Social Housing Administration Directive No

Regional Municipality of Halton Social Housing Administration Directive No. 06-05 Date: August 30, 06 To: Federally-Funded Social Housing Providers subject to Operating Agreements under Section 95 of the National Housing Act Subject: Halton Region s Standards for the Administration of Replacement Reserve Funds Operating Agreement Reference: Section Operating Agreement for housing providers funded under Section 95 of the National Housing Act Halton Region Authority: Regional Municipality of Halton By-Law 11-02. Background: The Social Housing Reform Act, O. Reg. 369/01 transferred the responsibilities for federallyfunded housing programs to the Regional Municipality of Halton as the Service Manager. Under section of the Operating Agreement for Section 95 housing providers, the Service Manager can direct the use and disposition of the housing provider s reserve funds. Halton Region is issuing the attached Guide to the Administration of Replacement Reserve Funds to federally-funded housing providers. This Guide represents Halton Region s standards for the use and disposition of replacement reserves. It is consistent with previous federal government guidelines. Housing Division The Regional Municipality of Halton;, 690 Dorval Drive, 7 th Floor, Oakville, ON L6K 3X9 Tel (905) 8-6000 1-866-442-5866 Toll Free Fax (905) 8-8274

Page 2 Direction: Housing providers who have are funded under the Section 56.1 Operating Agreement (now Section 95 of the National Housing Act) must comply with Halton Region s Guide to the Administration of Replacement Reserve Funds for the use and disposition of their replacement reserve fund. The Guide will be used to assess replacement reserve funding activities. Effective Date: This directive is effective immediately. An electronic version of the Guide to the Administration of the Replacement Reserve Funds will be e-mailed to housing providers upon request. Adelina Urbanski, Commissioner, Social & Community Services Department Housing Division The Regional Municipality of Halton;, 690 Dorval Drive, 7 th Floor, Oakville, ON L6K 3X9 Tel (905) 8-6000 1-866-442-5866 Toll Free Fax (905) 8-8274

HALTON REGION A GUIDE TO THE ADMINISTRATION OF REPLACEMENT RESERVE FUNDS FEDERAL HOUSING PROVIDERS August 06

1 Table of Contents Introduction... 2 What is a Replacement Reserve Fund?... 2 Accounting Instructions for Replacement Reserve Fund... 2 Allowable Investments... 3 What is a Building Condition Assessment (BCA and Replacement Reserve Study (RRS)?... 3 Capital Expenditures... 5 Non capital expenditures... 6 APPENDIX A... 8 APPENDIX B... Halton Region, August 06

2 Introduction This guide is provided to federally-funded non-profit housing providers to define how Replacement Reserve Funds are established and administered in Halton Region. Through the Social Housing Reform Act 00, Halton Region authority to administer federally-funded non-profit housing providers operating agreements with CMHC. Among other things, these agreements set out rules regarding the funding and use of Replacement Reserve Funds (Funds). Housing providers are expected to comply with those provisions, unless specifically exempted by Halton Region. In 03, Halton Region engaged a consultant to prepare Building Condition Audits and Capital Reserve Fund studies for all housing providers, at no cost to housing providers. These studies provided useful information on current and future capital replacement needs and an assessment of the amount of funds to be allocated to the Replacement Reserve fund annually in order to pay for future expenditures. This guide, which is based on generally accepted standards, defines Halton Region s policies regarding capital expenditures and Replacement Reserve Fund usage for federally-funded housing providers. It will be used to ascertain the appropriateness of the allocation of expenditures in the year end Financial Statements. What is a Replacement Reserve Fund? Each federally-funded non-profit housing provider must establish a Replacement Reserve Fund for its housing portfolio. The cash and investments of the Reserve Fund are restricted and can only be used for Replacement expenditures as defined in this guideline. Replacement expenditures must be funded from the Fund and not from the operating budget. Accounting Instructions for Replacement Reserve Fund The cash and investments in the Fund are to be accounted for separately from the housing provider s other cash and investments, and maintained in the financial instruments specified below under Allowable Investments. The cash and investment in the Fund must equal the Fund balance at all times. The replacement reserve funds must be allocated along investment guidelines as highlighted by each housing provider s capital reserve plan. Only through the use of an effective capital reserve plan can each housing provider determine the appropriate balance between capital preservation, maintenance of liquidity and competitive return on investments. Halton Region, August 06

