Report to/Rapport au:
Comité de l’environnement
and Council / et au Conseil
Submitted by / Soumis par: Marian Simulik, City Treasurer/Trésorière municipale
Contact Person/Personne ressource: Mona Monkman, Deputy City Treasurer, Corporate Finance/ Trésorière municipal adjointe – Finances municipales
Finance Department/ Service des Finances
613-580-2424 ext./poste 41723, Mona.Monkman@ottawa.ca
PLAN FINANCIER À LONG TERME IV – PROGRAMMES FINANCÉS À PARTIR DES REDEVANCES D'EAU ET D'ÉGOUTS
That the Environment Committee recommend that Council
1. Receive and table the Long-Range Financial Plan IV– Rate Supported Programs (Water and Sewer) at its meeting of January 31, 2012; and
2. At its meeting of February 21, 2012, recommend Council approve at its meeting of February 22, 2012:
a) The transfer of $10.0 million from the Water Reserve to the Sewer Reserve;
b) Amendments to the Fiscal Framework (2007) Targets for Debt as follows:
Principal and interest on water and sewer rate supported debt to be limited to no more than 15% of rate revenues, and that the water and sewer reserves maintain balances equal to one year’s debt servicing charges;
c) Amendments to the existing Administration of Capital Financing and Debt Policy, Primary Objectives, Section 5, to reflect the following wording:
Match the Term of the Capital Financing to the Useful Life of the Related Asset: The City’s practice will be to issue debt for a term that is consistent with, but will not exceed, the anticipated useful life of the underlying asset.
Que le Comité de l'environnement recommande au Conseil :
1. Reçoive et dépose le Plan financier à long terme IV – Programmes financés par redevances (eau et égouts) à sa réunion du 31 janvier 2012;
2. à sa réunion du 21 février 2012, recommande au Conseil d’approuver à sa réunion du 22 février 2012
a) le transfert de 10,0 millions de dollars de la réserve pour eau à la réserve pour égout;
b) de modifier comme suit les cibles d'endettement du Cadre financier (2007) :
Le principal et l'intérêt de la dette financée par les redevances d'eau et d'égout ne doivent pas dépasser 15 % des recettes provenant des redevances et le solde des réserves pour eau et pour égout doit être au moins égal aux frais annuels de service de la dette;
c) de modifier comme suit la Politique sur les dettes et le financement, Objectifs primaires, section 5:
Faire coïncider la durée du financement d'immobilisation avec la durée de vie utile du bien correspondant. La Ville aura pour pratique d'émettre un titre de créance dont l'échéance sera conforme, mais non supérieure, à la durée de vie utile prévue du bien immobilisé.
Consistent with Council’s strategic plan, and in keeping with sound financial planning practices, this report establishes a long range financial plan (LRFP) for water and sewer capital investment needs. The report provides a series of financing strategies that balance the need to maintain and build capital assets with the need to manage debt, reserve balances and rate increases. The strategy reflects the capital intensive nature of delivering these services with assets that last for multiple generations.
The City’s current investment in water and wastewater assets is over $18 billion. This includes 8,000 kilometers in water, sanitary and storm sewer pipe inventory; two water purification plants (Lemieux and Britannia); and the Robert O. Pickard Environmental Centre (ROPEC), the City’s sewage treatment plant.
This LRFP identifies a significant increase in the capital needs detailed in the last LRFP in 2007. These increases are a result of new provincial legislation; the Ottawa River Action Plan; the impact of on-going condition assessments and risk mitigation work, and the advancement of renewal works through the Ottawa on the Move initiative established in the 2012 tax budget.
As part of the analysis, the annual reinvestment requirements for existing assets was determined using a risk based approach. The value of growth projects in the water and sewer systems was forecasted and strategic initiatives that Council has approved or as a result of new or changes regulatory requirements was also detailed. As a result, the City has estimated that its share of water and sewer capital needs over the next 10 years amounts to an investment of $2.7 billion. The funding plan developed moves the City towards this required level of investment over the 10 year period.
The funding plan was developed using the following principles:
· Debt servicing charges (principal and interest) for such a capital intensive program should be set at a maximum 15% of the annual budget, a level which is greater than the current Council limit of 7.5% for other City services;
· Debt will be issued for terms that better match the life of the assets they are funding, which has the effect of reducing the annual operating impact of debt issuance; and
· Required water and wastewater rate increases will be minimized as much as possible and will be smoothed over the 10 year forecast period in order to provide predictability for ratepayers.
In total the plan being proposed sees a city investment of $2.1 billion over the ten year period. The plan being put forward, which is reflected in the 2012 draft budget, deals with the higher level of capital investment required in the first four years by maximizing the use of reserves and debt. In the long term, adequate annual funding would be available to meet the annual capital investment requirement. Revenue increases required to support the plan are 6% in 2012, 7% in 2013 and 2014, 6% in 2015 and 2016 and 5% every year thereafter. These projected rate increases include inflation.
