Region of Peel. Review of Growth Infrastructure Financing Strategy. Growth Management Committee

Transcription

1 Region of Peel Review of Growth Infrastructure Financing Strategy Growth Management Committee June 5, 2014

2 Review of Front-End Financing and Growth Infrastructure Financing Strategy Council adopted the report Capital Financing of Growth Infrastructure on November 28, 2013 and the recommendation: That staff conduct a review to determine which areas of development within the Region of Peel requiring Regional growth infrastructure could be subject to mandatory application of front-end financing agreements and report back to Council. 1

3 Review of Front-End Financing and Growth Infrastructure Financing Strategy To address this request, Watson & Associates has been requested to help: Determine an alternative(s) to the current DC/debt based growth infrastructure funding strategy utilized by the Region to reduce and/or transfer risk from the Region. 2

4 Approach 1. The primary focus of the undertaking is to investigate alternative infrastructure financing approaches utilized and proven in the municipal sector elsewhere in Ontario as well as in North America. (The focus is on financing approaches as opposed to a review of cost mitigation strategies). 2. Identify potential options for Peel Region to consider and outline their advantages and disadvantages within a Peel context including funding sources, who pays, etc. 3. Provide preliminary perspectives regarding a potential new financial strategy (i.e. existing or hybrid) based on the benefits associated with the alternatives. 3

5 How the Region Got to Where it is Today 2007 to 2012 DC Reserve Funds - Many of the major infrastructure projects were funded through Regional DC Reserve Funds which maintained positive balances prior to Revenues - During this period actual DC Revenues ($0.43 billion) lagged the forecast amount ($1.0 billion) by 57%. This was as a result of: Non-residential GFA not realized (i.e. global economic downturn, outsourcing of manufacturing sector, high CDN$, and decline in Ontario employment rate). 4

6 Growth Expenditures & Funding 2007 to 2012 Expenditures - DC Capital Plan spending in the 2007 DC Background Study was $3.3 billion. This increased to $4.8 billion in the 2012 DC Study. 56% of the entire 2012 plan is planned in the first five years and will require. DC Debt Issuance Region to borrow (approx. $2 billion) in order to finance short falls in those years arising from DC related expenditures exceeding DC revenues and fund debt through the recovery of future DCs. $DC per sde - As a result the 2012 DC per single detached unit doubled from $17,830 to $ 35,532. 5

7 Growth Expenditures & Funding Forecast Expenditures Estimated DC capital costs continue to increase. A summary of the 2012 DC expenditures for water, wastewater, and roads over the period, and DC capital plan based on the 2014 budget is as follows (cumulative in millions$): Millions 3,000 2,500 2,000 1,500 1, Budget 2012 DC Study 2014 Budget includes $400,000,000 more than 2012 DC Study in capital costs for water, sewer and roads. 0 6

8 Growth Expenditures & Funding Forecast An increase in $400,000,000 in capital costs for water, wastewater and roads would increase the $DC per single detached unit by approximately $6,000 per unit to $41,000. 7

9 Factors Affecting Development Charge Increases Over Time While overall costs are somewhat the result of more localized issues, a number of factors are observed within the GTA which have contributed to the increase in the charges since passage of the DCA The following provides some commentary on matters impact the DC cost increases for Water and Wastewater 8

10 Factors Affecting DC s - Walkerton Recommendations a) Since Walkerton, significant cost increase in water treatment due to: 9 Requirement for redundancy; Increase in quality measures (e.g. chlorine contact time, ultraviolet treatment, chlorine booster stations, etc.); Operational and reporting requirements (SCADA and other controls); Mandated upgrades of systems within stipulated compliance timing; and Enhanced technology (both in quality management and in treatment approaches).

11 Factors Affecting DC s - Walkerton Recommendations b) Walkerton recommendations also impacted wastewater because of watershed management ( i.e. reduction in phosphorous and ammonia discharge targets) and enhanced levels of treatment (e.g. movement from primary or secondary treatment to tertiary treatment). 10

12 Factors Affecting DC s - Locational Factors Most GTA development occurring well north of Lake Ontario requiring Big Pipe systems to service growth (e.g. Peel/York system to service Aurora/Newmarket, Halton extension to Milton, North Oakville and Halton Hills, Durham extension to Pickering (Seaton)); More northerly locations require large pipes over long distances, pumping, chlorine boosters, big pipe main looping, equalization, land; and Note that prior to 1997, Big Pipe systems were built by the Province (e.g. Elgin, Huron, Essex Union, Peel, York/Durham sewer etc.). More stringent requirements for liner infrastructure emplacement (i.e. tunneling vs. open ditch) 11

13 Factors Affecting DC s - Uncommitted excess capacity When DCA 1997 passed, Uncommitted Excess Capacity was deducted. Over time, as excess capacity is used up, the DC will increase as a result. For example: Year 0 Stage % Handled by Excess Capacity % Required Treatment $ per capita Half the projected growth can be handled by excess capacity. The other half will require treatment of $100/capita. 50% 50% (50% X $0) (50% X $100) $50 $50 Year 5 Growth has used up half of the available excess capacity leaving capacity to service 25% of growth and 75% at $100/capita. 25% 75% (25% X $0) (75% X $100) $75 $75 Year No excess capacity left in the plant. 0'% 100% (0% X $0) (100% X $100) $100 $100

