1. 2007 Capital Budget - Motions of Council

Budget des immobilisations 2007 - Motions du Conseil

Committee RecommendationS

That Council approve:

1. The use of debt authority to refinance Growth and Renewal capital projects as identified in Appendix B in order to return $9.042 million to the City Wide Reserve Fund;

2. The funding of the additional capital projects listed in Appendix C as approved by Council per the Capital Omnibus Motion - 8/6, which includes tax-supported debt authority of $7.262 million; and

3. The transfer of $2.924 million from the City Wide Reserve Fund to the Water and Sewer Reserve Fund to address Motion 8/8.

RecommandationS du comité

Que le Conseil approuve :

1. le recours à une autorisation d'emprunt pour refinancer les projets d'expansion et de rénovation des immobilisations, décrits à l'annexe B, en vue de remettre 9,474 millions dollars dans le Fonds général de réserve pour immobilisations;

2. le financement des projets d'immobilisation décrits à l'annexe C et approuvés par le Conseil dans la motion omnibus 8/6 sur les immobilisations, qui comprend une autorisation d'emprunt à payer à partir des recettes fiscales; et

3. le transfert de 2,924 millions de dollars du Fonds général de réserve pour immobilisations au Fonds de réserve pour immobilisations des réseaux d'eau et d'égouts, afin de sonner suite à la motion 8/8.

Documentation

1. Chief Corporate Services Officer's report dated 17 April 2007 (ACS2007-CRS-FIN-0010).

2. Extract of Draft Minute, 17 April 2007.

Report to/Rapport au :

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

and Council / et au Conseil

17 April 2007 / le 17 avril 2007

Submitted by/Soumis par : Greg Geddes, Chief Corporate Services Officer/

Chef des Services généraux

Contact Person/Personne ressource : Marian Simulik, Director, Financial Services and City Treasurer/Directrice des services financiers et trésorière municipale

Financial Services/Services financiers

(613) 580-2424 x 14159, Marian.Simulik@ottawa.ca

City Wide

Ref N°: ACS2007-CRS-FIN-0010

SUBJECT:	2007 CAPITAL BUDGET - MOTIONS OF COUNCIL

OBJET :	Budget des immobilisations 2007 - Motions du Conseil

REPORT RECOMMENDATIONS

That Corporate Services and Economic Development Committee recommend Council approve:

1. The use of debt authority to refinance Growth and Renewal capital projects as identified in Appendix B in order to return $9.042 million to the City Wide Reserve Fund;

2. The funding of the additional capital projects listed in Appendix C as approved by Council per the Capital Omnibus Motion - 8/6, which includes tax-supported debt authority of $7.262 million; and

3. The transfer of $2.924 million from the City Wide Reserve Fund to the Water and Sewer Reserve Fund to address Motion 8/8.

RECOMMANDATIONS DU RAPPORT

Que le Comité des services organisationnels et du développement économique recommande au Conseil d'approuver :

BACKGROUND

On February 26, 2007, as part of the 2007 budget deliberation process, City Council approved Capital Omnibus Motion 8/6. The motion approved $19.549 million in additional project authority to the 2007 capital budget. A copy of the motion is attached as Appendix A. The motion also included direction that "the City Treasurer will be authorized to identify a funding strategy to include the...additions to the 2007 Capital Budget".

Also during the Council's 2007 budget deliberations, an Operating Omnibus Motion - 8/5 was adopted. This motion approved use of the 2006 operating surplus of $23.5 million as a one-time source of revenue for the 2007 budget to assist in reducing the required property tax increase. As disclosed to Council, $2.924 million of this surplus was generated from water and sewer operations. Past practice has been to contribute this surplus to the water and sewer reserve funds, however, the by-laws for the reserve funds allow the use of these funds "for such other purposes as may be approved by the Council of the City of Ottawa."

