Tax Supported Preliminary Capital Budget. Book Capital Budget Summary Reports FCS16089

Transcription

1 2017 Tax Supported Preliminary Capital Budget Book Capital Budget Summary Reports FCS16089

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3 CITY OF HAMILTON TAX CAPITAL BUDGET LIST OF APPENDICES Appendix Appendix Page Name Reference Description Number Budget Summary Reports Report Council Amendments GIC & Tax Supported Capital Budget Report 1 Financing Capital Financing For Projects Included in Financing Plan 45 Included Projects Included in the Financing Plan 61 Not Included Projects Not Included in the Financing Plan yr Afford Affordable, Unaffordable Capital Forecast yr by Ward Capital Budget by Ward 93

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5 APPENDIX TAX SUPPORTED CAPITAL BUDGET REPORT

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7 TABLE OF CONTENTS: Section Number Page Number 1.0 EXECUTIVE SUMMARY TAX SUPPORTED CAPITAL BUDGET STRATEGIC INVESTMENTS TAX SUPPORTED CAPITAL LEVY TAX SUPPORTED CAPITAL BUDGET PRIORITIZATION PROCESS PROPOSED TAX SUPPORTED CAPITAL BUDGET TAX SUPPORTED CAPITAL FORECAST HIGHLIGHTS TAX SUPPORTED CAPITAL FORECAST TAX SUPPORTED DEBT AND DEBT FORECAST AREA RATING SPECIAL CAPITAL RE-INVESTMENT RESERVES HOUSING TRANSIT CAPITAL PROGRAM GROWTH / ASSESSMENT CAPITAL RESERVES / RESERVE FUND FINANCING HAMILTON FUTURE FUNDS CONCLUSION 42 1

8 1.0 EXECUTIVE SUMMARY The City of Hamilton s 2017 Tax Supported Capital Budget and 10-year Tax Supported Capital Program focuses on the City s Strategic Plan priorities: Economic Prosperity and Growth Community Engagement and Participation Healthy and Safe Communities Clean and Green Built Environment and Infrastructure Culture and Diversity Our People and Performance The Table below highlights the 2017 Tax Supported Capital Program supporting the City s Strategic Plan. Highlights Expenditures $289.3 M in gross capital spending including: $71.9 M on Roads, Bridges, Traffic, Sidewalks $11.1 M on Roads Growth $90.7 M on Transit $9.4 M for Waste Management $19.6 M in Corporate and Recreation Facilities Rehabilitation $27.2 M for West Harbour Strategic Initiatives $0.5 M for CityHousing Hamilton $0.5 M for Housing Services $1.7 M for Long Term Care Facilities $2.2 M for Downtowns & Commercial Districts $2.0 M for Hamilton Conservation Authority $13.1 M for Vehicle Replacement $1.9 M for Tourism and Culture $10.5 M for Open Space Development $4.2 M Forestry and Horticulture Revenues $27.1 M in Development Charge funding $61 M in Reserves and other internal funding $61.7 M in new External Debt funding $37.5 M in Subsidy funding 2

9 The 2017 Tax Supported Capital Budget includes major Capital Initiatives (Transit, West Harbour, Waste Management) which significantly increases the City debt requirements. The City s Capital Levy needs to increase in proportion to the increase in debt so that fiscal flexibility is available to deal with future Capital Initiatives. Credit Rating Agency, Standard and Poors, upgraded Hamilton s Fiscal performance to AA-positive in part due to strong financial management, exceptional liquidity and very low debt burden. In order to maintain this debt rating and lower debt servicing fees, the City needs to allocate sufficient Tax Levy dollars towards the Capital Budget. That is why staff are recommending additional Levy dollars for the 2017 Tax Supported Capital Budget Tax Supported Capital Budget Funding Option Additional 0.95% Property Tax Increase 0.5% Property Tax Increase to address existing Infrastructure deficiencies. 0.45% Property Tax Increase to fund City share of Transit expansion. The 2017 City of Hamilton Tax Supported Capital Budget presented within this report incorporates a 0.95% Property Tax increase which equates to $7.6 M increase for the Capital Levy ($31 annual property tax increase per average value residential property). At the City of Hamilton s 2017 Tax Supported Capital Budget Workshop on October 21, 2016, Committee members were presented with the following Capital Levy funding request: 1. A 0.5 % Property Tax Increase ($4 M or $16 annual property tax increase) dedicated to the Capital Levy to fund critical infrastructure repair per the City s 10-year Capital Financing Strategy. 2. An additional 0.45% Property Tax Increase to fund the debt charges associated with the City s share of Capital Levy Funding required for Public Transit Infrastructure Fund Capital Investments. The total cost of the Public Transit Capital submissions is $72,978,408 with the City s share amounting to $36,489,204 (net discretionary impact of $29.3 million). This Capital Funding requirement was not included in the previous year s Capital Funding forecast and without additional Capital Levy funding (over and above the 0.5% funding strategy) the City s Tax Supported Debt Capacity would be significantly impacted. The 0.45 percent Property Tax increase supports the $3.6 M ($15 annual Property Tax Increase per average household) in debt charges associated with the increased Transit Capital request. Over the past 5-years the City of Hamilton has approved an annual tax supported Capital program of approximately $220 M exclusive of subsidies. The City s 10-year Capital Levy forecast which includes a 0.5% total levy annual increase dedicated to the Capital Levy ensures that the Contribution from Operating (direct dollar funding) is proportionately constant. Conversely, ensures that the debt charges portion of the Capital Levy does not increase as a percentage of the Capital Levy. However, with the Federal Transit Subsidy announcements, the City s 2017 Gross Tax Supported Capital Budget has increased to $289.3 M with an additional municipal contribution of $29.3 M required. That is why staff are requesting an additional 0.45% total Levy contribution to the Capital Levy. The additional 0.45% ($3.6 M) would support the debt financing of the $29.3 M (10-year amortization). 3

