DEVELOPMENT CHARGES & ASSET MANAGEMENT: FULFILLING THE NEW REQUIREMENTS OF THE DCA. Monday, June 12, 2017

Transcription

1 DEVELOPMENT CHARGES & ASSET MANAGEMENT: FULFILLING THE NEW REQUIREMENTS OF THE DCA Monday, June 12, 2017

2 Today we will discuss Overview of Development Charges and Asset Management Regulatory Context Asset Management Requirements under the DCA Calculation methodology Case Study 1

3 What Are Development Charges? Charges imposed on development to fund growth-related capital costs Pays for new infrastructure and facilities to maintain service levels Principle is growth pays for growth so that financial burden is not borne by existing tax/rate payers 2

4 Overview of the Development Charges Act (DCA) DCs are imposed by by-law Maximum life of a DC by-law is 5 years after the day it comes into force Prior to passing a by-law, Municipality must: Undertake a background study Hold at least one public meeting Appeals adjudicated at the Ontario Municipal Board 3

5 What is Asset Management? It s not one thing! Multidisciplinary exercise Accounting Engineering Operations Finance Planning Others It s really about Service Management 4

6 Asset Management Context GROWTH RELATED STUDIES (DC, GROWTH MGMT.) WATER & SEWER FULL COST RECOVERY STUDIES ASSET MANAGEMENT PROVINCIAL SUBMISSIONS (AMP, FIR, GRANTS) LONG-RANGE FINANCIAL PLAN ROADS MANAGEMENT STUDY/SOFTWARE PERFORMANCE MEASUREMENTS FLEET MANAGEMENT PROGRAM/SOFTWARE SERVICE LEVEL TRACKING & ANALYSIS BUILDING CONDITION ASSESSMENTS FINANCIAL DOCUMENTS INSURANCE SCHEDULES OTHER OTHER 5

7 Asset Management in the News 6

8 Municipal Asset Management: Gaining Some Perspective AMO estimates the Ontario municipal infrastructure deficit is at $60 billion From AMO s Submission to Infrastructure Canada

9 Regulatory Context in Ontario: PSAB 3150 Jan 1, 2009 Public Sector Accounting Board 3150 Requirement Mandated accounting for tangible capital assets Involves lifecycle deprecation approach 8

10 Regulatory Context in Ontario: Asset Management Plans Dec 31, 2013 Ministry of Infrastructure Requirement Initially covers roads, bridges, water, wastewater & housing Used in determination of grants (i.e. Ont. Community Infrastructure Fund & Small Communities Fund) Plan must consider condition of assets, desired service levels, mitigation & funding 9

11 Regulatory Context in Ontario: Asset Management Plans (cont.) Bill 6: Infrastructure for Jobs and Prosperity Act Demonstrates province s commitment to long-term asset management planning Strategic Asset Management Policies which would specify how AMP would align with other municipal plans Advancement in determining asset levels of service Common set of service level indicators 10

12 Regulatory Context in Ontario: Asset Management Plans (cont.) Dec 31, 2016 AMO Gas Tax Requirement Required for all services eligible for Federal Gas Tax grants Still to be based on Building Together Guide In 2018 outcome report must show AMPs are being used to guide decisions 11

13 Regulatory Context in Ontario: Changes to the DCA Smart Growth for Our Communities Act, 2015 made amendments to the DCA and Planning Act Focus largely on increased funding for Transit No longer subject to 10% reduction Based on a planned level of service Consideration for area rating Ineligible services to be prescribed by Regulations Waste collection, recycling collection and management, and organic waste collection and management are now eligible 12

14 Changes to the DCA Requiring municipalities to better integrate how development charges fit with long-term planning, including local asset management plans. DCs payable upon first building permit Additional reporting requirements 13

15 Overarching AM Requirements: Development Charges Act Asset Management Plan must be included as part of the DC Background Study Deal with all assets whose capital costs are proposed to be funded under the development charge by-law; Demonstrate that all the assets mentioned are financially sustainable over their full life cycle; 14

16 Specific AM Requirements: Transit Services Requirements are much more stringent for Transit services Consistent with the Building Together Guide, the DC study must set out: State of the Local Infrastructure Proposed Level of Service An Asset Management Strategy A Financial Strategy 15

17 Are All Capital Costs to be Considered in AMP? Not all assets considered under a DC By-law need to be analyzed Capital Costs 1. Capital costs covered by other funding sources Reason and Examples Local Services, Separate City-wide or ASDC studies 2. One-time costs Costs which are temporary in nature - Site improvement - Temporary access 3. Not related to infrastructure No maintenance, operation costs and ultimately no replacement - development-related studies - Land acquisition - Recovery of negative reserve fund balance 16

