January 24, 2018 Page 1 of 8 Plaza Three 101-2000 Argentia Rd. Mississauga, Ontario Canada L5N 1V9 Phone: (905) 272-3600 Fax: (905) 272-3602 e-mail: info@watson-econ.ca January 8, 2018 Dear Sir/Madam: Re: Ontario Regulation 588/17 Asset Management Planning for Municipal Infrastructure As you may already be aware, on December 27, 2017, the Province of Ontario released Ontario Regulation 588/17 (Regulation) under the Infrastructure for Jobs and Prosperity Act, 2015 (IJPA). We have reviewed the document and hereby provide a summary of the requirements of this Regulation, highlighting differences from the draft version which was circulated for public comment on May 25, 2017. The major changes from the draft regulation include: The requirement for municipal asset management plans to be approved by a licensed engineering practitioner has been removed; The timing to phase-in regulation compliance has been extended from four years to six years (i.e. all requirements must be met by July 1, 2024). The first requirement of the Regulation, which is the development of an asset management policy, has been extended by six months, to July 1, 2019; The level of detail required within the financial strategy section of municipal asset management plans has been reduced; and The reporting requirements have been removed. The figure below provides a graphical representation of the phase-in timing identified in the Regulation. Strategic Asset Management Policy 1-Jan-18 1-Jul-19 1-Jul-20 1-Jul-21 1-Jul-22 1-Jul-23 1-Jul-24 Asset Management Plans - Current Levels of Service - Current levels of service - Asset (inventory) analysis - Current performance of assets - Lifecycle activities and costs to maintain current levels of service - Impacts of growth on current levels of service Core municipal infrastructure assets All municipal infrastructure assets Asset Management Plans - Proposed Levels of Service - Proposed levels of service - Proposed performance of assets - Lifecycle activities and costs to achieve proposed levels of service - Financial strategy - Impacts of growth on proposed levels of service Deadline for completion Update
January 24, 2018 Page 2 of 8 Page 2. Attached hereto is our detailed interpretation of the requirements set out by the Regulation, organized by the three major phase-in stages (i.e. Strategic Asset Management Policy; Asset Management Plans Current Levels of Service; and Asset Management Plans Proposed Levels of Service). In addition to the Regulation, the Province has also provided guidance on the alignment of the Regulation and the asset management plan requirements under the Development Charges Act (D.C.A.). In this regard, an amendment has been made to the D.C.A. regulation (i.e. O.Reg. 82/98) to provide that on July 1, 2024 the content for asset management plans in respect of transit services will be repealed. After this date, the asset management plan content requirements for transit services in D.C. by-laws will be governed by the Regulation. In the interim however, the current regulatory requirements of O.Reg. 82/98 will continue to apply. As part of our ongoing commitment to advancing best practices in municipal finance and asset management, we will keep you informed of further developments in this regard. Yours very truly, WATSON & ASSOCIATES ECONOMISTS LTD. Andrew Grunda, MBA, CPA, CMA Principal Gary Scandlan, BA, PLE Director
January 24, 2018 Page 3 of 8 Attachment - Page 1. s Detailed Interpretation of Regulation 588/17 Strategic Asset Management Policies Every municipality in Ontario will have to prepare a strategic asset management policy by July 1, 2019. Municipalities will be required to review their strategic asset management policies at least every five years, and make updates as necessary. Specific elements that the strategic asset management policy must include are mostly consistent with those identified in the draft Regulation, and include: Identification of municipal goals/plans/policies the asset management plan would support (i.e. Official Plan, strategic plan, etc.); How the asset management plan would inform the development of the budget and any long-term financial plans; The approach to continuous improvement and adoption of appropriate asset management practices; Principles that would guide asset management planning, including principles from section 3 of IJPA; A commitment to consider: o Actions that may be required to address vulnerabilities that may be caused by climate change and the costs associated with such actions; o Adaptation opportunities to manage vulnerabilities that may be caused by climate change; o Mitigation measures to address climate change (such as greenhouse gas emission reduction goals/targets); and o Disaster planning (with any required contingency funding); A process to ensure that asset management planning would be aligned with Ontario s land-use planning framework; Capitalization thresholds used for the asset management plan, and how this compares to the municipality s tangible capital asset policy; A commitment to coordinate planning between interrelated assets with separate ownership structures (i.e. collaborative opportunities); Identification of individuals responsible for asset management planning in the municipality, including an executive lead and how Council will be involved; and A commitment to provide opportunities for stakeholder input. In addition to the above considerations which were identified in the draft Regulation, the final Regulation requires municipal strategic asset management policies to include a process for ensuring that asset management planning is aligned with water and wastewater financial plans.
