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12. REVISING THE DEVELOPMENT CHARGE FUNDING POLICY TO ALLOW FOR THE EXPANDED USE OF GROWTH-RELATED DEBT TO PAY FOR THE CONSTRUCTION OF NEW COMMUNITY-BASED RECREATIONAL INFRASTRUCTURE
RÉVISION DE LA POLITIQUE SUR LE FINANCEMENT PAR REDEVANCES D’AMÉNAGEMENT AFIN DE PERMETTRE UN RECOURS ACCRU AU FINANCEMENT PAR ENDETTEMENT LIÉ À LA CROISSANCE POUR PAYER LA CONSTRUCTION DE NOUVELLES INFRASTRUCTURES RÉCRÉATIVES COMMUNAUTAIRES
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COMMITTEE RECOMMENDATION
That Council revise the development charge funding policy to allow for the prioritization of the construction of new community-based recreational infrastructure by expanding the use of growth-related debt.
RECOMMANDATION DU COMITÉ
Que le Conseil révise la politique sur le financement par redevances d’aménagement afin de permettre la construction prioritaire de nouvelles infrastructures récréatives communautaires grâce à un recours accru au financement par endettement lié à la croissance.
DOCUMENTATION
1. Report by Councillors Hume and Harder, dated 28 June 2010 (ACS2010-CCS-PEC-0028).
2. Extract of Draft Minutes dated 5 July 2010.
Report to/Rapport au :
Planning and Environment Committee/
Comité de l'urbanisme et de l'environnement
and Council / et au Conseil
28 June 2010 / le 28 juin 2010
Submitted by/Soumis par : Councillor/Conseiller Peter Hume
and Councillor/Conseillère Jan Harder
Contact Person/Personne ressource : Peter Hume, Councillor, Ward/Quartier 18
613-580-2488, Peter.Hume@Ottawa.ca
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Ref N°: ACS2010-CCS-PEC-0028 |
REPORT RECOMMENDATION
That Planning and Environment Committee recommend Council revise the development charge funding policy to allow for the prioritization of the construction of new community-based recreational infrastructure by expanding the use of growth-related debt.
RECOMMANDATION DU RAPPORT
Que le Comité de l’urbanisme et de l’environnement recommande au Conseil de réviser la politique sur le financement par redevances d’aménagement afin de permettre la construction prioritaire de nouvelles infrastructures récréatives communautaires grâce à un recours accru au financement par endettement lié à la croissance.
BACKGROUND
Councillor Harder and I are initiating the implementation of a new growth-related funding principle within the framework for supporting community based infrastructure for activities provided directly to residents and to demonstrate a commitment as to how the capital requirements may be paid for in a timely manner in order to create vibrant neighbourhoods. Growth-related projects require funding approval annually through the city’s capital budgeting process. Development-related programs must compete with all the other capital requirements to attract limited resources. The current policy states that future growth-related capital spending, for recreation services, must be limited to the previous year’s balance in the development charge reserve fund. The revised funding policy will prioritize the construction of community facility space in accordance with Council's recently approved background study. The new guidelines would be implemented only for recreation services. The goal is to alleviate the infrastructure-financing gap so that overall service levels in the city do not continue to decline overtime. The financial viability of the proposed policy will be based upon cash-flow requirements to determine the amount of funding available for implementing the plan.
DISCUSSION
Development Charge Study
The City provides a wide-range of community based infrastructure, which is allocated throughout the city. As development occurs, facilities must be added to the capital inventory so that service levels continue to be in line with the historic levels that have been available in existing communities. The methodology for sharing growth-related capital costs for such services is to apportion them over all-new growth anticipated city-wide and to specific areas, for example outside the greenbelt, of the municipality. As part of the current development charge background study, staff prepared and submitted a growth-related capital program for future recreation facilities. The proposed capital program provides a cornerstone upon which development charges are based. The Development Charges Act (DCA) requires that the increase in the need for service attributed to anticipated development includes: only if the council of the municipality has indicated that it intends to ensure that such an increase in need will be met. It is important to note that development charges are governed by legislated eligibility criteria. Collections may only be used to fund eligible capital projects for which they were contributed. Eligible capital projects have been identified in the City’s 2009 background study and are based on new growth forecasts. Within each service category both growth and non-growth funding shares have been established for each project with the expenditure requirements to be financed from both development charge proceeds and other revenue sources.