3 The amount to be contributed to the Fund is defined in the housing provider s operating agreement or an amount agreed to by Halton Region. One-twelfth (1/12) of the annual contribution is to be transferred to the Fund monthly. Additional monies advanced for Replacement expenditures must be contributed to the Fund upon receipt. All income earned by the cash investment of the Fund is to accrue to the Fund. Allowable Investments Housing providers must invest the reserve funds to ensure that proper consideration has been given to the preservation of capital, maintenance of liquidity and competitive return on investments necessary for the reserve funds. The housing provider must maintain its Replacement Reserve Fund in the following types of accounts or investments only: Debt obligations that are fully guaranteed by a financial institution such as a Canadian bank, trust company or credit union. Debt obligations that are fully secured by deposits with a financial institution such as a Canadian bank, trust company or credit union. Debt obligations that are fully secured by other debt obligations that are fully guaranteed by a financial institution such as a Canadian bank, trust company or credit union. Debt obligations issued by the Government of Canada, the government of a province or territory of Canada, a municipality or an agency of such a government or municipality. Debt obligations that are guaranteed by, or fully secured by securities issued by, the Government of Canada, the government of a province or territory of Canada, a municipality or an agency of such a government or municipality. Interests in Canadian dollar money market mutual funds sold by a financial institution such as a Canadian bank, trust company or credit union with no frontend or back-end sales charges. Interests in Canadian dollar funds managed through the Social Housing Services Corporation for non-profit housing providers under the requirements of the Social Housing Reform Act 00. What is a Building Condition Assessment (BCA and Replacement Reserve Study (RRS)? A capital plan is a review of the housing project to determine the condition and life expectancy of each building element. Conducting a BCA and RRS is a good business practice that will assist housing providers to establish their capital expenditure program. This should be assessed annually prior to preparation of the coming year capital budget, and completely every five years. Halton Region, August 06

4 The BCA looks at major repairs and replacements that may be completed in the present year or that may need to be completed over a number of years (phases). These are items that will increase the capacity, quality or efficiency (i.e. a betterment), or extends the useful life of a Replacement asset beyond that expected when originally purchased (i.e. duplicates or exceeds the original useful life of the asset); or is a refit/replacement of an entire item (with a useful life exceeding five years); or is a new item/structure. Replacement expenses would include all costs (materials, supplies, services and sub-contracts and professional fees) associated with the planned Replacement reserve work. All of the building elements will have a life expectancy (e.g. Caulking years) Appendix B to this guideline identifies the suggested average useful life of building elements under normal operating conditions. This information should not be a substitute for informed decision making based on actual annual inspections, the quality of materials used, and the quality of the installation, the environment and the level of applied maintenance. All properties will need to be monitored on a regular basis. A physical condition assessment, which includes a site review, core sampling and destructive investigation, may be required to see how the buildings are aging. As a result of these investigations, one will receive an indication of how each building element is holding up and what is the balance of the life expectancy. BCA s generally prioritize capital expenditures in the following manner: Priority A Life Safety: Hazardous conditions, which cannot be deferred and which could lead to loss of life or critical or extremely severe injury. Priority B Structural Integrity: Conditions, which lead to the deterioration of structural elements of a property, must be investigated and corrected if necessary. Structural integrity must be maintained at all time. Failure to do so will lead to unsafe, life threatening conditions and will eventually render the building structurally unsound and physically obsolete and incapable of performing the task it was designed to do. Priority C Legislative Requirements: All property elements that must be upgraded so that they comply with revision to existing legislation or to the requirements of newly adopted legislation. Work required by municipal orders to comply is not included within this priority. Priority D Building Functionality: The repair or replacement of building elements that have a direct and significant impact on primary building systems. These building systems must be maintained in order to protect the value and operational viability of the asset. Included within this priority is the repair or replacement of building elements that have reached the end of their useful life. This work is necessary in order to maintain tenants quality of life and to prevent Halton Region, August 06

5 the building from becoming physically or functionally obsolete. Priority E Cost Effective Upgrades: Upgrades with cost-effective initiatives that improve the operational efficiency of a property and have a reasonable payback. Along with the priority rating, BCA s apply a condition rating as follows to each element: Good Condition: Reasonable condition, not requiring Replacement expenditure Fair Condition: Deteriorating condition, likely to become "poor" within a few years if not addressed Poor Condition: Observable deterioration requiring Replacement repair Once the priority and condition is in place, a cost analysis or Replacement Reserve Fund analysis may begin. The analysis will include: Cost to complete the work (quantity, quality) at today s rates including phasing if feasible Cost to complete the work at an adjusted rate for the future Annual contributions to reserve Annual expenditures Assumptions on inflation rate for expenditures and return on investments Capital Expenditures The following list helps to identify the types of work for Replacement items that can be paid for out of the replacement reserve fund. Major building components roofs, exterior wall finishes, exterior doors and windows, exterior caulking where accessibility is a major restriction (e.g. require scaffolding), above ground water proofing including vapour barriers Major building services heating and boiler systems, storage tanks, make-up air units Basic facilities kitchen facilities (appliances and complete kitchen cabinetry) Safety features fire alarm systems, emergency lighting, intercom systems for multiple unit buildings Major facilities, equipment and features parking lots, driveways, garbage disposal systems, complete interior floor coverings, exterior fencing, laundry equipment, water softeners, complete upgrade of units (includes various components), foundations, structural components such as wall, floor and roof framing, brickwork, pre-cast concrete panels, emergency generators, retaining walls, plumbing systems, electrical systems, balconies Halton Region, August 06

