37.6% and Median 37%. Our objective should be to exceed the median or at least meet the average.
One of the Town’s primary Capital Asset reserves is the Lifecycle Replacement Discretionary Reserve Fund. This Reserve Fund was created October 20102 in anticipation of the development of an AMP. The purpose of this reserve was for “the replacement or rehabilitation of existing capital infrastructure excluding those expenditures that are funded entirely by user fees.” Its funding to date has been from a portion of the annual Operating Surplus3 which is not budgeted for. However, having now received the results of the AMP by Watson and Associates, the magnitude and necessity of the funding required is better understood and it is proposed that this funding would more appropriately be funded through a Capital Levy which is included in the annual budget. The amount of the Capital Levy will initially be based on the Watson and Associates estimates but future funding will be based on the AMP model now being developed by Treasury staff. Further details with regard to the development of the AMP model will be addressed in a separate report and analysis. Additional proposed changes regarding Capital Asset Reserves are as follows:
1
2013 FIR T2010-09 Oct 4, 2010 3 Operating Surplus Policy : 30% Lifecycle Replacement, 30% Tax Stabilization, 10% Non DC Growth, and remaining 30% as per CAO and Treasurer Discretion 2
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1. The assets from the following reserves are included in our current Asset Plan from Watson and therefore can be collapsed and their accumulated reserves added to the Lifecycle Replacement Reserve Fund. a. General Government Reserves: i. General ii. Computer Systems iii. Fleet b. Protection i. Fire Equipment c. Transportation i. Transit d. Parks, Recreation and Culture i. General, Harbourlands As the Capital Asset Plan is continuing to be developed and refined, further changes to the Capital Asset Reserves will be required as the process continues and as such, reports and proposals will be prepared for Council’s review and approval accordingly. Contingency Reserves The Town of Collingwood’s current Contingency Reserves are as follows:
Type
Category
Reserve Reserve Reserve Reserve Reserve Reserve Fund Total
Working Funds Working Funds Contingencies Contingencies Contingencies Discretionary
Name Operating Contingency Capital Contingency Disaster Relief Emergency Social Services WSIB Tax Rate Stabilization
2013 Balance
2014 Estimated
$300,000 $1,000,000 $6,850 $19,056 $333,745 $2,500,000 $4,159,651
$185,868 $981,945 $7,850 $19,056 $283,745 $2,845,848 $4,324,312
Contingency reserves serve the following purposes:
Maintain Cash Flow Minimize need for short -term borrowing Fund urgent, unforeseen expenditure requirements Minimize changes in property tax rate and to smooth out fluctuations due to onetime expenditures.
The Government Finance Officers Association (GFOA) recommends contingency reserves in the amount of 5-15% of own source revenues to be adequate. At the end of 2013 the Town’s contingency reserves amounted to 9% ($4.2MM / $46.9MM). No change is currently recommended with respect to the current annual funding method or the amount until such a point as the reserve goes below 7.5%. The Tax Rate Stabilization Reserve Fund was created October 4, 2010 as part of a package of financial policies which included the Lifecycle Replacement Reserve Fund discussed above. While it serves the -5-
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same overall purpose as the Operating Contingency Reserves, it is meant for longer-term capital contingencies whereas the operating contingencies are meant for current year operating contingencies. The following recommended changes are proposed for the contingency reserve: 1) Rename Tax Rate Stabilization Reserve Fund a) Proposed name would be “Capital Contingency and Internal Loan Reserve Fund” (1) To reinforce its intended use for Capital contingency and not tax rate stabilization (2) Propose that this reserve also serve as source for internal lending for smaller Capital Projects under $0.3MM which typically would not be debentured. 2) WSIB a) Originally setup as contingency for WSIB to cover the first $0.5MM of a potential claim for which we are liable for as a Schedule 2 employer. This is no longer required as additional insurance now covers this. More recently the reserve has served as a Salary Contingency fund 3) Disaster and the Emergency Social Services a) Originally created by motions of council. It is believed the original intent of these has since been eclipsed. This requires more research but they can likely be collapsed.