January 24, 2018 Page 4 of 8 Attachment - Page 2. Asset Management Plans, Current Levels of Service Section 5 of the Regulation lays out the components that must be included in asset management plans with respect to core municipal infrastructure by July 1, 2021. The same requirements extend to all other municipal infrastructure assets, which must be captured in an asset management plan by July 1, 2023. The major components required are listed below, followed by a discussion of the requirements set out for each by the Regulation: Current Levels of Service; Current Performance of Each Asset Category; Asset (Inventory) Analysis; Lifecycle Activities and Associated costs; and Growth Considerations. Current Levels of Service Asset management plans must identify the current levels of service being provided for each asset category. For core municipal infrastructure assets, both the qualitative descriptions pertaining to community levels of service and metrics pertaining to technical levels of service are prescribed by the Regulation (i.e. Tables 1 through 5). For all other infrastructure assets, each municipality will need to establish its own measures for levels of service. It is noted that the draft Regulation requirement for plain language explanation of the current levels of service have been removed from the final Regulation. Current Performance of Each Asset Category Municipalities will need to establish performance measures for each asset category. Although the Regulation is not prescriptive with respect to how these measures should be established, these could include measures of energy usage and operating efficiency. However established, the data used to define current performance must be at most two years old (e.g. if the asset management plan is defining current performance as of 2018, then the data must be no older than 2016). Asset (Inventory) Analysis For each asset category included in the asset management plan, the following information will need to be identified: Summary of the assets; Replacement cost of the assets; Average age of the assets (it is noted that the Regulation specifically requires average age to be determined by assessing the age of asset components); Information available on condition of assets; and Approach to condition assessments (based on recognized and generally accepted good engineering practices where appropriate).
January 24, 2018 Page 5 of 8 Attachment - Page 3. Asset management plans will need to identify how background information on which this analysis relies will be made available to the public. As such, background documents used to gather asset information, such as road needs studies, structure inspection reports, etc., may need to be made available to the public. Lifecycle Activities and Associated Costs A 10-year forecast of lifecycle activities required to maintain current levels of service and the costs associated with those activities will need to be provided in the asset management plan. This analysis will require an assessment of the full lifecycle of assets (i.e. activities beyond straight replacement of assets), as well as options for lifecycle activities that could potentially be undertaken, and risks associated with each of these options. The 10-year forecast should be premised on lifecycle activity options that can sustain the current level of service at the lowest cost. Growth Considerations Asset management plans will need to consider impacts of growth on the lifecycle activities required to maintain current levels of service. The Regulation requires different levels of analysis based on the population size of the municipality, as determined by the most recent official Census. For municipalities with a population of less than 25,000, the asset management plan must contain a high-level analysis of the impact of growth. This high-level analysis will need to identify assumptions regarding future changes in population and economic activity, and how these assumptions relate to the lifecycle activities and associated costs as described in the previous section. Municipalities with a population of 25,000 or greater are required to specifically include population and employment forecasts in their asset management plans. These forecasts will be based on sources specified in the Regulation. The asset management plan will need to include a 10-year forecast of lifecycle costs (including costs required for construction/acquisition of new assets and expansion/upgrades of existing infrastructure assets) required to maintain current levels of service in light of population and employment growth in the municipality.