10 The City s Capital Budget is an important tool in achieving Council s Strategic Plan Priorities and is integral to the City s long-term sustainability. It s an essential component of municipal financial planning. The key objective is to develop a capital investment plan that strikes a strategic balance among the following needs: maintaining our existing infrastructure and facilities in an appropriate state of repair; advancing Council and community priorities within the City s long-term financial capacity; maximizing the City s growth potential by investing in infrastructure and facilities which will ensure the City s financial stability as well as meeting its social responsibilities. Hamilton s resurgence as one of Canada s economic drivers is well documented. In keeping pace with this revival, the City in the last few years has approved in part or in total several significant Strategic Capital Investments which include the following: 1. Pan Am Stadium (Tim Horton s Field) City Share ($52 M) 2. Stadium Precinct Infrastructure ($45 M) year Transit Strategy ($302 M) 4. POA Office ($33 M) 5. Police Forensic facility ($24 M) 6. West Harbour Development ($130 M) 7. Parkland Purchases and Development Previous City Capital Reports have highlighted the fact that the City s $3.5 billion accumulated infrastructure deficit backlog ($195 million annually) cannot be repaired relying solely on the City s 10-year Capital Levy Funding Strategy. This Strategy includes increasing the Capital Levy annually by 0.5%. Funding partnerships with senior levels of government will be required to assist in tackling the infrastructure deficit. Significant amounts of debt issuance in a number of consecutive years would severely constrain a municipality s capital flexibility. The City of Hamilton in its 10-year Capital forecast has a number of significant Capital investments which will require debt financing. If the annual Capital Levy increase does not reflect this growing funding requirement then the amount of discretionary Capital funding available to address the existing infrastructure deficit will decrease. The rising costs of rehabilitation of existing assets coupled with chronic underfunding, affects all municipalities in Canada. Investing effectively in Hamilton s priority growth areas and directing limited resources towards asset rehabilitation is the goal of the City s Capital Program. The City of Hamilton s 10-year Tax Supported Capital Program ( ) focuses on the following strategic objectives; 1. Targeting capital investments in rehabilitation programs including roads, social housing, corporate and recreation facilities, long-term care assets. 4

11 2. Investment in strategic growth capital projects such as the West Harbour and Waterfront Strategic Initiatives, Downtown Revitalization, Parkland acquisition and Transportation Corridors. 3. Continuing Council s long-term Capital Funding Plan which dedicates Property Tax increases exclusively for the Capital Levy at an annual rate of 0.5% of the total Property Tax Levy ($4.0 M for 2017) or $16 per typical household. 4. Amending the long-term Capital Funding Plan to account for additional Capital Investments required as a result of Infrastructure Subsidy programs from the senior levels of government. Staff recommends an additional 0.45% total levy increase for the Capital Levy. The additional 0.45% supports the debt financing of the municipal contribution required ($29.3 M) for the Federal (PTIF) Program. 5. Keeping the total debt burden for the City of Hamilton at levels which will not impact the City of Hamilton in terms of a negative fiscal downgrade by credit rating agencies thereby increasing borrowing costs. 6. Maximizing the effectiveness and efficiency of the Capital program through the following measures: In 2015, Council approved changes to the City s Capital Project Monitoring Policy. Previously staff reported on the status of the Capital Work-in-Progress projects to their respective Standing Committees. The amended Policy will have staff submit the Status of the Capital Work-in-Progress projects to the Capital Projects Works-in-Progress Sub- Committee. This Committee s goal is to improve the efficiency of the Capital Program by freeing up previously budgeted funding from capital projects either delayed or no longer required. Council approved re-appropriations. 3-year Capital Closing Policies. Tax Supported Capital Program ( ) Objectives 1. Targeting capital investments in rehabilitation programs including roads, social housing, corporate and recreation facilities, long-term care assets, cultural assets. The amount of capital funds available for rehabilitation is far below what is needed to keep the City s assets in a sustainable condition. The annual infrastructure deficit for the City is approximately $195 M with a cumulative infrastructure deficit approaching $3.5 billion. Variables influencing this issue include, City s reduced industrial/commercial assessment base which has eroded the City s property tax revenue growth. Targeted Property Tax Savings from amalgamation. In achieving a targeted $25 M in savings, capital funding imbedded in operating budgets (reserve provisions) were 5

12 eliminated/reduced. As a result the City s Capital Levy as a percentage of the total Levy (11.9%) is below comparator municipalities (15% - 20%). Reduced road and facilities infrastructure subsidies from senior levels of government Downloading operating costs leaving the City little flexibility in terms of property tax increases exclusively for Capital. 2. Investment in strategic growth capital projects such as the West Harbour and Waterfront Strategic Initiatives, Downtown Revitalization, Parkland acquisition, Transportation Corridors. By directing the bulk of available resources towards asset rehabilitation, the City must strategically allocate the balance of funding, including debt capacity, towards those growth projects which leverage assessment growth and other City-building qualities. 3. A 2017 Capital Levy Increase to accommodate the additional Transit Capital required due to the Federal Governments Transit Infrastructure Cost-Sharing Subsidy Program. The 2017 Property Tax increases to the Capital Levy is 0.95% (2017 = $7.6 M) or $31 per typical household. In 2016, the City of Hamilton levied $827.7 million in property taxes. Included in this amount was $98.95 million for Capital (known as the Capital Levy). Staff are recommending to Council a 0.95 % of the tax increase for 2017 be dedicated to the Capital Levy. This would increase the Capital Levy by $7.6 million to $ M. 4. Keeping the total debt burden for the City of Hamilton at levels which will not impact the City of Hamilton in terms of a negative fiscal downgrade by credit rating agencies thereby increasing borrowing costs. In the proposed ten-year financing plan, tax supported budgeted external debt levels peak in 2019 at $467 M (up from the $355 M forecasted in 2016). Total City Debt after adding in Rate Supported debt peaks at $1.07 billion in This is the debt level which most concerns credit rating agencies. Staff will monitor the City s external debt within financial policy goals. The proposed 2017 Tax Supported Capital Budget funds $289.3 M in Capital Projects. Included in this amount are several new initiatives which are aligned to Council s Strategic priorities. With the current economic climate and fiscal pressures which challenge the Province s ability to support infrastructure investment, the Province has made clear that future funding commitments to municipalities will be based on focused investments which address needs rather than wants. The Province of Ontario passed Bill 6, Infrastructure for Jobs and Prosperity Act on June 4, The purpose of the Act is to aid municipalities in identifying and prioritizing infrastructure 6

