2014 FONOM/MMAH NORTHERN MUNICIPAL CONFERENCE ASSET MANGEMENT PLANNING: TIP SHEETS. May 8 th 2014

Transcription

1 2014 FONOM/MMAH NORTHERN MUNICIPAL CONFERENCE ASSET MANGEMENT PLANNING: TIP SHEETS May 8 th 2014

2 Topics Introduction & Overview MFOA s work with MMAH Hemson s Involvement Asset Management Tip Sheets 1. Reporting to Council on Asset Management Plans 2. Meeting Requirements of O.Reg. 284/09 3. Integrated Asset Management Planning 4. Budgeting for Long-Term Asset Management 5. Council Decision Making: Evidence Based 6. Asset Management Planning & Implementation Q&A 1

3 Tip Sheet #1 Reporting to Council Responsible for keeping Council & the Public informed Getting Council buy in to fund capital infrastructural renewal is a challenge A key to success: Providing Council with the proper information to make informed decisions 2

4 Tip Sheet #1 Key Information to Provide 1. Condition of assets and asset categories 2. Remaining useful life of assets 3. Total replacement value of assets 4. Consequence of asset failure 5. Recommendations to build reserves 3

5 Tip Sheet #1 Assets Classes Minimum Reporting Asset Classes Roads Bridges/Structures Water and Wastewater Remember other assets: Road related infrastructure (i.e. streetlights, traffic signals, etc.) Buildings Fleet and equipment Park Amenities 4

6 Tip Sheet #1 Sample of Information Presentation Age of Tax Supported Infrastructure by Remaining Useful Life $100,000,000 $80,000,000 $60,000,000 $40,000,000 $20,000,000 $- 3% 6% 12% 15% 5% 9% 50% Important to illustrate the remaining useful life of assets in conjunction with the condition assessment analysis Asset Condition Assessments Good (235.5M) Fair ($113.2M) Poor ($15.2M) Water Wastewater Bridges & Culverts Roads and Related Old infrastructure does not necessarily mean the assets are in poor condition 0% 20% 40% 60% 80% 100% 5

7 Tip Sheet #1 Infrastructure Deficit Infrastructure Deficit "Overdue" Assets Required Immediately Infrastructure Deficit will Continue to Increase Under Exisiting Conditions Buildings Sidewalks Fleet Bridges Roads Wastewater Water $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 Infrastructure Deficit In-Year Capital Requirements $50,000,000 $40,000,000 $30,000,000 $20,000,000 $10,000,000 $0 -$10,000,000 In-Year Capital Contributions How much infrastructure is overdue? Is the deficit improving? 6

8 Tip Sheet #1 Annual Provisions How much should the annual contributions be? What is currently being done? 7

9 Tip Sheet #1 Effective Communication of Results How have the Condition of our Assets Changed? 57% 28% 15% 56% 27% 17% 56% 26% 18% 55% 25% 20% Good Fair Poor Easy to interpret charts will help Council and the Public understand the state of municipal infrastructure and how it is changing. 0% 20% 40% 60% 80% 100% Annual Change in Reserve Funds $4,000,000 Water Wastewater Tax Supported $3,500,000 $3,000,000 $2,500,000 $2,000,000 $1,500,000 $1,000,000 $500,000 $ Illustrating year-overyear changes in reserves can help Council understand significant contributions or withdrawals (related to capital investment) 8

10 Tip Sheet #2 Requirements of O.Reg 284/09 Under the Municipal Act: Municipalities are required to prepare annual statements on a full accrual basis Recording of assets amortized over their useful life and not as an expenditure in year acquired Appear on Statement of Operations Required to prepare balanced budgets Would have profound budgetary implications for Ontario Municipalities O.Reg 284/09 introduced 9

11 Tip Sheet #2 Requirements of O.Reg 284/09 Regulations allow municipalities to exclude amortized costs and other costs If followed, municipalities must produce an annual report: Estimate of the change in accumulated surplus resulting from excluded expenses Analysis of the estimate impact of the exclusions A full response and review to Regulation 284/09 was undertaken by MFOA. The document pertaining to this review can be located through the link below: 10