In recognition of the fact that funding of the City's water and sewer operational and capital requirements is provided from users through the water and sewer surcharge rates, and not from property taxes, Council adopted Motion 8/8 which stated: "That the Corporate Services and Economic Development Committee be directed to develop a policy to repay the monies drawn from the Water and Sewer Reserve".

The purpose of this report is to provide the Corporate Services and Economic Development Committee and Council with a proposed funding strategy to finance the additional projects in the Capital Omnibus Motion - 8/6 and to repay $2.924 million to the Water and Sewer Reserve fund per Motion 8/8.

DISCUSSION

Strategy for funding projects identified in Capital Omnibus Motion - 8/6

During the 2007 budget deliberation process, City Council approved a motion (Appendix A) which increased the 2007 capital budget by $19.549 million and added additional projects from the Strategic Initiative category. Within the motion, Council also approved an increase of $4.5 million in supplementary tax revenues and directed that these revenues be contributed to the capital budget. This additional funding is to be used to fund a portion of the additional projects. In addition, the City Treasurer was delegated the authority to identify a strategy for funding the remaining balance of $15.049 million.

Some of the projects added by Council can have a portion of their costs funded from dedicated sources. Appendix C lists the projects added through this motion and the dedicated funding sources available to fund these projects. A total of $1.669 million can be funded from these dedicated funding sources including:

- Environmental Resources Areas Acquisition Reserve Fund ($492,000);

- Child Care Reserve Fund ($7,000);

- Cash-in-lieu of Parkland ($500,000); and

- Development Charge revenue ($670,000).

This reduces the remaining balance to be funded to $13.380 million.

Some of the projects added by Council are also eligible for debt financing. Debt financing totalling $7.262 million can be used to fund these projects. This reduces the remaining balance to be funded to $6.118 million.

The remaining balance cannot be funded from the City Wide Reserve, as the fund currently has insufficient monies to address this funding requirement. Funding sources for all projects in the Growth and Renewal of City Assets categories were reviewed. Some projects that had been funded from the City Wide Reserve are eligible for debt financing. Changing the funding source from the Reserve to debt financing for these projects allows the City to find funding sources for all of the capital projects approved by Council. The list of projects which will have additional debt authority substituted for City Wide Reserve funding is attached in Appendix B.

Below is a summary of funding used to finance the additional capital authority of $19.549 million stemming from motion 8/6:

Funding Source	Amount $ millions
Supplementary assessment (new taxes from new households)	4.500
Dedicated funding sources as identified above	1.669
Tax supported debt	7.262
City Wide Reserve Fund (from debt-financing of Growth & Renewal of City Asset projects to "free up" capital reserve funds)	6.118
Total	19.549

Strategy to repay the Water and Sewer Reserve Fund

When Council approved the use of the 2006 surplus of $23.5 million as a one-time funding source in the 2007 budget, it was with the knowledge that $2.924 million was surplus generated from water and sewer operations and these funds would normally be contributed to the Water and Sewer Reserve Fund in accordance with past Council practice. Motion 8/8 directed that a strategy be developed to repay this amount to the Water and Sewer Reserve Fund.

The recommended strategy employs the same approach as used to address the Capital Omnibus Motion - 8/6. Tax-supported debt financing can be substituted for City Wide Reserve Fund monies on eligible capital projects, thereby freeing up funds to repay the Water and Sewer Reserve. In total $2.924 million of City Wide Reserve Funds can be made available by refinancing projects with tax-supported debt, which can be transferred to the Water and Sewer Reserve Fund. These projects are included in the list of projects to be refinanced in Appendix B.

Total debt authority

To address both Capital Omnibus Motion 8/6 and Motion 8/8, the funding strategy recommends a total of $16.304 million in new debt authority to be added to the 2007 capital budget. Of this amount, $7.262 million is directly attributable to those projects added to the 2007 capital budget through Motion 8/6. The balance of $9.042 million is the result of refinancing eligible projects in the Growth and Renewal of City Asset categories with tax-supported debt in order to make funds available in the City Wide Reserve Fund.