13 investment. To that end, the Ministry of Infrastructure has developed the Municipal Infrastructure Strategy, which intends to aid municipalities in strengthening asset management practices across the Province. Within the Strategy is a requirement that municipalities seeking provincial capital funding will now be required to submit a detailed Asset Management Plan (AMP) for future consideration. The City currently has an AMP for the following assets: roads, bridges, water and waste water systems, and social housing. The City cannot solve its infrastructure funding gap from own source revenue. It will have to rely on significant stable funding from the senior levels of government. The City has and is forecast to continue to make a concerted effort to increase funding for infrastructure rehabilitation through Capital Levy increases. Staff have presented a Tax Supported Capital Forecast which incorporates a two-stage plan 1. An annual 0.5% property tax increase to support regular capital programming. 2. An additional property tax increase to cover the debt charges associated with the City s share of the PTIF Program. This would include incremental increases of 0.45% in 2017, 0.39% in 2018 and 0.16% in Over a 10-year period, this plan would add $280 M more in regular capital funding in addition to funding $70 M in new Transit Capital. More Federal/Provincial infrastructure funding as well as increasing own source revenue is necessary to improve the state of the City s existing infrastructure. Otherwise the City s Capital Program over the next 10 years will increasingly consist of emergency repairs to its existing infrastructure. Without this commitment from all three levels of government, the City s existing asset base will continue to deteriorate and new capital investment will only be affordable through increased debt which in turn will leave even less for existing capital repair and maintenance as debt principal and interest payments crowd out capital funding capacity. Tax Supported Capital Budget Background The City of Hamilton owns hard assets with a total replacement value of approximately $22.3 billion. Forty-five percent (45%) of the value of these assets represents water, wastewater and storm-water, which is principally funded from the Rate Supported Budget. The other fifty-five percent (55%) are tax supported infrastructure such as roads, recreation facilities, emergency vehicles and buildings, etc. The repair and replacement costs of the latter assets are funded from the Tax Supported Capital Budget. A detailed breakdown of the City s $22.3 billion infrastructure assets is presented in the following chart. 7

14 City of Hamilton Infrastructure Assets $22.3 Billion ($ Millions) Wasterwater, $5,393 Water, $3,222 Cemetery, Housing/Long $99 Term Care, $1,736 Land, $983 Police Facilities, $70 Fire/ EMS Vehicles, $47 Stormwater, $1,459 Facilities, $1,443 Roads, $4,858 Police Vechicles, $10 Alleyways, $128 Bridges/ Structures, $1,176 Forestry, $379 Street Lighting, $167 Traffic System, $183 Central Fleet, $109 Transit, $204 Waste, $354 Parks/ Open Spaces, $314 During the past 5 years the City of Hamilton has accomplished the following Tax Supported Capital Budget objectives: 1. Identified in all program areas the depth of the infrastructure deficit and required funding to achieve existing infrastructure sustainability. 2. Created a much more comprehensive process to determine program area priorities. The process includes consultation through one on one staff and ward councillor information sessions, as well as capital prioritization workshops through General Issues Committee. 3. Aligned the City s Capital Budgets with its Strategic Plan and Business Plans. This includes a multi-year Capital Budgeting Model which is an essential tool for the City s long-term financial sustainability. The City has been able to meet its Capital obligations through prudent debt financing strategies in addition to an upgrading of its credit rating to AA positive from AA stable. 4. The City has struck a premium balance between funding valued and sustainable services and supporting growth infrastructure in an effort to grow a prosperous and healthy community. One important tool for achieving this is the Development Staging program which directs the City s funding for growth to areas which will maximize future City revenues. 8

15 The four above-mentioned objectives form the core of the City of Hamilton s 2017 Tax Supported Capital Budget and Capital Forecast. The 2017 Tax Supported Capital Budget represents an effort to address investments necessary to support our existing infrastructure, as well as the need to support municipal investment readiness and economic development and capacity, while maintaining tax competitiveness. Works-In-Progress (WIP) Funding Review: The City has over the years progressively managed the number of previously approved but not yet completed Capital projects (Works In Progress WIP). Over the last 3 years, the WIP completion rate for the Tax Supported WIP s has stabilized around 78%. For the 2017 Tax Supported Capital Budget, staff reviewed all WIPs and re-allocated $5.6 M for strategic priorities as illustrated in Table 1. Table Reallocation of W.I.P. Funding By Program ($000's) Entertainment Facilities 530 Longterm Care Homes 1,060 Open Space Development 1,040 Recreation Facilities 611 Roads 2,390 Total 5, TAX SUPPORTED CAPITAL BUDGET STRATEGIC INVESTMENTS A. Road/Bridge Rehabilitation Program: One of the most significant infrastructure deficits for the City resides in the roads program. The program s service level includes a rehabilitation and replacement backlog of approximately $2.0 billion. Annually, the City should be investing approximately $180 M on road and bridge capital improvement. In 2017, the City is spending approximately $72 M gross on the roads capital program ($83.1M less $11.1M growth) while the levy impact on this program is $55.6 M as illustrated in Table 2. 9