12 Tip Sheet #2 Impact on Ending Accumulated Surplus Outline for Conversion from Fund to Accrual Accounting Notes: Budgeted Surplus: $0.00 Legislated to be $0 1. Capital Assets Less: Amortization Expense Add: Budgeted Tangible Capital Asset Acquisition Previous years amortization expense Less: Amortization related to disposals Add: Amortization of acquired assets Capital program less non-tca expenditures Less: Proceeds of Debentures Add: Debt Principal Payments Under the accrual method, debt principal payments are considered a reduction of the liability and not an expense 2. Post-Employment Benefits Under full accrual accounting, any amounts expected to be paid on behalf of employees on or after retirement will be expenses throughout the employee's active service life. Post-Employment benefits include the following: Continuation of health benefits after retirement WSIB partial disability pensions to former employees Payout of frozen sick leave credits on retirement Less: Change in Unfunded Post Employment Benefits Liability 3. Post-Closure Landfill Expenses Less: Change in Unfunded Landfill Closure and Post Closure Liability Estimated Impact on the Ending Accumulated Surplus Increase in Post-Employment Benefits Liability less any contributions to related reserves The reporting of landfill closure and post closure expenses reduce the accumulated surplus 11

13 Tip Sheet #2 Weakness of Using Amortization Assets that are fully depreciated will not be included Depreciation is dependent on historical costs and not replacement costs which will be greater Non-tangible capital assets are not considered 12

14 Tip Sheet #2 Example: Amortization vs. Full Cost Saving Saving for the Replacement of an Asset is different than Funding Annual Amortization Replacement Amortization $1,600,000 $1,400,000 $1,200,000 $1,000,000 $800,000 $600,000 $400,000 $200,000 $ Assumptions: 2014 Cost: $1,000,000 Useful Life: 10 Years (replacement in 2024) Replacement cost: $1.4 million Result if Amortization used : A funding shortfall in excess of $400,000 13

15 Tip Sheet #2 Estimating the Impact of Exclusions Document existing capital funding levels actual capital-related activity provisions to reserves for asset replacement Identify how much should be invested in tangible capital assets annually 14

16 Tip Sheet #3 Asset Management & Strategic Planning DEVELOPMENT CHARGES STUDY WATER & SEWER FULL COST RECOVERY STUDIES ASSET MANAGEMENT STUDY LONG-RANGE FINANCIAL PLAN GROWTH MANAGEMENT STUDY ROADS MANAGEMENT STUDY/SOFTWARE PERFORMANCE MEASUREMENT FLEET MANAGEMENT PROGRAM/SOFTWARE SERVICE LEVEL TRACKING & ANALYSIS INSURANCE SCHEDULES FINANCIAL DOCUMENTS OTHER OTHER (Grant Applications) 15

17 Tip Sheet #3 Long-Range Financial Planning Context Base Parameters (Forecasts, Plans, Policies) Population, Housing, Demographic & Non-Residential Projections Financial Parameters, Assumptions & Drivers Assessment, Tax & Rate Revenue Forecasts Operating & Capital Forecast Infrastructure Repair & Replacement Tax and Rate Impact Analysis Sensitivity Testing Financial Policies, Objectives & Measures 16

18 Tip Sheet #3 Capital Budgeting 101 Establish short, medium and long-term goals Essential that municipalities are prepared: Regularly update their asset registry Improve information for full range of capital assets in addition to engineering related infrastructure Improve and update condition assessments and replacement costs 17

19 Tip Sheet #3 Developing a Capital Prioritization Model Develop a Capital Prioritization Model to evaluate the validity of each project Weigh the importance of each project based on general guidelines: Health and Safety Service Levels Strategic directions and community priorities Mandates Operating budget implications Economic Development 18

20 Tip Sheet #3 Important Considerations Assets that have environmental or health risks should be considered the highest priority Desired service levels e.g. allow more cracks on a road before replacement e.g. change standards for contributed capital to better acknowledge municipality's requirement to replace it Council goals and objectives Factor in operating budget implications 19

21 Tip Sheet #3 Funding of Prioritized Projects Key funding questions that should be answered after projects have been identified 1. Can the projects be funded under existing conditions? 2. Would there be significant increase to user rates or property taxes? Identify level of increase required Can alternative revenue tools be used 3. Can debt financing be used? 20

22 Tip Sheet #4 Budgeting & Revenue Sources Finding revenue for funding asset management needs and reserve contributions is often a challenge Property taxes and utility rates are the key revenue sources but there are other revenues tools Comprehensive wideranging asset management funding is the best approach 21