18 AMP Calculation All assets are to be identified in the background study Identify each capital project and applicability Identify the DC recoverable component Calculate the annual provision for asset replacement Represents grouped cost of individual elements Capital Project Description Estimated Useful Life Gross Costs DC Recoverable AMP Annual Provision DC Related AMP Annual Provision Total (incl DC) Transit Garage, 40 years $83,880,000 $9,768,318 $256,000 $1,957,000 Plaza and Terminal Transit Fleet 14 years $23,000,000 $3,263,650 $251,000 $1,504,000 Technology Implementation 8 years $14,027,000 $916,257 $115,000 $1,626,000 Total Annual Provision $622,000 $5,087,000 Only related to in-year share plus legislated discount 17

19 AMP Calculation Total calculated annual provision has been netted down to consider: Grants/subsidies shares for projects which the municipality is not responsible for; the replacement of existing infrastructure or benefit-toexisting development; infrastructure as it relates to development occurring outside of the respective planning periods; and services for which capital assets have been acquired at a greater rate than the level of service provided over the preceding ten-year period. 18

20 Demonstrating Financially Sustainable How does the total annual capital requirement fit into the municipality s corporate asset management plan Represent annual need as a % of total own source revenues The calculated annual funding provision should be considered within the context of the municipality s projected growth Development industry expectation is quantifiable tax rate and user rate impacts 19

21 Case Study Ottawa: AMP for Transit Services $3 Billion LRT expansion plan City currently amending existing DC by-law to calculate DCs for Transit services under the new requirements of the legislation Removal of 10% statutory deduction Use of a planned level of service rather then 10- year historical average 20

22 Case Study Ottawa: AMP for Transit Services Relevant analysis and existing City documents assisted with addressing the AMP requirements Fiscal Framework Transit Long Range Financial Plan and Affordability Model Comprehensive Asset Management Plan State of Assets Report Road map of sustainable finances for the City Overarching principles of responsible financial management Long-term operating and capital costs related to transit Identified City s definition of affordability Tax and user fee implications State of local infrastructure Assets used to deliver Transit services State of local infrastructure Useful life assumptions Inventory of assets 21

23 Case Study Ottawa: AMP for Transit Services The City s Long Range Financial Plan (LRFP) for Transit was informed by an Affordability Model Key assumptions of the model included: Integrated full range of capital, operating and life-cycle costs 32-year planning horizon to 2048 Forecasts revenue fare and tax increases to align with increases in transit costs Incorporated anticipated government funding (i.e. gas tax contributions) Ridership analysis and relationship to revenue Debenture assumptions where capital costs exceed the amount of funds available from other revenue sources 22

24 Case Study Ottawa: AMP for Transit Services The City s LRFP and Affordability Model concluded that the system was financially sustainable based on the following assumptions: Transit taxes and transit fares will increase at the same rate as transit costs at 2.5% Contributions of two-thirds funding from other levels of government for LRT and BRT projects Interest rates remain below 6% 23

25 Case Study Ottawa: AMP for Transit Services A checklist was included in the DC Study to demonstrate how the AMP requirements had been addressed Identified relevant section of the legislation Provided comments on the relevant section of the DC Background Study and how the requirement was addressed 24

26 Case Study Ottawa: AMP for Transit Services O.Reg. 82/98 Transit DC Requirements Background Study example O.Reg. 82/98 Section 1. The calculations that were used to prepare the estimate for the planned level of service for the transit services, as mentioned in subsection 5.2 (3) of the Act. 2. An identification of the portion of the total estimated capital cost relating to the transit services that would benefit, i. the anticipated development over the 10-year period immediately following the preparation of the background study, or ii. the anticipated development after the 10-year Comments and Relevant Sections of this Development Charges Background Study Appendix C provides details on this calculation. The City s transit planned level of service is the provision of a higher order transit system (bus and light rail transit), integrated with the existing, which is to be expanded, as well as a bus transit system for the residents and businesses of the City of Ottawa. Appendix A provides details on the anticipated development over the 10-year planning period. Appendix B provides details as it relates to transit ridership over the 10-year planning period. 25

27 Case Study Ottawa: AMP for Transit Services Lessons learned in Ottawa Transit AMP was strengthened through relevant documents including the City s Corporate Asset Management Plan and other financial analysis City s LRFP and Affordability Model identified key assumptions to demonstrate the financial sustainability of assets AMP Checklist provided transparency and ease of reference to key documents and assumptions 26

28 Questions? Craig Binning, Hemson Consulting Andrew Mirabella, Hemson Consulting 27