The $9.042 million in additional debt authority allows the City to transfer the corresponding amount back to the City Wide Reserve Fund. Of this amount, $6.118 million of "freed up" City Wide Reserve funding has been applied to projects approved in the Capital Omnibus Motion 8/6, $2.924 million will be transferred to the Water and Sewer Reserve Fund to address Motion 8/8.

The $16.304 million in new debt authority increases the projected 2007 balance of unused debt authority by 2.3%. The cost to service this additional debt will be added to the 2009 budget after the debt has been issued.

CONSULTATION

No public consultations were required.

FINANCIAL IMPLICATIONS

Approval of the report recommendations will increase the use of tax-supported debt authority to finance the 2007 capital budget by $16.304 million - from $43.997 million to $60.301 million. The cost of this additional debt authority will be added to the budget after it is issued in 2009. The implementation of the financing strategy is not anticipated to affect the City's credit rating.

SUPPORTING DOCUMENTATION

Appendix A - Omnibus Motion Approved During 2007 Budget Deliberations

Appendix B - 2007 Capital Projects Refinanced with Additional Debt Authority

Appendix C - Additional Capital Projects Approved in Capital Omnibus Motion - 8/6

DISPOSITION

Upon approval of this report, Financial Services will process the required financing adjustments and transfer to the Water and Sewer Reserve Fund.

APPENDIX A

Omnibus Motion Approved During 2007 Budget Deliberations

Motion 8/6

Moved by Councillor P. Hume

Seconded by Councillor C. Doucet

Whereas City Council has a number of Strategic Initiatives that are not funded in the 2007 Capital Budget;

And whereas these initiatives are important to protect the quality of life in Ottawa and represent a small 3% increase in the overall Capital Budget;

And whereas, if approved, the City Treasurer will be authorized to identify a funding strategy to include the following additions to the 2007 Capital Budget:

Page Project Amount (‘000)

284 Natural Area Acquisition (Urban) 4,718 (tax supported)

294 Sidewalks 200 (tax supported debt)

372 Economic Strategy Implementation 1,250 (tax supported)

360 Museum Sustainability Plan 1,360 (tax supported)

369 Child Care Capital Grant Program 2,000 (tax supported)

371 Corporate Security (revised amount) 885 (tax supported)

373 Energy Retrofit 1,000 (tax supported)

379 Hunt Club CC Expansion 3,100 (tax supported/DC)

380 Minor Capital Community Partnership 315 (tax supported)

380 Major Capital Community Partnership 1,200 (tax supported)

381 Park Development 500 (tax supported)

382 Re-Use of Belltown Dome 825 (tax supported)

384 New Street Lighting 200 (tax supported/DC)

393 Air Quality - Energy Retrofit 70 (tax supported)

394 Rural Features Acquisition 350 (tax supported)

394 Carp River Restoration 390 (tax supported)

395 Tree Program 1,100 (tax supported)

395 Stream Restoration Project 50 (tax supported)

new St. Joseph Corridor Study Initiatives 36 (tax supported)

Total: $19,549

And whereas the City has under budgeted for Supplementary Assessment Revenues for the past three years.

And therefore be it resolved that for Budget 2007 Line item Supplementary Assessment Revenues currently detailed as 16,717 be changed to 21,217, and that the additional $4.5 million be contributed to Capital for the projects listed above; and,

Further be it resolved that the 2007 Capital Budget of $633,918,000 (Page 2 of the 2007 Draft Capital Budget book) be approved and augmented by 3.08% ($19,549,000) for a total of $653,467,000.