16 Table Proposed 2017 Roads Forecast by Program Area Gross Gross Net ($000's) Replacement Program 15,500 5,050 3,719 Urban Rehabilitation 7,700 21,612 11,280 Rural Rehabilitation 2,200 4,510 4,510 Bridges and Structures 8,974 9,710 9,710 O & M/Studies/Traffic Engineering 23,440 21,460 14,795 Council Priority Projects 18,125 9,600 9,600 Total Non-Growth Related Projects 75,939 71,942 53,614 Development/Growth Related Program 15,880 11,140 1,955 Total Roads 91,819 83,082 55,569 B. West-Harbour Waterfront Strategic Initiatives: The development of the West Harbour Piers 5 8 has been identified and approved by Council as a strategic priority. This project is included in the City s 10-year Capital Forecast and the annual levy impact has been partially funded through debt. Development of this area is forecast to provide much needed assessment growth for the Piers 5 8 vacant land and will also provide a substantial positive image change and an economic uplift for the whole adjacent urban area as experienced in other similar waterfront settings. Table 3 is a financial summary of the budget to date as well as proposed Capital required for the years in order to make Piers 5 8 development ready. The following should be noted: 1. Other Ontario cities, such as Toronto, Burlington and Oakville, have received significant amounts of subsidies from senior levels of government for their waterfront lands development. The City of Hamilton has not received any commitments from senior levels of government. 2. In order to grow its assessment and economic base, the City must divert funds required for existing asset repair or issue additional debt in order to fund this important economic driver. This project is included in the City s 10-year Capital Forecast and the annual levy impact has been funded through debt. Once completed, this project is projected to yield $8 - $9 million in new annual property tax revenue directly. In addition, it is anticipated that surrounding developments would add to this total as has happened in other waterfront developments. 10

17 3. In order to make the subject lands (Piers 5 8) development ready, the City needs to spend an additional proposed $51.4 million for the period of 2017 and 2018 to make these lands development ready. Table 3 West Harbour Waterfront Strategic Initiatives Capital Forecast ($000's) Gross Net Approved $ 28,720 $ 17,489 Subtotal $ 28,720 $ 17,489 Proposed 2017 $ 27,235 $ 27,235 Proposed 2018 $ 24,200 $ 24,200 Subtotal $ 51,435 $ 51,435 Total $ 80,155 $ 68,924 C. 10-Year Local Transit Strategy: Council approved a largely unfunded 10-Year Local Transit Strategy on March 11, With that Strategy, $302 million would be required in new Capital spending in order to support the BLAST express bus network (Acronym for 5 transit lines). The new Capital spend is comprised of 2 pieces, additional buses and a new storage facility. Currently, the Hamilton Street Railway (HSR) operates a fleet comprised of 242 buses. This fleet will grow by 100 buses by Due to current capacity issues, a new bus storage facility is required. In April 2016, the Federal Government announced the Public Transit Infrastructure Fund (PTIF). The Government of Canada is providing Ontario with $1,486,680,000 under the new PTIF program, and will cover up to 50% of the funding needed for projects supported under this agreement. The Ontario funding is to be allocated provincially on the basis of transit ridership. Hamilton has been advised that the City will be eligible to receive an allocation of $36,489,204. The City submitted an application to receive approval to access the PTIF funding. Eligible expenditures must occur between April 1, 2016 and March 31, Each eligible PTIF recipient may submit project(s) that represent up to 25 % of their total allocation that extend to March 31, 2019 supported with a concrete demonstrated need/rationale for the extended completion deadline. The following are eligible investments under the PTIF: I. Capital projects for the rehabilitation, optimization and modernization of public transit infrastructure, or that improve the efficiency, accessibility and/or safety of public transit infrastructure (including rehabilitation or enhancement of existing guide ways, maintenance and storage facilities, transit stations or other public transit capital assets; refurbishment or 11

18 replacement of existing rolling stock; intelligent transportation systems and replacement or enhancement of transit stations); II. Expenditures to support the asset management capacity of a public transit system; III. Expenditures to support the design and planning for the expansion and improvements to public transit systems, including transportation demand management measures and studies and pilot projects related to innovative and transformative technologies; and IV.Projects for system expansion, which may include active transportation, if they can be completed within the program timeframe Roads, Bridges and Sidewalks (53% of discretionary funding envelope (d.f.e.))(28.5% of total assets) Corporate and Recreation Facilities (9.4% of d.f.e.)(6.5% of total assets) Social Housing (2.9% d.f.e.) (8.8% of total assets) The projects for which the grants were submitted have been incorporated into the 2017 Tax Supported Capital Budget and Financing Plan. Table 4 provides a list of projects with funding from (PTIF) and the funding source for the City s share. Table 4 Projects with Public Transit Infrastructure Funding ($000's) Funding Gross PTIF Dev Charges Debt Proj. ID Project Cost Grant Transit Maintenance and Storage Facility 28,650 14,325 7,162 7, HSR Bus Expansion Program 10,380 5,190-5, Transit Shelter Expansion and Rehabilitation Project 7,043 3,522-3, Automated Passenger Counters 4,300 2,150-2, Transit Priority Measures 3,850 1,925-1, Transit Capital Infrastructure 3,300 1,650-1, Replace Transit Fleet Bus Hoists 3,025 1,512-1, Sustainable Network Connections 3,025 1,512-1, Radio Equipment Replacement 3,000 1,500-1, HVAC Upgrades Upper James 2,200 1,100-1, Customer Service Software 1, Garage Door Replacement at 2200 Upper James (MTC) 1, Bus Wash Rack Replacement Nonrevenue Vehicle Expansion to Accommodate Growth Total 72,978 36,489 7,162 29,327 12