6 Regulated changes regulatory or legislated requirements for changes that apply to existing building and where the authority having jurisdiction requires replacement or upgrading with a definite period of time. Replacements should meet all requirements of the National Building Code, Ontario Building Code, National Fire Code, Ontario Fire Code and any other authority having jurisdiction Acquisition of new Replacement assets required for maintaining and managing the portfolio Additions to existing Replacement assets Replacement of existing Replacement assets Improvements (expenditures which increase the capacity, quality, efficiency or useful life of existing Replacement assets) Replacement of major building components Non capital expenditures The replacement reserve fund is only meant to pay for replacing Replacement items or for making major renovations to them. The Fund is not to be used for: The cost of normal maintenance or repairs to keep the buildings and property in good operating condition. These kinds of activities are known as routine and preventive maintenance The cost of replacing building components or mechanical services that are still operating and performing satisfactorily and meet all regulatory requirements, even if they are now obsolete and would not meet building regulations and codes for new construction The cost of replacing Replacement items that have been damaged or destroyed as a result of deliberate abuse or vandalism. In those cases, the provider should try to recover the cost of the replacement from the persons who caused the damage or through the provider s insurance policy. Where recovery is not possible replacement expenditures can be charged to the reserve Minor expenditures under a specified reasonable dollar limit established by the housing provider s Board of Directors Normal cyclical repairs and maintenance Replacement of equipment parts Purchase of minor items such as small tools Regular maintenance items, which are required at fairly short term intervals, due to normal wear and tear, are operating costs. These include: caulking elevator repairs painting rectifying deficiencies from annual inspections rectifying deficiencies from move-outs replacement of drapes and blinds in common areas Halton Region, August 06

7 replacement of faucets Appendix A to this guide contains additional information regarding Replacement expenditures to provide guidance when determining which expenditures should be changed to the Fund. Replacement items should be replaced with ones of equivalent quality, standards of performance and expected useful life, unless it can be demonstrated that: A higher quality replacement is cost-effective because of lower maintenance or operating costs or a longer expected useful life The Replacement item being replaced is generally considered as not appropriate for the project due to proven climatic, geographic or other influences or effects Halton Region, August 06

8 APPENDIX A ELIGIBLE CAPITAL EXPENDITURES Please refer to your Operating Agreement to determine what pre-approval of capital expenditures by Halton Region is required. To assist with this planning, this Appendix has been developed to provide some guidance to housing providers when determining which expenditures should be charged to the Replacement Reserve Fund and which are operating costs. This Appendix is not intended as a definitive or comprehensive listing but as an illustration of the treatment of various types of expenditures. Appliances Purchases of major appliances (such as refrigerators and stoves) are Replacement expenditures Building components The replacement or upgrade of major building components is Replacement expenditure. Examples of such items are: a complete bathroom upgrade such as the replacement of all fixtures and installation of new tile major elevator upgrade flooring and carpet replacement furnace replacement roof replacement due to long term deterioration window replacement Furniture Purchases of furniture are Replacement expenditures. Grounds Construction of walkways and fencing and significant site upgrades such as re-grading or construction of a retaining wall are Replacement expenditures. Re-sodding parts of the grounds, planting or removing trees, shrubs or flowerbeds, repairing fences, pruning trees and other general grounds maintenance items are operating costs. Office Equipment Halton Region, August 06

9 Purchases of office equipment (such as computers and photocopiers) are Replacement expenditures. Paving / asphalt Paving of driveways and parking lot areas, or other jobs that involve upgrading, laying stone and reconstruction work are Replacement expenditures. Repairs to asphalt to restore it to an efficient operating condition are operating costs. Vehicle and other equipment Purchases of vehicles, mowers or other large equipment are Replacement expenditures. Halton Region, August 06

APPENDIX B BUILDING ELEMENTS LIFE EXPECTANCY Appendix B to this guideline identifies the suggested average useful life of building elements under normal operating conditions. This information should not be a substitute for informed decision making based on actual annual inspections, the quality of materials used, and the quality of the installation, the environment and the level of applied maintenance. BUILDING ELEMENT/SYSTEM GENERAL SITEWORK Culverts Driveways, Parking Lots, Walkways, Curbs Fencing, Handrails Landscaping-General Parking Lot Guards Playgrounds Playsurface Retaining Walls Stairs, Porches, Decks Storage/Service Buildings BUILDING ELEMENT Concrete Steel Asphalt Concrete Gravel Interlocking Brick Concrete Masonry Metal, Wrought Iron Aluminium Steel, Chain Link Wood Sodding, Shrubs Trees Parking Bumpers Guard-rails Swings, Slides Play Structures Rubberized Soft ground cover Composite wood chips Retaining wall wood Retaining wall plastic Concrete Masonry Wood Concrete Wood Masonry Wood LIFE EXPECTANCY GUIDELINE (YEARS) 5 Halton Region, August 06