January 24, 2018 Page 6 of 8 Attachment - Page 4. Asset Management Plans, Proposed Levels of Service The Regulation imposes additional requirements for asset management plans by July 1, 2024. These additional requirements primarily consist of establishing proposed levels of service and financial strategy considerations. As noted in the introduction, the level of detail required within the financing strategy has been reduced relative to the draft Regulation. It is noteworthy, that if this additional information is being included more than two years after the preparation of the original asset management plan, then the current levels of service and performance measures in the original asset management plan will need to be updated. For example, if a municipality fulfilled its requirements for an asset management plan in respect of core municipal infrastructure by July 1, 2021, but the proposed levels of service are not added until after July 1, 2023, then the municipality will need to update current levels of service and performance measures to reflect more recent data. Proposed Levels of Service By July 1, 2024 all asset management plans must include a 10-year forecast identifying the proposed levels of service for each asset category. For core municipal infrastructure assets, the proposed levels of service will be defined using the qualitative descriptions and technical metrics identified in Tables 1 through 5 of the Regulation. For all other infrastructure assets, the proposed levels of service will be defined using the qualitative descriptions and technical metrics that the municipality established to define current levels of service. The proposed levels of service will need to be identified for each year of the 10-year forecast period. Asset management plans will need to assess options for proposed levels of service and the risks associated with each to the long-term sustainability of the municipality. Additionally, asset management plans will need to identify how proposed levels of service differ from current levels of service, and will need to assess achievability and affordability of the proposed levels of service. Proposed Performance Using performance measures established by the municipality, the asset management plan will need to include a 10-year forecast of the proposed performance of each asset category. The proposed performance will need to be identified for each year of the 10-year forecast period. It is noted that this requirement was not identified in the draft Regulation. Lifecycle Management and Financial Strategy A 10-year forecast of lifecycle activities required to achieve proposed levels of service and the costs associated with those activities will need to be provided in the asset management plan. This analysis will require an assessment of the full lifecycle of assets (i.e. activities beyond straight replacement of assets), as well as options for lifecycle activities that could potentially be undertaken, and risks associated with each of these options. The 10-year forecast should be premised on lifecycle activity options that can achieve and sustain the proposed level of service at the lowest cost.
January 24, 2018 Page 7 of 8 Attachment - Page 5. The asset management plan will need to identify estimated annual costs of undertaking the lifecycle activities described above. The funding that is expected to be available to carry out proposed lifecycle activities will need to be identified and municipalities will need to examine options to maximize available funding. While the Regulation is not prescriptive with respect to the options to be examined, these could include increases to property taxes, user fees, grants, etc. Based on the analysis described above, if the municipality identifies a funding shortfall relative to the projected costs of lifecycle activities, then the asset management plan will need to identify which lifecycle activities will actually be undertaken during the forecast period. Additionally, the asset management plan will need to include an explanation of how the municipality will manage risks associated with not undertaking any of these activities. The draft Regulation required several additional items to be included in the financial strategy 10- year forecast, including: Revenue dedicated to capital financing; Estimated capital reserve contributions and withdrawals; and Estimated debt service payments. These requirements have not been included in the final Regulation. Growth Considerations For municipalities with a population of less than 25,000, the asset management plan will need to provide a discussion of how assumptions regarding future changes in population and economic activity were used to inform the lifecycle management and financial strategy. Municipalities with a population of 25,000 or greater will need to include the following additional items in their asset management plans: 10-year forecast of estimated expenditures (capital and significant operating) associated with achieving the proposed levels of service in light of anticipated population and employment growth; Incremental funding expected to become available as a result of population and employment growth, broken down by source; and Overview of risks associated with implementing the asset management plan and actions proposed in response to those risks. Key Assumptions By July 1, 2024 all asset management plans will need to include an explanation of all key assumptions underlying the plan.
January 24, 2018 Page 8 of 8 Attachment - Page 6. Other Matters All asset management plans and subsequent updates are required to be endorsed by the executive lead of the municipality and approved by a resolution of Council. After the completion of the requirements set out in section 6 of the Regulation, Council will need to undertake an annual review of asset management progress within their municipality. This annual review will commence in the year following the completion of requirements set out in section 6 of the Regulation, and will need to be completed on or before July 1 st of each year. Asset management plans will need to be made available to the public on the municipality s website, and a copy of the plan will have to be provided to anyone upon request. Annual actuals reporting requirements have not been included in the Regulation, even though the draft document proposed specific data collection in this regard.