19 TAX SUPPORTED CAPITAL LEVY While the City s objective is to manage the need for future property tax increases, balancing the Capital requirements of existing asset rehabilitation with investments in new projects to increase the City s assessment base requires increases in own source funding. Consequently, the City s Senior Leadership Team has at a minimum endorsed a 0.95% Capital Levy tax increase ($7.6 million). This action is in recognition of the need to increase own source funding which supports the City s Strategic Plan with regards to financial sustainability. Evidence of the need to increase own source funding of the City s Capital Program is based on the following facts: a) The Capital Levy as a percentage of the total levy (refer to Table 5) is at 11.9% (2016). A healthy capital to operating ratio is around 15% to 20%. That is where the preamalgamation ratio was for the combined City before reserve provision transfers were reduced to provide amalgamation savings. b) Funding through contribution from operating over the past 5 years increased by an annual average of 0.5%. c) The City s current infrastructure gap is estimated at $195 million per year. As per Table 5, in 2016, $98.95 million (11.9 % of the City s $827.7 million tax levy) was used for capital purposes. For 2017, staff recommend a $ M Capital Levy consisting of $50.9 M in budgeted debt charges and a $55.7 M transfer from operating to capital (direct dollar funding). This represents a Capital Levy increase of 7.7% ($7.6 M) over the previous year. Table 5 Tax Levy Impact Summary ($ Millions) Total Tax Levy Capital Levy Capital Levy % of Total Levy 12.9% 12.8% 12.5% 12.3% 11.9% 11.9% 12.0% 12.3% 12.4% 12.1% 11.9% 11.9% 13

20 Table 6 illustrates the Tax Levy Impact of a 0.95% total annual levy increase dedicated to the Capital Levy and the components of the proposed Tax Supported Capital levy (debt charges and direct dollar for dollar capital funding as a transfer from operating budget). Table 6 CAPITAL BUDGET IMPACT ON OPERATING BUDGET Includes impact of Public Transit Infrastructure Fund (0.45%) ($000's) CHANGE APPROVED PROPOSED $ % Debt Charges 50,222 50, Transfer from Operating 48,732 55,648 6, Total Impact 98, ,554 7, Impact on Average Residential Property Tax 0.95% ($31) Table 7 illustrates the impact of a 0.5% total levy increase absorbing the additional PTIF funding requirements. Note the increase in Debt charges and the decrease in transfer from operating. Table 7 CAPITAL BUDGET IMPACT ON OPERATING BUDGET ($000's) CHANGE APPROVED PROPOSED $ % Debt Charges 50,222 52,044 1, Transfer from Operating 48,732 50,910 2, Total Impact 98, ,954 4, Impact on Average Residential Property Tax 0.5% ($16) 14

21 The following two pie charts illustrate the 2017 Capital funding sources and the corresponding recommended allocation across programs. Facilities 7% Waste Mgmt. 3% Emergency Services 3% Parks / Forestry 6% 2017 /apital.udget by trogram $289.3 aillion Planning & Ec. Dev. 3% Other 4% Boards & Agencies 1% Fleet 3% Roads 29% Downtown / Waterfront 10% Transit 31% 15

22 TAX SUPPORTED CAPITAL BUDGET PRIORITIZATION PROCESS The City of Hamilton employs a hybrid Capital Block Funding Prioritization methodology which over the years has evolved, aligning with the City s Strategic Plan. This has been accomplished by senior staff in all program areas endorsing a corporate Capital funding program focused on meeting a base level financial requirement. This process ensures stable long-term capital funding for hard infrastructure program areas (roads, facilities, long-term care assets) which facilitates effective costing and priority planning outcomes. In addition, meetings with councillors provide input for the Capital Program through various workshops through the Capital Budget Planning Process. The process for the 2017 Capital Budget was as follows: Staff met to determine the discretionary funding available from the most current information available. Discretionary funds are those funds that could be directed to any Capital program area. This would not include specific use reserve funds (DC s, Fleet, Transit, etc) or any other specific funding. Staff met in the second and third quarters of 2016 to determine needs and create funding strategies based on those needs versus financial constraints. Quantitative Block Funding strategies were based on historical funding averages, Masterplan requirements and subsidy eligibility. Capital projects receiving significant subsidy and/or approved by Council prior to Capital Budget deadlines receive priority in the Block Funding process PROPOSED TAX SUPPORTED CAPITAL BUDGET Table 8 summarizes the proposed Capital Budget by program area and compares it to the previous year s approved capital program. The proposed Capital Budget incorporates a 0.95% tax increase ($7.6 million) dedicated to the Capital Levy. 16