11 BUILDING ELEMENT/SYSTEM GENERAL BUILDING ELEMENT LIFE EXPECTANCY GUIDELINE (YEARS) MISCELLANEOUS/ SPECIALTY ITEMS Flagpole Flagpole Garbage Compactor Garbage Compactor Mailboxes Mailboxes Storage Lockers Storage Lockers Halton Region, August 06

12 BUILDING ELEMENT/SYSTEM GENERAL BUILDING EXTERIOR Balcony Railings Caulking, Weatherstripping Exterior Entrance & Patio Doors Exterior Walls, Columns, Siding Metal Flashing Rainwater Gutters & Downspouts Roofing Soffits, Fascia BUILDING ELEMENT Steel Aluminium Wood Caulking, Weatherstripping Aluminium Steel Wood Aluminium Storm Aluminium Asphalt Shingles Masonite Masonry Steel Stucco Vinyl Aluminium Galvanized, Painted Pre-Finished Steel Aluminium Plastic Galvanized Asphalt Shingles Built-Up Inverted Metal Single-Ply Aluminium Plywood Steel Vinyl Wood LIFE EXPECTANCY GUIDELINE (YEARS) Windows Windows Halton Region, August 06

13 BUILDING ELEMENT/SYSTEM GENERAL BUILDING INTERIOR Appliances BUILDING ELEMENT LIFE EXPECTANCY GUIDELINE (YEARS) Refrigerator Stove Cabinets, Counters Bathroom Kitchen Doors Hollow Core Wood slab Fire-rated steel insulated Fire-rated steel noninsulated Non fire-rated steel insulated Non fire-rated steel noninsulated Elevators Elevator New Installation Elevator Upgrades Electrical Controls Interior Wall Panels Finishes Ceiling Drywall Walls Drywall Walls Paneling Flooring Carpets Hardwood Linoleum Parquet Quarry Tile Vinyl Tile Painting Painting 7 Plumbing Fixtures Faucets Sinks Toilets Tubs Suspended Ceilings Fibreglass Metal Halton Region, August 06

14 BUILDING ELEMENT/SYSTEM GENERAL PARKING GARAGES BUILDING ELEMENT LIFE EXPECTANCY GUIDELINE (YEARS) Garage Entrance Door & Operator Garage Interior Concrete Sealer Repairs (Concrete/Rebar) Waterproofing Membrane 5 Garage Entrance/Exit Ramp Electric Heating Cables Repairs (Concrete/Rebar) Halton Region, August 06

BUILDING ELEMENT/SYSTEM GENERAL ELECTRICAL Emergency Lighting BUILDING ELEMENT LIFE EXPECTANCY GUIDELINE (YEARS) Battery-Operated Generator Emergency Generator Emergency Generator Entrance Intercom Entrance Intercom Exterior Lighting Parking Lots, Driveways Fire Warning Systems Fire Alarm System Heat Detectors Smoke Detectors Lighting Fixtures Interior Exterior Motors, Starters Motors, Starters 18 Panel & Distribution Panel & Distribution System System Power Line Power Line Re-Wiring Re-Wiring Surveillance System Camera Monitors Switches Switches, Splitters Switches, Splitters Temperature Controls Electric Indoor Electric Outdoor Pneumatic Transformer Transformer Halton Region, August 06

16 BUILDING ELEMENT/SYSTEM GENERAL MECHANICAL/ PLUMBING Boilers BUILDING ELEMENT Gas Fired Atmospheric Hot Water Insulation Re-tubing Steam LIFE EXPECTANCY GUIDELINE (YEARS) Corridor Fresh Air System Corridor Fresh Air System Drains, Stacks Plastic Fans Exhaust, Supply Fire Protection System Furnace Heating System Sprinkler System Fire Hoses Fire Extinguishers Fan/Coil Forced Air (Electric, Natural Gas & Oil) Heat Pump Package Heating & Cooling Electric Hot Air Hot Water Steam 12 Hot Water Tanks Domestic (Electric, Natural Gas, Oil) Insulation Elbows, Pipe, Valves Etc Pumps Booster, Circulating, Fire, Jockey Sump 12 Risers Copper Galvanized Sanitary Exhaust System Central Individual Sanitary Removal System Sanitary Removal System Water distribution Pipes 40 Halton Region, August 06