Other Reserves and additional recommendations There are a handful of Reserves that have been created at some point in the last few years for which the intended purpose never materialized or that purpose is now no longer valid. Therefore we propose the following Reserves be collapsed. 1. Legal Reserve a) This reserve was created for a specific legal issue which did not materialize for the Planning Department. 2. Mayor’s Gold Tournament Reserve a) Timing related to charitable donations. 3. Sustainability a) Program initiative of previous Council 4. Physician Attraction a) Established to be used to attract Physicians to live and work in Collingwood 5. Affordable Housing a) Obsolete reserve related to a affordable housing program 6. BCRY Railway a) The railway has ceased operations, this reserve should be collapsed The following two reserves are unique in their orgin and require further investigation in term of how to properly close them. The third item, Lighthouse Restoration, is really monies held in trust and as such can be moved to liabilities section of General Ledger as it in fact not a Reserve at all. 1. Hwy 26 Sewer Line a) These funds were received from a developer in the early 1990s to be held for future extension of sewers on Hwy 26 West. b) There is no By-Law, setup by previous Treasurer. Requires further research -6-
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2. Parks and Recreation (lot levys) a) Parks and Recreation Land, Culture and Greening Reserve Funds originated from lot levy legislation (pre Development Charge legislation). b) This are also potentially obsolete reserves which could be collapsed. More research required. 3. Lighthouse Restoration a) Held in trust for Lighthouse Restoration Committee b) More appropriately should be move to Accounts Payable within general ledger
5. EFFECT ON TOWN FINANCES N/A 6. APPENDICES & OTHER RESOURCES N/A. SIGNATURES
Prepared By:
Department Head:
Dennis Sloan Deputy Director FPPD Town of Collingwood
John Brown Chief Administrative Officer Town of Collingwood
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Staff Report T2014-26 Strategic Financial Plan Policy Paper No.3 Capital Asset Management Plan January 15, 2015
Submitted to:
Strategic Initiatives Standing Committee
Submitted by:
John Brown, CAO Brent Andreychuk, Manager of Finance Capital Asset Management Plan Update
Subject:
PURPOSE That this purpose of this report is to provide Council with:
Background information on the Asset Management Plan. Identify next steps to be taken with the Asset Management Plan (AMP). Identify and options to mitigate the Tax Levy increases due to the infrastructure funding deficit.
RECOMMENDATION: That the Strategic Initiatives Standing Committee recommends that Staff Report T2014-24 be received for information by Council.
1. BACKGROUND In 2014 staff developed an Asset Management Plan (AMP) for the Town of Collingwood which complied with the requirements as outlined in the provincial document “Building Together Guide for Municipal Asset Management Plans”. Council approved the plan on August 25, 2014. It was intended to serve as a strategic, tactical, and financial document, ensuring the management of the necessary financial investment to maintain the Town’s infrastructure followed sound asset management practices and principles, while optimizing available resources and establishing expected levels of service as outlined in the consultant’s report. The definition of an asset management plan is a strategic document that states how a group of assets is to be managed over a period of time. The plan describes the characteristics and condition of Collingwood’s infrastructure assets, the level of service expected from them, planned actions to ensure the assets are providing the expected level of service, and financing strategies to implement the planned actions. Choosing a financially sustainable level of service and
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maintaining, rehabilitating and replacing assets in order to meet that level of service in the most efficient and effective manner is a critical component of maintaining the fiscal health of the community. Staff completed an initial AMP in early 2014 which addressed the following asset classes:
Road surfaces Bridges and culverts Sanitary sewer mains network Water distribution network
However, this plan did not provide a detailed financing strategy for the replacement of the Town’s assets. As outlined in Council report # T2012-15 Watson & Associates Economists Ltd. were hired to help develop the AMP for tax supported assets and to provide a funding strategy for the replacement cost of existing Town assets. With the assistance of Town staff the plan was completed in June 2014 providing a more comprehensive plan which addressed additional asset classes (buildings, vehicles and equipment etc.) as well as recommending a funding strategy for all the activities in the asset management strategy that included a forecast of revenues and expenditures. This Asset Management Plan completed by Watson & Associates Economists Ltd. was required in order to qualify for Provincial infrastructure grants. The remaining life of some assets was based on the estimated engineering design life. Although this is a way to plan for future replacement activities, undertaking a complete replacement of an asset