23 Table PROPOSED TAX SUPPORTED CAPITAL BUDGET ($000's) 2016 APPROVED 2017 PROPOSED GROSS NET GROSS NET Proposed Program Funding $ $ $ $ Recreation Facilities 14,728 5,100 14,482 8,620 Corporate Facilities 7,202 4,583 5,110 4,600 Entertainment Facilities 1, , Forestry & Horticulture (Includes Tree Planting) 2,782 1,345 1,550 1,345 Open Space Development 14,750 3,327 10,505 3,018 Waste Management 2,635 1,420 9,409 8,312 Transit Services 18,234 3,700 90,713 33,026 Corporate Fleet Services 9, ,895 0 Parks & Cemeteries 1,592 1,265 1,590 1,138 Roads 91,819 55,895 83,082 55,569 West Harbour & Waterfront Initiatives 7,475 7,475 27,235 27,235 Public Health Community Services Housing Services 1,915 1, Long-Term Care Facilities 2,090 1,590 1, Emergency Services 6, , Corporate Services / City Manager 3,015 2,865 5,786 4,540 Area Rating (Ward 1-8) 1, ,053 0 Planning & Development 7,744 1,089 7,486 1,203 Tourism & Culture 2,450 1,702 1,852 1,852 Downtowns & Commercial Districts 2,210 2,210 2,210 2,210 Total Program Funding 198,925 96, , ,377 Other Major Projects Parkland Acquisition 1,500 1,500 1,500 1,500 Provincial Offences Administration Building 9, Randle Reef Emerald Ash Borer Program 2,600 2,600 2,600 2,600 Total Other Major Projects 13,900 4,400 4,400 4,400 Total Before Special Levies and Boards 212, , , ,777 Special Levies & Boards CityHousing 2,300 1, Police Services Hamilton Public Library 1, Beach Rescue H.C.A\Westfield 2,000 2,000 2,000 2,000 Total Special Levies & Boards 5,733 3,500 2,545 2,500 Total Funded Projects 218, , , ,277 17

24 TAX SUPPORTED CAPITAL FORECAST ASSUMPTIONS / HIGHLIGHTS 1. Budgeted debt financing. For the debt financed capital projects, it is assumed that debt repayments start on July 1 at 5.00% interest rate amortized over 15 years. For previously approved capital projects (Works-In-Progress W.I.P. s), July 1 is also the date that debt repayments start accruing. 2. Federal/Provincial Infrastructure Subsidy Gas Tax Revenues. The majority of municipalities cannot meet the cost of proper infrastructure repair and rehabilitation. In response, the Federal government is contributing 5 cents per litre of gas sold to municipalities for this issue. This subsidy is currently at $31.6 M for Hamilton Utilities Corporation Capital Funding Dividend. Based on the Hamilton Utilities Corporation Dividend Policy staff incorporated $3 M in dividends to fund the Capital Program in 2017 and $2 million in each subsequent year thereafter. Table 9 provides a 5-year discretionary capital forecast for summarized by program area expenditures and the sources of discretionary funding. It does not include nondiscretionary capital sources of funding which must be used for a specific purpose (i.e. dedicated reserves for Development Charges, Fleet, etc). The highlights regarding the discretionary funding envelope are: a) Significant increase in the contribution from operating from $48.7M in 2016 to $55.6M in b) 2017 Capital financing surplus stems from calendar year 2015 and is due to approved but unissued debt. Discretionary funds may be directed by Council to any purpose it deems necessary (with some program limitations regarding the Federal Gas Tax). Table 9 assumes an annual 0.5% property tax increase to support regular capital programming and additional property tax increases to cover the debt charges associated with the City s share of the PTIF Program. This would include incremental increases of 0.45% in 2017, 0.39% in 2018 and 0.16% in

25 Table 9 Discretionary Tax Supported Net Capital Funding Forecast ($000`s) 0.5% ($4 M) + Debt Levy Increase for Capital % Cost of Borrowing on External Debt Sources of Funding (Net) ($000's) Approved Proposed Forecast Forecast Forecast Forecast Sustainable Contribution from Operating 48,732 55,648 64,455 61,698 65,507 69,460 Hydro Dividends 3,000 3,000 2,000 2,000 2,000 2,000 Federal Gas Tax 32,516 31,616 33,122 33,122 33,122 33,122 Previous Yrs. Capital Financing Surplus 5,500 2,000 4,000 2,000 2,000 2,000 Sub-total 89,748 92, ,577 98, , ,582 Non-Sustainable Unallocated Capital Reserve 1, HRPI Dividend WIP Funding Interest Sale of Assets 6,600 Roads Tender Surplus 1,900 WIP Funding (FGT) 2,500 Sub-total 6,288 8, External Debt 8,420 61,713 69,416 80,586 10,630 11,460 Total Funding (Net) 104, , , , , ,292 Net Capital Funding ($000's) Approved Proposed Forecast Forecast Forecast Forecast Roads 55,895 55,569 50,680 52,707 54,815 57,008 Corporate Facilities 4,583 4,600 4,583 4,583 4,583 4,583 Recreation Facilities 5,100 8,620 4,580 4,580 4,580 4,580 Entertainment Facilities Park Development (New/Expansion) 3,327 3,018 3,241 3,241 3,241 3,241 Park's Operations 1,265 1,138 1,138 1,138 1,138 1,138 Forestry & Horticulture 1,345 1,345 1,345 1,345 1,345 1,345 Waste Management 1,420 8,312 11,240 38,210 2,576 3,748 Downtowns & Commercial Districts 2,210 2,210 2,210 2,210 2,210 2,210 Cultural Facilities 1,702 1,852 1,702 1,702 1,702 1,702 Long Term Care Facilities 1, Housing Services 1, Block Funding Total 80,737 88,464 82, ,516 77,990 81,355 Major Capital Initiatives West Harbour Development 7,475 27,235 24,200 4,720 11,490 11,010 Ash Borer 2,600 2,600 2,600 2,600 2,600 2,600 Randle Reef Fire / Paramedic Services ,000 1,000 1,000 1,000 Community Services - Other Public Health Corporate Services City Manager/Human Resources 200 1, Information Technology Planning / Development 1,089 1, Economic Development Initiatives - - 2,000 2,000 2,000 2,000 Parkland Acquisition 1,500 1,500 1,500 1,500 1,500 1,500 Transit 3,700 33,026 50,876 50,976 9,330 10,160 DC exemptions 2,000 3,000 4,000 5,000 6,000 6,000 Boards & Agencies CityHousing Hamilton 1, Hamilton Conservation Authority 2,000 2,000 2,000 2,000 2,000 2,000 Library Police Services - - 1,330 14, Subtotal - Boards & Agencies 3,500 2,500 2,500 2,500 2,500 2,500 Unallocated - Surplus(Shortfall) - - 1,293 (3,412) (2,157) (1,089) Total Expenditures (Net) 104, , , , , ,292 19