14 Timing of Capital Expenditures Development Timing OPA/ Secondary Plan Draft Approval Subdivision Approval Building Permit Post Occupancy Service Capital Item Water: Treatment Transmission Distribution Local Wastewater Treatment Transmission (Conveyance) Collection Local Stormwater Management Facilities Roads and Related Roads Rolling Stock Library Facilities Collection Materials Transit Facilities Vehicles Parking Parking Spaces Police Facilities Vehicles Police Communication Equipment Police Officer Equipment Health Unit Facilities Ambulance Facilities Vehicles Child Care Facilities Provincial Offences Act Facilities Parks Parkland Development Recreation Facilities Fire Facilities Vehicles Firefighter Equipment Administrative Growth Studies 13 13

15 Types of Development Charges Act Agreements As noted, most hard infrastructure must be emplaced prior to development proceeding often require the municipality to upfront costs in anticipation of growth DCA provides for certain types of agreements to be used to assist in the cash flow of these expenditures: Front-Ending Agreements Accelerated Payment Agreements Service Emplacement Agreements 14

16 Front-Ending Agreements A municipality and one or more landowners may enter into a front-ending agreement which provides for the costs of a project which will benefit an area in the municipality to which the DC By-law applies Such an agreement can provide for the upfront costs to be borne by one or more parties to the agreement who are, in turn, reimbursed in future, by persons who develop land defined in the agreement 15

17 Accelerated Payment Agreements Accelerated agreements most often assist municipalities with cash flow to build specific projects most often applies to water, wastewater and road improvements Usually involves the prepayment of all or a portion of the DC credit provided at the time the DC is payable (i.e. building permit issuance) 16

18 Service Emplacement Agreements Developer may agree to build a specific project most often applies to water, wastewater, parks and road improvements Usually requires a process for identifying the reasonable cost of the work credit provided at the time the DC is payable (i.e. building permit issuance) if the project cost exceeds the credit amount, need to identify how excess amount will be repaid 17

19 Collection Timing/Agreement Use Ontario Major Municipalities Service Emplacement DC Pre- Payment Front-Ending Other Municipality Subdivision Bulding Permit Peel x Res/Non-Res 1 Halton Res Non-Res Included as part of Capacity allocation program Toronto Res/Non-Res x x York Res Non-Res 2 x Durham Res Non-Res 1 Ottawa x Res/Non-Res 2 x Hamilton x Res/Non-Res x Waterloo x Res/Non-Res x x x Barrie Res Non-Res 1 Special Capital Provision also required 1 Denotes use on a limited basis 2 Special conditions for repayment apply Hard Service DC Payment Timing 18

20 Other Canadian Cities City Vancouver, BC Development Cost Levies (DCL); and Community Amenity Contributions (CAC) Financing Approach DCLs cannot legally collect 100% of growth costs, CACs can help fill in the gaps through voluntary contributions provided by developers. Edmonton, AB Permanent Area Contribution (PAC) Rate or area charge was recalculated each year and was derived by dividing the estimated construction cost of the cost sharable items within the cost sharing boundary by the remaining benefitting areas Calgary, AB Permanent Area Contribution (PAC); and Offsite levies bylaw Provide for Community Infrastructure (Fire, EMS, library, police, recreation facilities, buses), water, wastewater, storm and Roads Services Regina, SK Servicing Fees Collecting sewer, water, drainage, roads and related services, administrative services, parks and recreation facilities since The funding shortfalls must be met by an appropriate combination of developer front-end financing and City debt financing. 19

21 USA Financing Approach Description 1. Impact Fees Charged only to new development. Standardized fees as opposed to ad hoc negotiated capital improvements needed to serve new growth. payments; and used to fund 2. Developer Exactions Requirements a local municipality places on a developer to dedicate land or construct or pay for all or a portion of the costs of capital improvements needed for public facilities. Difficult to quantify, but most municipalities use them, with or without impact fees (although with impact fees, you have to give credit for the value of exactions). 3. Development Taxes Functionally very similar to an impact fee is the development tax, which is sometimes also referred to as a development excise tax, privilege tax or facilities tax Special District Financing Development taxes are rarely used and generally require special state enabling legislation, which is absent in most states. Financing the costs of public infrastructure through the imposition of dedicated taxes and assessments on the benefited properties. This financing involves the formation of a public-private partnership whereby a municipality agrees to the creation of a specially designated tax district, where there is an additional special taxes

22 Observations There are not many creative alternatives to funding growth related costs Many of the observed methods are variations on what may be done in Ontario, hence existing tools may provide opportunities for financing works 21

23 Observations Peel requires cash flow assistance to finance the considerable infrastructure costs. Consideration should be given to: Accelerate all hard service collections to the earliest time possible (i.e. subdivision agreement) Should consider if further negotiated agreements may be required (i.e. prepayment agreements or frontending) May need to coordinate approvals with cash flow to minimize debt levels 22