when the estimated life cycle is complete may be an ambitious goal in the short-term as some assets remain in use well past their estimated, useful life is complete, and regular maintenance and rehabilitation can extend an assets life. The AMP report estimated the Town’s annual tax supported infrastructure funding deficit at $8.96 million (in 2014) dollars. This was based on an estimated annual capital investment of $9.66 million (in 2014) dollars being required to meet short-term capital needs while establishing a funding plan for long term needs. The actual annual capital investment provided by the Town is approximately $780,000 which is far short of the identified capital reinvestment needs in the consultant’s report. The financing strategy for tax supported assets included a capital levy component. In order to fund the recommended asset requirements over the 20 year detailed plan, it was recommended that the Town’s taxation levy increase by 3.6% per year for the years 2015 to 2022, declining to 1.8% thereafter. This financing strategy recommended by Watson made several assumptions including:
Operating budget inflation rate assumed to be 2% annually Operating expenses included in the Town’s current budget increase annually at the rate of inflation Taxation assessment growth was assumed to be 1.0% annually
Watson & Associates Economists Ltd. long-term financing strategy for the Town in Table 5 of the Asset Management Plan recommended a tax supported levy of $4.4 million for debt and Capital Reserves in 2015 representing tax levy monies of 15.6%. This tax supported Levy would grow to $18.6 million or 35.2% of the tax levy monies by 2033.
2. INPUT FROM OTHER SOURCES “Town of Collingwood Asset Management Plan”, Watson & Associates Economists Ltd., June 2014
3. APPLICABLE POLICY OR LEGISLATION N/A
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4. ANALYSIS The Town of Collingwood has purchased its own Capital Asset Planning and Analysis software from CityWide. This software will assist with the development of our own financial planning models pertaining to existing capital and infrastructure assets. The asset management plan is a “living document” that needs to be updated annually as new information is obtained, and refined as capital work is undertaken.
Next Steps:
Update the software with any 2014 changes to our inventory of assets including asset additions, disposals, refurbishments as well as any changes in the condition of any of our assets.
Provide software training to staff.
Development of updated financial scenarios including, projected tax rate increases, revenues available or committed, terms of reserve usage, debt issuance and repayment terms, inflation provisions, long-term capital project financial planning and operating budget service program review.
Link key objectives of the municipality’s strategic plan to the key components and outcomes of the Asset Management Plan.
Continue to update the asset management related data and information. Ensure that the Asset Management Plan is updated for the any changes in condition assessments, replacement cost data and asset useful life.
Develop a process for staff to provide updates on the change in conditions of assets for which they are responsible for.
To enable Council to make more informed decisions the plan needs to be kept current on an ongoing basis. Many municipalities utilize a system of integrating asset management into their long-term financial and strategic planning to prioritize capital works. It is very important to know whether the condition of assets has improved or deteriorated since the last update or if there has been a change within the asset categories. Staff will provide Council with regular updates on the state of our infrastructure, key fiscal indicators related to the Asset Management Plan as well as the current infrastructure deficit. (Watson & Associates Economists Ltd. included a detailed condition assessment policy for the Town to follow in Appendix C of the Asset Management Plan report) There are several options available to the Town to reduce the estimated 3.6% annual increase required in the taxation levy including:
Redirect savings in police costs to the Tax Supported Capital Reserve Fund.
Pursue all opportunities for infrastructure grants from all levels of government.
Transition debt repayments when they retire to capital levy contributions as this “spending room” is already in the annual operating base budget.
The identification of any other budget savings or efficiencies and then reallocation to the Capital Levy.
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Approve a policy which would allocate Supplemental assessments to the capital levy.
Employing these options will help reduce the tax levy increase as well as assist in funding the capital levy on an annual basis.
5. EFFECT ON TOWN FINANCES As previously noted implementing the proposed financing strategy would have the potential to reduce the burden on the tax levy amount in future years.
6. APPENDICES & OTHER RESOURCES Resource 1
“Town of Collingwood Asset Management Plan”, Watson & Associates Economists Ltd., June 2014
SIGNATURES Prepared by: Brent Andreychuk, CPA, CGA Manager of Finance
Department head: John Brown Chief Administrative Officer
Town of Collingwood
Town of Collingwood
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