26 A. The forecast information from Table 9 shows that with a 0.95% tax increase dedicated to the capital levy (which equates to a 7.7% annual Capital Levy increase), adds to the City s forecast discretionary funding envelope from 2016 levels. In order to deal with the increasing infrastructure deficit, the City s Capital Program cannot solve this problem without additional funding from the senior levels of government. However, the Provincial government is now running a significant budget deficit and is facing an era of restraint. Many of the City s Capital program areas will remain acutely under-funded. B. The 10-year Budgeted Tax Supported Debt level forecast peak in 2019 at $467 million is a 32% increase from last year s forecast debt peak of $355 M in 2016 (refer to Table 13). C. Operating Costs. The operating impact of capital projects are identified on the Capital Budget Project List and on the Capital Budget Project Detail Sheets. There is normally a one year lag for operating cost inclusion of submitted capital projects. D. Staff recommend incorporating the operating impact of capital projects in the 2018 operating budget. In 2016, the operating impact of Capital for inclusion into the 2017 operating budget was $2.4 million and FTE s. The operating impact of the 2017 Capital Budget for is $2.03 million and FTE s which is recommended to be incorporated into the 2018 Tax Supported Operating Budget TAX SUPPORTED CAPITAL FORECAST The following 15-year Capital Budget graph and corresponding forecast Tables are based on staff s recommended annual 0.5% tax increase for the Regular Capital Program and an additional property tax increase to cover the debt charges associated with the City s share of the PTIF Program. This would include incremental increases of 0.45% in 2017, 0.39% in 2018 and 0.16% in Over a 10-year period, this plan would add $280 M more in regular capital funding in addition to funding $70 M in new Transit Capital. $ MILLIONS CAPITAL BU5G9T FOR9CAST (GROSS $'s) Y9AR 20

27 The City s declining capital affordability is due to: a) Decreased Capital Funding capacity due to major capital project debt commitments (refer to Table 10). b) Aging Infrastructure. c) A reduced amount of property tax revenue (proportionate) dedicated to capital (Table 5). Past expenditures on the major projects listed below make up a significant portion ($29.1 M) of the $50.9 M debt charge component of the 2017 Capital Levy. This is of particular importance in that there are significant future proposed projects (10-year Transit Strategy, West Harbour, park development) which may significantly add to the debt charge component of the Tax Supported Capital Levy. Table 10 MAJOR PROJECTS ($ Millions) 2016 & New Debt Issuance Prior Debt only Total Red Hill Valley Project City Hall Waste Management Lister Block POA Police Forensic Building Pan Am Stadium year Transit Strategy West Harbour Total Debt Charges on above projects (funded from Tax Levy)

28 Inflationary pressures of capital expenditures relative to the inflationary capacity of property tax increases is illustrated in Table 11. Over the last 5-years the trend is that both variables have been relatively stable and equal. Table 11 Inflationary Pressures on Capital Expenditures - (%) (Forecast) bon-residential Building Construction trice Index troperty Tax Increase The following two pie charts illustrate the City s 10-year Tax Supported Capital Forecast by program and the 10-year forecast of the sources of funding. Strategic Initiatives 1% Capital Forecast by Program $2.37 Billion Waste Management 4% Transit 20% Boards & Agencies 2% Comm. Serv / Housing 2% Emergency Services 4% Facilities 10% Fleet 4% Roads 40% Forestry & Horticulture 5% Other 2% Planning & Development 4% Comm. Serv / Housing 4% As has been the case in previous years, a rationing problem exists in the City s capital financing plan. Table 12 illustrates that submitted capital projects for the next 5 years total approximately $1.33 billion while the capital forecast can only support $1.26 billion in new capital projects. This leaves the City with an approximate $70 million funding gap. However, over the last 3-years, City Capital Program staff have for the most part limited their Capital requests to predetermined block funding levels knowing that any additional requests would not be considered. The funding gap would be much greater if sufficient funding were available to tackle the $3.5 billion accumulated infrastructure deficit. 22

29 While Table 12 illustrates the funding gap between Tax Supported Capital submitted and funding available, the amount of capital submitted by staff would be much greater if additional funding were available to solve the $195 million annual infrastructure deficit. Table CAPITAL FORECAST PROJECTED GROSS CAPITAL & FUNDING SOURCES 5 YEAR SOURCES OF FINANCING TOTAL SUBSIDY / OTHER REVENUE 11,375 37,499 13,025 4,605 1,640 2,140 58,909 RESERVES / OTHER INTERNAL 85,513 75,731 56,996 49,572 39,010 47, ,025 DEVELOPMENT CHARGES 32,002 27,092 34,730 50,000 50,000 50, ,822 FEDERAL GAS TAX 32,516 31,616 33,122 33,122 33,122 33, ,104 TRANSFER FROM OPERATING 48,732 55,648 64,676 61,919 65,728 69, ,651 EXTERNAL DEBT 8,420 61,713 69,416 80,586 10,630 11, ,805 TOTAL CAPITAL FINANCING AVAILABLE 218, , , , , ,119 1,255,316 TOTAL CAPITAL SUBMITTED 257, , , , , ,259 1,326,357 UNAFFORDABLE (38,468) (20,332) (33,868) (36,795) (4,905) 24,860 (71,041) 23