23 Tip Sheet #4 Revenue Tools Examined Dedicated Infrastructure Levy User Fees Local Improvement Charges Development Charges Developer Contributions Shared Services P3s Debt Note: Session this afternoon will go into more details on alternative revenues sources. 22

24 Tip Sheet #5 Evidence Based Decision Making Most municipalities are faced with numerous fiscal challenges Asset Management is another pressure Providing Council, and the Public, with solid data and information to allow evidence based decision making is key Best to take a long-term perspective 23

25 Tip Sheet #5 Should contributions be at 100%? Need to be contributing to asset management needs and reserves: Should it be at 100% of fullycalculated needs? Needs often calculated on engineered designed life : Assets often last longer Repair & rehabilitation approaches Dynamic asset management 24

26 Tip Sheet #5 Value of Reserve Fund Policies Maintaining adequate levels in asset reserve funds is essential Reserve fund balance critical to long-term fiscal sustainability Formal reserve fund policies improve chance of success: Intended use/utilization of reserves Minimum, maximum and target reserve balances Identified funding sources 25

27 Tip Sheet #5 Expenditures & Reserves Mitigating Expenditures through Reserves Minimum Reserve Balance - % of asset replacementvalue Cumulative Contributions $10,000,000 Targets can be set as a ratio of $ in reserves to asset replacement value $8,000,000 $6,000,000 $4,000,000 $2,000,000 For example, York Region aims to have 20% of asset replacement value in reserves $- -$2,000,000 -$4,000,000 -$6,000,000 Unplanned expenditure Minimum balance should be established to absorb costs associated with unplanned work 26

28 Tip Sheet #5 Alternative Funding Tools Revenue Tool Description Examples Stormwater Utility Rates -Transfers stormwater management funding from property tax base to a user-fee program - This funding model generally allows a municipality to dedicate funds to a typically underfunded area 1) City of Kitchener kitchener/stormwater_utility.asp 2) City of Mississauga (January 2016) esidents/stormwaterrate 3) Town of Richmond Hill e.asp?pageid=finance_water 27

29 Tip Sheet #5 Alternative Funding Tools Revenue Tool Description Examples Parking Enforcement Enterprise -Transform municipal parking division into a for-profit enterprise. -Parking would become a user-pay system. Cost of service directed to those using the system removes parking costs away from all tax payers 1) City of Kitchener nkitchener/parkingenterprise.asp 28

30 Tip Sheet #5 Alternative Funding Tools Revenue Tool Description Examples Non-Resident/ Local User Fees -Can be levied as a standard surcharge ($ or %) to the resident rate 1) Town of Halton Hills pdf/2014/rec.pdf - Can be applicable to individuals, families or groups 2) City of Pembroke /userfiles/file/recreation/nonres_fac t-sheet.pdf 3) Town of Smith Falls vents/recreation%20cost%20sharin g%20report.pdf 29

31 Tip Sheet #5 Annual Tax Rate Impact Estimating Tax Impact 1. Identify the calculated in-year capital contribution required 2. Identify the difference in the current capital funding vs. the calculated contribution 3. Identify how much money is raised solely through property taxes 4. Divide the increase need for capital spending by the amount of money raised through property taxes Result is % increase Example calculated contribution = $4 million; 2. In 2013 municipality contributed $1 million in asset expenditures: Difference = $3 million tax levy = $30 million 4. Tax impact of raising additional $3 million: $3M/$30M = 10% increase 30

32 Tip Sheet #5 Other Considerations It can be difficult to find monies to fund asset management costs, a few items for consideration: 1. Any small amount of dedicated funding for asset replacement can set a precedent for future increases 2. Consider contributions closer to the end of the assets useful life 3. Consider transiting debt repayments when they retire to capital contributions as the spending room is already incorporated in the budget 4. Municipalities that are eligible to receive hydro dividends could consider dedicating a portion of this revenue to capital 31

33 Tip Sheet #6 Asset Management Q & A? Final Tip Sheet covers a number of Q & A topics: 1. Other useful/related studies Full Cost Recovery Utility Studies Development Charges Study Road Needs Study 2. How often should an Asset Management Plan be updated? 3. What asset management elements should the capital budget and forecasts evaluate? 4. What measures can be put in place to regularly update the plan? 5. What approaches have been successfully used to optimize the use of existing assets? 32