5.1 Capital Expenditure Categories
Capital expenditures are made to purchase, develop and renovate assets that support City services and whose lives extend beyond one year. Anticipated spending on these services forms the City's capital funding requirement.
Projects related to the treatment and delivery of drinking water are funded through the Water Fund. Projects related to the collection and treatment of sanitary and storm sewage are funded through the Sewer Fund. The City's water and sewer utilities charge user fees intended to cover the full costs of these utilities. All other projects are funded through property taxes. Currently, taxes are collected through the city-wide levy and urban and rural transit levies. Other revenues, such as development charges and grants, reduce the City's funding requirement from the aforementioned revenue sources.
Capital expenditures are grouped into four categories: lifecycle maintenance (to care for existing assets); and growth (to support new residents and businesses), which form the bulk of the requirement, and ongoing programs (to address ongoing community priorities) and new initiatives (to fund new programs and assets that are not growth related).
5.1.1 Ongoing Programs
Ongoing programs are determined by community needs not characterized as lifecycle or growth related. Generally, these programs-like community-related facilities, affordable housing, new street or park pathway lighting, sports field development, and park and intersection improvements-consist of annual allotments that gradually increase the level of service throughout the City and are an important part of the City's day-to-day service delivery to residents. Also included in this category is planning work-such as the Official Plan and master plans-performed on a cyclical basis. These programs are generally paid through taxes and utility rates.
5.1.2 New Initiatives
New initiatives are large one-time projects that provide a new or improved level of service. Examples could include new transit initiatives, a new library branch, and expansion of the ambulance fleet that are driven by improving service to existing residents rather than by growth. Generally, these initiatives are funded through taxes and utility rates.
5.1.3 Lifecycle Maintenance
The City's physical assets have a total estimated value of some $20 billion. These assets include roads and sewer infrastructure, sidewalks, water, fleet equipment, information technology, parks and buildings. To protect its investment and ensure the economical, efficient and effective performance of these assets, the City must perform appropriate maintenance and repair, along with the timely replacement of key components. This long-range financial plan identifies the estimated level of expenditure needed to address ongoing needs of these physical assets, as well as the impact of deferred maintenance activity. Generally, lifecycle maintenance is funded from the property tax base or the water and sewer surcharge rate base.
Over the past number of years, local municipalities have been unable to make all investments necessary to maintain their infrastructure. Most local governments across Canada were confronted by this situation; often, few options were available to municipal councils and staff. Although past decisions to underfund asset maintenance and repair of assets may have been made out of financial necessity, these decisions have resulted in a significant list of deferred maintenance work.
Accumulated deferred maintenance has a cost. Major physical infrastructure failure can lead to sizeable downtime, increased costs to local business, and impacts the City's ability to serve residents and attract industry. Deferred maintenance also carries associated health and public safety risks, higher utility consumption and other operating costs, and a higher number of unforeseen repairs and replacement work. It may also lead to the need to close a facility, as happened with the Plant Bath, thereby reducing service levels.
Significant capital expenditures are now required to ensure the City's property and other assets are maintained at acceptable levels. Outlined below are each of the City's major functional areas responsible for lifecycle maintenance.
Properties and Facilities Real Property Asset Management is responsible for all of the City's 1024 structures, furniture and related equipment, as well as other real property. Due to the size and complexity of the City's asset mix, lifecycle expenditure requirements are best described by average spending level based on overall facility value.
A number of guidelines for facility renewal funding have been established by professional organizations. The American Public Works Association has published guidelines allocating a minimum two to four per cent of current facility replacement value to provide for facilities renewal. The Society for College and University Planning, National Association of College and University Business Officers, and Association of Physical Plant Administrators of Universities and Colleges recommend 1.5 to 2.5 per cent of replacement value to keep facilities in proper condition for their present use.
City staff recommend calculating the building asset renewal program on the basis of a conservative 1.5 per cent of the replacement value of renewable building infrastructure, which is approximately 80 per cent of the total replacement value of the City's building portfolio. City staff estimates an accumulated deferred maintenance amount of $31 million for the entire building portfolio, and, if funded at the forecast level, the accumulated deferred maintenance obligation will be eliminated by 2011 (see Appendix 4.1). Other options include reducing the number of facilities through disposal. The Corporate Accommodation Master Plan currently underway will investigate the possibilities of this approach for the City's administrative space requirements.
Fleet The City's Fleet branch is responsible for all City vehicles, including fire vehicles, ambulances and buses. As City vehicles age, maintenance costs increase while resale value and reliability decrease. Consequently, Fleet branch must determine an optimum economic replacement point for each vehicle where vehicle replacement becomes a superior option to repair or refurbishment. A variety of factors determine a vehicle's economic replacement point, including maintenance costs, depreciation, downtime, operational impacts, obsolescence, support costs, residual value, reliability and subsidization.
Standard life expectancies vary according to vehicle type and use. For example, the daily routine of waste collection trucks results in shorter lives for these trucks compared with trucks equipped with dump bodies or salt spreaders, which have a more limited use. Each City vehicle has an assigned life expectancy. (These vehicle life expectancies are listed in Table 2.)