Resource Requirements and Implementation Plan
The growth-related funding principle reflected in the City's guidelines for soft services, such as recreation facilities, is that the reserve fund account cannot be in either a cash or commitment deficit at the end of the term of the by-law. In general, soft-service related projects are not required until a majority of the growth is in place and therefore sufficient growth-related funding has been collected to pay for the projects. For example, the funding of the North Kanata complex was budgeted for construction in 2007-2008, with $39.6M in development charges allocated to fund the total project cost of $47.9M. The total gross capital cost estimate for the recreation service category is $154.8M, which is the maximum allowable based on the average level of service calculation and is $65.7 million less than the 2004 eligible capital costs. Current and future debt payments account for $13M of the total project costs of $154.8M. The North Kanata complex, while fully funded, also includes $8.2M in growth-related debt funding; the payments for this amount have been included in the estimated $13M. The table below provides a comparison of 2004 versus 2009 Recreation capital project summaries:
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There are two major recreation complexes scheduled to be constructed over the next 10 years based on the background study. The Barrhaven South complex, which had the land component budgeted for in 2008. It has an estimated overall cost of $50.9M, with the majority of the $44.3M funding projected to come from development charges in 2012. The Riverside South complex has the land component budgeted for in 2012. It has an estimated overall cost of $46.5M, with the majority of the $42.5M in required capital funding projected to come from development charges in 2016.
The total cost included in the 10 year planning horizon for these two facilities is $90.8M. In order to meet the current projected timetable it is recommended that the funding principle be modified so that the projects could proceed if 50 percent of the development charges have been collected with the remainder being funded from growth-related debt. To ensure that the City can modify the plan under a “slow growth” development scenario, a complex would only be authorized once the first project is complete.
One of the advantages of investing in the infrastructure would be the linkage between the new facilities and the calculation of the level of service cap for the next background study in 2014. The service level cap requires that the development charge rate be calculated using the historic ten year average service level. New growth-related capital expenditures in the recreation service category cannot exceed the historic service level standard measure. For example, the current quantity measure for recreation complexes is 1,681,168 square feet with an estimated overall value of $610M. This value would increase by $45.4M based on the estimated size of the Barrhaven South Recreation Complex, 125,000 square feet multiplied by a qualitative value $363 per square foot. In other words, the construction of the Barrhaven South Recreation Complex would increase the need for service attributable to future development provided in the city in the next background study; thus increasing the potential growth-related funding envelope, which has declined since 2004.
Reporting
The annual Treasurer’s report will be used to update the progress being made towards the implementation of infrastructure to ensure that construction of recreational centres are meeting the objectives of the revised funding plan. Key elements of the policy that will guide the funding of community based capital projects are as follows:
- growth related costs will continue to be financed from development charges;
- servicing is timely, cost efficient, and within the financial means of the City;
- helps to ensure that levels of service are similar to the average historic service levels available in the existing community;
- identifies the opportunity to use growth-related debt to fund the construction of the two major recreation complexes within the planning horizon.
Summary
The proposed policy change is an attempt to address an outstanding infrastructure issue, which was highlighted during the 2009 development charge review process. In the past, the growth-related capital budget had to be tailored to specific circumstances outlined in the city’s growth financing policy; this policy will be amended to allow for new and expanded recreation services. The funding for major recreation facilities will be required to have at least fifty percent in place before projects are allowed to proceed. Debenture financing will be used to fund a portion of the capital costs. Finally, a cash-flow analysis will be used to monitor on-going collections and expenditures in order to balance funding objectives against maintaining overall financial affordability.
Planning and Growth Management Comments
Staff support the proposed amendment to the growth-related financing principles for new recreation facilities. This report balances the need for investing in significant recreation infrastructure that supports growing communities. While at the same time staff will continue to provide for an ongoing analysis of the proposed capital program, within the revised framework, to ensure there is funding capacity to finance the proposed investments.
CONSULTATION
The item will be advertised in the local daily newspapers as part of the Public Meeting Advertisement on the Friday preceding the Planning and Environment Committee
LEGAL/RISK MANAGEMENT IMPLICATIONS
Legal staff will be at the meeting to discuss.
FINANCIAL IMPLICATIONS
As stated in the report, the funding principle as adopted by Council in 2006 for growth related "soft service" projects states: Development charge accounts will not be allowed to go into a deficit on either a cash or commitment basis. This principle applies, in general, to the development charge accounts that fund growth capital projects in recreation, parks development, libraries, child care, studies, emergency medical services, police and emergency services (fire).
The report recommends that the funding principle be amended for growth related recreational facilities. The proposed amendment would allow major recreational complexes to be considered for approval by Committee and Council once 50% of the total project costs are available to be funded from the uncommitted balance of the Recreation Facilities development charge accounts. Major recreational complexes as outlined in the report for Barrhaven and Riverside South are in included in the 2009 Background Study and have a 10% benefit to existing residents along with a 10% statutory reduction leaving approximately 80% of the project costs eligible to be funded from future development charge collections.
Should Committee and Council approve the change in funding principles for new recreational facilities, additional debt financing would need to be utilized in order to fund the remaining growth eligible portion of the project. The future debt servicing costs would be funded from the Recreation Facilities development charge account. If the account is in a deficit at the end of the current by-law, the negative balances will be included in the 2014 study.
DISPOSITION
Staff will implement the directions of Committee and Council.