Preparing a Liability Estimate for Your Municipal Property Portfolio

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Camron Johnson
5 years ago
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1 Preparing a Liability Estimate for Your Municipal Property Portfolio

2 Outline Overview of PS3260 Liability for Contaminated Sites Assessment Tools Model Liability Estimate Process Value-Added Opportunities 2

3 PS3260 Liability for Contaminated Sites Public Sector Accounting Board standard requiring annual reporting of a liability associated with contaminated sites Applies to all organizations, such as municipalities, who apply the Public Sector Accounting Handbook from the Canadian Institute of Chartered Accountants Applies to municipal fiscal years beginning on or after April 1, 2014 Specifies recognition criteria 1. An environmental standard exists 2. Contamination exceeds an environmental standard 3. The government is directly responsible or accepts responsibility 4. It is expected that future economic benefits will be given up 5. Reasonable estimate of the amount can be made 3

sites, fuel storage tanks, salt storage, municipal works

4 Does Contamination Exist? Contamination related to: historic or current uses of property historic or current uses of surrounding properties Common municipal issues: old waste disposal sites, fuel storage tanks, salt storage, municipal works yards Typically only limited information on the environmental condition of a property is available 4

5 Does PS3260 Apply to Properties that are Productive Use? Interpretation of the standard by accounting professionals is evolving PS3260 indicates a liability for remediation normally results A) when a property is no longer in productive use or B) from an unexpected event that results in contamination Governments have specific obligations to report liabilities (PS3260 or otherwise) Liabilities can be triggered by: Facility closure or disposition (asset retirement) A significant environmental risk that requires remediation to protect human or ecological receptors 5

potential environmental risks quick, inexpensive Phase II environmental site assessment

6 Site Assessment Tools Review of city records available environmental reports, operating records Phase I environmental site assessment desktop study to identify actual and potential environmental risks quick, inexpensive Phase II environmental site assessment field investigations to confirm whether contamination is actually present slow, expensive 6

7 The Assessment Challenge minor risks significant risks How many environmental risks are there? Which environmental risks are important? How much assessment effort is necessary to develop a reasonable liability estimate? Requires a systematic process to evaluate each environmental risk no risks 7

8 Assessment Process Considerations Environmental risks must be viewed in the context of financial materiality: the resultant liability is material if: typically established between 0.5% and 2% of the total annual budget Does the property represent a de minimis environmental risk? Is there a potential environmental risk so significant that it could trigger regulatory enforcement? Does a liability need to be recognized? Requires integration of the accounting, legal, planning and technical considerations 8

9 Model Process for Liability Estimate Step 1. Screening Level Assessment negligible concern Get the right baseline data Minimize the level of effort Step 2. Comprehensive Assessment no environmental risks Step 3. Identify Significant Environmental Risks no significant risks Step 4. Field Investigations Step 5. Estimate Liability 9

10 Screening Level Assessment How many properties are in your municipal portfolio? exclude landfills (separate reporting requirements) What municipal property use information is available? municipal records prior environmental reports KEY OUTCOME: Screen out municipal properties that represent a negligible concern for contamination 10

11 Comprehensive Assessment Supplement existing property use information through a Phase I environmental site assessment: review of environmental databases, aerial photographs, property use records, previous environmental reports, topographic and geologic maps, and responses to requests for information submitted to regulatory agencies site visit by a qualified site assessor interview with an individual knowledgeable about the property use identify environmental risks at each property KEY OUTCOME: screen out municipal properties with no environmental risks (no environmental liability) 11

12 Identify Significant Environmental Risks Evaluate each environmental risk for its potential to result in: unacceptable human health effects unacceptable ecological effects regulatory enforcement action significant civil liability exposure KEY OUTCOME: Screen out properties with no significant environment risks from further investigation 12

13 Field Investigations For each significant risk, design a field investigation to determine if that risk is actually present 13

14 Estimate Liability Identify a management strategy for every environmental risk Estimate the commerciallyreasonable worst-case cost to manage each environmental risk Screen each environmental risk against the PS3260 liability recognition criteria Sum the total liability associated with the portfolio KEY POINT: Outcome is a conservative liability estimate (not a budget estimate) a reasonable and prudent approach to appropriately manage an environmental risk that involves: Remediation? Risk management? Combination? to be implemented ONLY as necessary for each property 14

15 Estimate Liability Costing Each Issue Where there is limited information, the cost of the environmental management strategy is estimated based on professional judgment, experience at similar sites, ball-park cost estimates Reported costs from the environmental engineering literature Commercially available cost models Look for reasonable worst-case costs rather than detailed budget estimates 15

16 Annual Update Review the status of each property for changes relative to PS3260 recognition criteria Review and update environmental risks on an ongoing basis new activities at properties that could result in contamination? new activities at surrounding properties? new properties now included in the municipal portfolio? Conduct any additional assessments necessary to further refine liability estimate KEY POINT: With baseline data in hand, update is relatively straightforward. 16

17 Value-Added Opportunities For what other purposes can municipalities use this information? Planning approvals Is a new development at risk of contamination by a nearby municipal property? Tax foreclosures Is the property potentially contaminated? Infrastructure planning Will the construction encounter contamination? Prioritization of any further environmental management activities 17

18 Questions? Eric Hood, Ph.D., P.Eng. Associate, Senior Engineer 100 Scotia Court, Whitby, Ontario, Canada L1N 8Y6 T: +1 (905)

Assessing and Dealing with Environmental Liabilities of Local Governments. LGANT 2014 Dennis Kefalas, P. Eng. SAO City of Yellowknife

Assessing and Dealing with Environmental Liabilities of Local Governments LGANT 2014 Dennis Kefalas, P. Eng. SAO City of Yellowknife Overview Obligations Environmental Liabilities Landfill Closure and