As can be seen, many City vehicles exceed their expected lifecycle age. The City's fleet vehicle replacement capital plan was developed to identify long-term, capital funding requirements to replace City vehicles. This plan was prepared by phasing these spending requirements into the recommended spending plans between 2007 and 2011 to achieve economic life standards by 2011.
A recent review of City fleet maintenance costs for vehicles that exceed their scheduled lives showed maintenance costs 23 to 37 per cent above those costs for vehicles within their scheduled lives. Assuming maintenance costs of 30 per cent for over-age vehicles, and an annual fleet maintenance budget of $12 million, the City incurs additional annual maintenance costs of $1.3 million for over-age vehicles. For the City's transit fleet, maintenance and refurbishing costs on over-age vehicles is $2 million each year. These additional costs must be added to fleet budgets until a steady state is reached in 2011.
Information Technology Information Technology (IT) provides key work tools and solutions to all City departments, and is recognized as an essential cost-saving business tool. As such, provision of reliable and effective technology infrastructure and support for corporate systems is vital to City business operations.
Information Technology assets include physical hardware, intellectual property (software), and information (data stored electronically). A number of research organizations provide industry best practices and benchmarks with respect to depreciation and replacement. Combined with analysis and research provided by IT managers, based on professional experience, historical trends and municipal practices, these benchmarks offer a solid lifecycle maintenance schedule.
Computer hardware and associated infrastructure is replaced either when it no longer functions to acceptable performance standards or when new versions of software will not function.
Computer software is also subject to regular maintenance (installation of patches or fixes), upgrades (new releases), and eventual replacement. Software must be replaced either when it is no longer supported by the vendor or when software no longer functions on available hardware.
IT infrastructure and software replacement is dependent on asset type and technological development. For example, desktop computers are typically replaced on a three-to-four-year cycle. Network servers, on the other hand, typically have a longer useful life span, due to their function and assuming proper preventive maintenance has been performed. Industry best practices suggest a six-to-eight-year replacement cycle.
Submissions to the City's 2002-2006 IT capital budget reflect current standards and qualitative measures. New standards are proposed to be phased in starting in 2007, and will be fully implemented by 2011.
Transportation, Waste Diversion, Water and Sewer Infrastructure Transportation, Utilities and Public Works is responsible for lifecycle maintenance of all of the City's physical infrastructure, including transportation systems, pipes, treatment plants, and landfill sites.
The American Public Works Association, American Water Works Association, Transportation Association of Canada, and Federation of Canadian Municipalities-to name a few-have all undertaken a number of studies to develop effective rehabilitation and replacement strategies for physical infrastructure. As a result of these studies, it is apparent that the City needs to use a rehabilitation and replacement methodology with enough sophistication to address specific complexities in infrastructure sustainability. This methodology will have to look at changes in material types, construction techniques, long-term service level requirements, environmental considerations, and the special requirements of buried infrastructure. Further, construction of infrastructure has been undertaken during periods of sporadic growth, resulting in age-wave effects on infrastructure instead of demands for consistent rehabilitation.
Sidewalks, Transit, Roads and Bridges
The City's transportation network is comprised of 1,415 kilometres of sidewalks, 60 kilometres of transitway, 5,200 centreline kilometres of roads, and 95 bridges-the majority of which is in good condition. Preventative maintenance needs, however, are substantially underfunded, to the point that current expenditure levels are approximately two-thirds of what is required. Accordingly, the City's deferred maintenance inventory is growing quickly. An inability to perform rehabilitative work in a timely fashion also leads to a substantial increase in funding requirements to undertake more expensive reconstruction. Budget forecasts identify future reductions to this funding gap. It is estimated that appropriate lifecycle funding levels will be achieved in 2008 and then maintained for the remainder of the forecast period.
Water, Waste Water and Storm Drainage
The City operates and maintains 2,550 kilometres of water mains, providing potable water from two treatment plants, which are supported by 13 storage facilities and 14 pumping stations.
The City has 2,050 kilometres of sanitary and combined sewers with 57 lift stations carrying flows to the Robert O. Pickard Environmental Centre for primary and secondary treatment. Storm drainage is provided by a sewer network totalling 1,825 kilometres in length, with 101 stormwater detention facilities, as well as ditches-mostly roadside-totalling 8,000 kilometres.
Generally, water and sewer networks enjoy a long lifecycle. These networks are composed of a variety of materials to different standards. With several notable exceptions, the City's water and sewer networks are in good operating condition. Hydraulic needs are, however, much greater. Addressing these deficiencies drives much of the prioritization of rehabilitation/reconstruction needs. These needs are addressed through sewer separation, capacity improvements, and work to address basement flooding issues for sewers, and capacity and service issues for water mains.
The City's water and sewer needs are comparable to those in other North American cities; however, current capital spending levels are not adequate-again resulting in a growing gap between needs and rehabilitation activities. Although major initiatives are being undertaken to forecast funding needs, straightforward depreciation forecasts indicate essential network funding levels will be reached by 2008 and then maintained for the remainder of the forecast period.