30 8.0 TAX SUPPORTED DEBT AND DEBT FORECAST In the proposed year financing plan, tax supported budgeted external - debt levels peak in 2019 at $465 M. This is the debt level which most concerns bond-rating agencies (refer to Table 13 and corresponding debt charge graph). Table 13 and the following debt graphs provide the projected actual tax supported debt forecast, debt levels and debt charge amounts. The actual debt forecast takes into account the many reasons that debt issuance may be delayed (Capital projects require a longer EA process, etc). The City will only issue debt as capital expenditures occur. In the latter end of the 10-year debt forecast, the City is still issuing debt for previous period Capital and that is why the actual debt is greater than the budgeted debt. Credit Rating Agencies are most focused on the level of external debt in assessing investor risk, as opposed to internal debt. Table 13 TAX SUPPORTED EXTERNAL DEBT FORECAST ($Millions) FINANCING PLAN Balance as of December 31st TAX SUPPORTED FUNDED FROM DC's TOTAL BUDGETED DEBT PROJECTED ACTUAL FINANCING PLAN TAX SUPPORTED FUNDED FROM DC's TOTAL BUDGETED DEBT

31 The graph below is a 10-year forecast of total Debt for the City of Hamilton. That is debt associated with the Tax Supported Capital and the debt which funds a portion of the Rate Capital Budget (Water, Wastewater and Stormwater). The graph shows that a significant portion of total debt is comprised of debt for growth infrastructure. It includes infrastructure such as the rehabilitation/expansion of the wastewater plant of approximately $567 M in two phases ( of $349M and beyond 2023 of $218M), major sewer and water trunks and roads benefiting development. Staff monitor this forecast very closely and have to date managed to defer a significant portion of the work as development has lagged behind previous forecasts. Staff will continue to monitor the forecast and minimize any risks associated with growth revenues not being able to sustain the forecast debt levels. The following graph compares the total forecast City debt charges for the10-year Capital Plan (rate and tax supported) against the Province s 2016 debt repayment limit. The repayment limit is a calculation which takes into account the City s ability to pay the debt charges from available revenues. While this graph shows the City s debt charges rising, staff will monitor the City s ability to pay, especially as it pertains to development charges. Staff will not incur the debt associated with growth infrastructure unless the growth occurs. 25

32 The following table provides a comparison of the City of Hamilton s debt levels to other municipalities. The debt data used in the comparisons is the same data used by the Province to calculate the municipalities Annual Repayment Limit (ARL) i.e. Percent of total debt charges to municipalities own revenues, which provides an indication of the municipalities ability to meet its financial obligations. The maximum ARL allowed by the Province is debt charges up to a maximum 25% of the municipalities own revenues. This would translate to support an outstanding debt of $3.0 billion versus our current peak forecast of $1.07 billion. Hamilton s current debt is well below the allowable provincial limit. Hamilton s percent of debt charges to own revenues is 4.8% compared to the average of 7.0% for all municipalities included in the comparison. The ARL comparators range from 1.9% (City of Cambridge) to 12% (York Region). It should be noted the debt obligations and the associated debt charges presented in the table include debt obligations pertaining to City Housing Hamilton. The City s debt charges to own revenues in the peak debt forecast period would increase to approximately 7.5% in

33 Debt Comparators Based on 2015 FIR's ($ Millions) Hamilton London Windsor Ottawa Brantford Halton Region Burlington Waterloo Region Waterloo Kitchener Cambridge Niagara Region St. Catherines Peel Region York Region Toronto Debt per capita (1) $ 710 $ 938 $ 466 $ 2,028 $ 447 $ 647 $ 1,067 $ 1,093 $ 1,587 $ 1,483 $ 1,254 $ 703 $ 1,497 $ 998 $ 2,772 $ 1,844 Debt per household (1) $ 1,748 $ 2,076 $ 994 $ 4,823 $ 1,084 $ 1,759 $ 2,793 $ 3,037 $ 4,595 $ 4,052 $ 3,482 $ 1,615 $ 3,497 $ 3,351 $ 8,973 $ 4,602 Credit Rating (2) AA AAA AA AA AA AAA NR AAA NR NR NR AA NR AAA AA+ AA Total Own Revenues (Net) 1, , , , ,909.1 (per ARL Calculation) Total Debt & LT Liabilities (Incl. Housing) , , , ,212.4 % to own revenues 30.4% 42.7% 18.8% 76.9% 19.7% 52.5% 69.5% 91.9% 46.7% 27.1% 14.0% 54.2% 67.8% 97.9% 208.5% 58.5% Total Debt Charges (Incl. Lease & LT Commitment Payments) % to own revenues 4.8% 7.5% 2.4% 7.5% 3.5% 7.4% 8.1% 9.8% 5.2% 4.2% 1.9% 6.8% 8.1% 8.3% 12.0% 7.9% Annual Repayment Limit (ARL) = 25% of Total Own Revenues above (1) Lower Tier Debt per Capita and Debt per household includes Upper Tier (Region) Debt (2) NR = Lower Tier Municipality that is Not Rated 9.0 AREA RATING SPECIAL CAPITAL RE-INVESTMENT RESERVES At the April 14, 2011 Council meeting, amendments to the area rating methodology, constituting an Urban/Rural model of area rating, were approved. As a result, a tax shift was initiated resulting in the establishment of 8 reserves for the former City of Hamilton wards to address the infrastructure deficit within the respective wards. Wards 1 to 8 will have $1.68 M allocated annually to address ward specific infrastructure and capital. Table 14 forecasts the expected ending balance of each ward reserve based on current expenditures and commitments. Amounts will be reduced as future projects and initiatives are identified to be funded from the reserves. Table 14 Wards 1 to 8 Area Rating Special Capital Re-Investment Reserves Forecast Closing Balances ($ 000's) Reserve Ward Ward ,315 3, Ward 2 1,367 2,501 4, Ward 3 3, , Ward 4 1,209 2,755 4, Ward ,216 2, Ward 6 2, , Ward 7 2,875 4,503 6, Ward 8 3, ,306 27