Corporate Services and Economic Comité des services organisationnels

Development Committee et du développement économique

Report 6 rapport 6

Extract of draft Minutes 7

17 april 2007

Extrait de l’ébauche du procès-verbal 7 – 17 avril 2007

2007 Capital Budget - Motions of Council

Budget des immobilisations 2007 - Motions du Conseil

ACS2007-CRS-FIN-0010 city-wide / À l’Échelle de la ville

Ms. M. Simulik, Director of Financial Services and City Treasurer, spoke to a PowerPoint slide presentation, which served to provide the Committee with a brief overview of the staff report. A copy of her presentation is held on file with the City Clerk.

Responding to a question from Councillor El-Chantiry with respect to the Council-approved increase of $4.5M in supplementary tax revenues, Ms. Simulik felt Council had done the appropriate thing in using those funds towards the capital projects outlined in the report. She explained that, should the supplementary assessment decline past the set budget, she would be recommending a reduction to the supplementary assessment budget and a corresponding decrease to the capital contribution.

Councillor El-Chantiry referenced the Provincial promise of $5.5M in funding for 2 community centres in the South end of the City and he wondered, should the provincial funding come through, what would happen to the money allocated to those project out of the City’s budget. Ms. Simulik indicated staff was awaiting rules from the Province with respect to the use of those funds. She maintained that in order for the projects to proceed, the City had used debt financing. However, she submitted that, should it come down as unconditional funding, then Council would have to decide on its disposition; releasing the debt authority or putting it to other uses.

Responding to questions from Councillor El-Chantiry with respect to provincial funding for transit, which had been received as unconditional funding, and comments with respect to the rural road network, Ms. Simulik explained that a recent notice from the Association of Municipalities of Ontario (AMO) had suggested that, while it was unconditional funding, municipalities were being encouraged to use it for transit. However, she re-iterated that unconditional funding meant the City did not have to report back to the Province on how the funds had actually been used. She referenced the fact that in recent years, almost every cent received from the federal government and provincial governments had been tied only to transit and submitted that Council may want to consider investing some of the funds in rural roads.

In response to a question from Councillor Hume with respect to the anticipated Provincial funding, Mr. Kirkpatrick, City Manager, indicated staff would not be coming forward, once the funds were received, with recommendations insofar as using the funds to retire debt. He recommended that the disposition of those funds should be considered by Council following its upcoming strategic planning session, part of which may include issuing high-level fiscal direction for the remaining years of this term of office. He indicated his proclivity was for putting the money into a tax stabilization reserve fund until Council is able to identify its goals in terms of tax rates over the next 3 years.

Councillor Wilkinson wondered if the funding should be incorporated into the Long Range Financial Plan or whether it should be looked at as a separate entity. Mr. Kirkpatrick suggested it was too soon to tell. He submitted that Council needed to deal with and think about what it would like to achieve over the next 3 years in terms of high-level fiscal direction. He indicate that at this point, his advice would be to look at it as a source of funding and determine how to use it over the remaining 3 years of this term of Council. He maintained he would view it as a reserve, to be used in different ways to help Council achieve whatever it decided was its fiscal direction for the next 3 years.

Councillor Wilkinson asked whether the funds might be used to cover deficits created by other Provincial funding that might fall through relative to specific programs. Mr. Kirkpatrick acknowledged that could be one alternative. On that issue, he advised staff had sent letters to the applicable Deputy Ministers, pursuant to a Council direction. He indicated he would report back on the Ministers’ responses.

Councillor Brooks discussed the costs of debt financing and the issue of good debt versus bad debt and he expressed support for the City Manager’s position with respect to the expected Provincial funding.

That Corporate Services and Economic Development Committee recommend Council approve:

1. The use of debt authority to refinance Growth and Renewal capital projects as identified in Appendix B in order to return $9.042 million to the City Wide Reserve Fund;

2. The funding of the additional capital projects listed in Appendix C as approved by Council per the Capital Omnibus Motion - 8/6, which includes tax-supported debt authority of $7.262 million; and

3. The transfer of $2.924 million from the City Wide Reserve Fund to the Water and Sewer Reserve Fund to address Motion 8/8.

CARRIED