New residents and businesses require either new or expanded municipal infrastructure to service their needs. For the purposes of this long-range financial plan, this kind of infrastructure is known as growth infrastructure. Although driven by growth, these infrastructure projects often benefit existing residents. For example, if the City standard is one ice rink for a specified number of people, when the population grows, the City will require a proportionate number of new ice rinks. Since all residents profit from these projects, they are funded both by development charges and by property taxes and utility rates.
Ottawa 20/20 and Charting a Course Ottawa 20/20 is the City's initiative to manage the growth it will experience over the next two decades. This initiative began in June 2001 with the Ottawa 20/20 Smart Growth Summit, where citizens heard from national and international experts and each other in an effort to become familiar with sustainable development principles. Ottawa 20/20 strives to protect and build on a quality of life that the City's residents value.
Five growth management plans are now being prepared: the City's Official Plan, a human services plan, an arts and heritage plan, an economic plan, and a corporate strategic plan. Findings of these plans will be reflected in future capital budgets and form the basis of the next steps for the City's long-range financial plan.
The Official Plan A preliminary draft Official Plan was tabled with the City's planning and development committee on June 27, 2002. Tabling the plan initiated a public consultation process that will continue well into the autumn of this year, culminating with a final draft Official Plan in January 2003. Following a second public consultation period, Council will adopt the Official Plan in the spring of 2003.
The Official Plan will be supported by several other plans, including a transportation master plan, an environmental strategy, and water, wastewater, and stormwater master plans, which, where possible, will be developed concurrently with the Official Plan.
Although the preliminary draft Official Plan covers a spectrum of growth management goals for the next twenty years, a number of these goals, and related policies, will have a direct bearing on the City's attempt to lessen capital budget pressures. These goals include promoting walking, cycling and transit as viable alternatives to automobiles, supporting development within existing urban and village boundaries, and increasing development densities near transitway stations, along arterial roads, and on main streets. If the goals of these plans are achieved, long-term capital budget pressures on the City can be reduced.
If the goals of the City's growth plans are
achieved, capital budget pressures can be reduced by 2011.
Growth Forecast To plan for growth, the City must know how quickly growth will occur. On October 10, 2001, Council adopted a growth forecast that will form the basis of the Official Plan. This forecast was developed based on recent development activity and compared with the 2001 census for consistency. This growth forecast has been used for the long-range financial plan and is reflected in Chart 4 below. The forecast shows a 26 per cent increase in population from 2001 to 2011, from 800,000 to 1,012,000. As noted previously, employment is forecast to grow from 475,000 jobs to 655,000 over the same period, an increase of 38 per cent.
The growth forecast helps determine the demand for physical infrastructure. Stormwater management ponds are built prior to construction of the first houses in a new subdivision. Water treatment plants must be expanded in advance of increased demand. Parks and fire stations are built once residents are in place. Transportation works, including new and expanded roads and transit systems, are determined by the increased travel needs of additional residents.
The present population forecast has the City adding some 400,000 people in the next 20 years. This degree of growth, if accommodated using a traditional suburban development pattern, would be matched by increasing demands for automobile-based infrastructure. This type of infrastructure demand has already generated a significant portion of the capital infrastructure deficit experienced by the City.
Funding transportation infrastructure is one of the major challenges of growth. Currently, the City funds transportation initiatives using both the city-wide levy for roads projects and the transit levy for transit initiatives. This funding practice has been carried over from the former Region. The transit levy now provides funding for new and replacement buses, transit maintenance facilities, transitway rehabilitation and expansion and other capital projects identified with the transit operation. Transit capital funding is collected from within the urban transit area only. In the future, expansion of road and transit networks should be funded from the same tax base.
Transportation solutions should be considered on a city-wide basis recognizing that expansion of both the transit and road networks may be required to form the solution. Extension of the transitway or alternate transit services should be seen as a transportation solution in the same manner as road construction and should be funded from the same tax base.
The urban or rural transit levy should be earmarked for operating and capital requirements of the transit service (such as buses, garages and other services that directly support the operation) within either the urban or rural areas. This approach has already been adopted in the rural service strategy.
The City's capital infrastructure deficit can be reduced by changing the way the City develops. One alternative is investing in high quality transit, which in turn reduces the need to build more arterial roads and expressways. This alternative also provides significant side benefits, such as less air and water pollution, and the creation of high quality community living. Any increase in the share of trips taken by transit reduces infrastructure costs.
Investing in sustainable development saves money.
A 1995 Canada Mortgage and Housing Corporation study compared costs of conventional development with those of sustainable development (one with denser development and a broader mix of housing types and land uses) on a 338-hectare site in Nepean. The study showed the total lifecycle (75 years) cost of sustainable development to be 8.8 per cent less than conventional development. Further, more than 70 per cent of these savings were on public utilities, such as roads, stormwater management, transit, water, policing and sanitary sewers. In short, investing in sustainable development rather than conventional development saves money.