Council will review and adopt the operating and capital budgets on an annual basis. Future plans will reflect Council’s annual reviews. It should also be noted that spending needs and financing plans may also be adjusted in the future as a result of legislative requirements (Clean Water Act/Source Water Protection Act, Municipal Wastewater Effluent Standards legislation) and as a result of the City’s planning process such as the Official Plan, the Infrastructure Master Plans and Stormwater Master Plans.
Conformément au plan stratégique du Conseil et en fonction de saines pratiques de planification financière, le présent rapport établit un plan financier à long terme (PFLT) pour les besoins au titre des dépenses en immobilisations liées aux réseaux d’aqueduc et d’égouts. Le rapport fournit une série de stratégies de financement qui établissent un équilibre entre le besoin de maintenir et de construire des immobilisations et la nécessité de gérer la dette, les comptes de réserve et les hausses tarifaires. La stratégie reflète la nature exigeante en investissements de la prestation de ces services avec des immobilisations qui durent pendant de multiples générations.
Les investissements actuels de la Ville dans les réseaux d’aqueduc et d’égouts s’élèvent à plus de 18 milliards de dollars. Ceci comprend un inventaire de 8 000 kilomètres de conduite d’aqueduc et d’égouts sanitaires et pluviaux; deux usines de purification de l’eau (Lemieux et Britannia); le Centre environnemental Robert‑O‑Pickard (CEROP), l’usine de traitement des eaux usées de la Ville.
Le présent PFLT met en lumière des augmentations importantes au titre des besoins en immobilisations spécifiés dans le dernier PFLT en 2007. Ces augmentations découlent d’une nouvelle législation provinciale; du Plan d’action de la rivière des Outaouais; de l’incidence des évaluations continues de l’état et des travaux d’atténuation des risques, et de l’avancement des travaux de renouvellement par le biais de l’initiative Ottawa, on se déplace mise en place dans le budget 2012.
Dans le cadre de l’analyse, les besoins annuels de réinvestissements pour des immobilisations existantes ont été déterminés en utilisant une approche fondée sur le risque. La valeur des projets liés à la croissance dans les réseaux d’aqueduc et d’égouts était prévue. Des initiatives stratégiques que le Conseil a approuvées et qui découlent de nouvelles exigences réglementaires ou de modifications ont également été décrites. En conséquence, la Ville a évalué que pour les dix prochaines années, sa part des besoins en immobilisations au titre des réseaux d’aqueduc et d’égouts totalisait un investissement de 2,7 milliards de dollars. Le plan de financement élaboré dirige la Ville vers le niveau requis d’investissement pour la période de dix années.
Le plan de financement a été élaboré en se fondant sur les principes suivants :
· les frais de service de la dette (capital et intérêts) pour ce programme à haute intensité de capital devraient être fixés au maximum à 15 p. cent du budget annuel, un niveau supérieur à la limite courante du Conseil de 7,5 p. cent pour les autres services municipaux;
· l’émission des titres de créance se fera pour une durée qui correspond mieux à la durée de vie utile des immobilisations qu’ils financent, ce qui a l’effet de réduire l’incidence sur le fonctionnement annuel de l’émission des titres de créance;
· les hausses tarifaires requises liées aux réseaux d’aqueduc et d’égouts seront réduites autant qu’il sera possible de le faire et seront amorties sur la période de prévisions de dix ans afin de fournir de la prévisibilité aux contribuables.
Au total, le plan proposé entrevoit un investissement municipal de l’ordre de 2,1 milliards de dollars au cours de dix ans. Le plan mis de l’avant, dont il est tenu compte dans le budget provisoire 2012, traite d’un niveau supérieur d’investissements en immobilisations requis au cours des quatre premières années en optimisant l’utilisation des réserves et de la dette. À long terme, un financement annuel adéquat serait accessible pour répondre aux besoins annuels en dépenses d’immobilisations. Les hausses de revenus requises pour appuyer le plan sont de 6 p. cent en 2012, de 7 p. cent en 2013 et en 2014, de 6 p. cent en 2015 et en 2016 et de 5 p. cent pour toutes les années subséquentes. Ces hausses prévues incluent l’inflation.
Le Conseil révisera et adoptera les budgets de fonctionnement et d’immobilisations sur une base annuelle. Les plans futurs tiendront compte des examens annuels du Conseil. Il est important de noter que les besoins en dépenses et les plans de financement peuvent également être modifiés à l’avenir en conséquence des exigences législatives (Loi sur l’eau saine/Loi sur la protection de l’eau de source, règlement municipal sur les normes régissant les effluents des eaux usées) et du processus de planification de la Ville, dont le plan officiel, les plans directeurs de l’infrastructure et les plans directeurs des eaux pluviales.
Long range financial plans (LRFP) are a hallmark of good financial planning. The City of Ottawa has undertaken three long range plans since amalgamation. These plans are updated at regular intervals to reflect new information such as changed priorities, adjusted pricing and any new legislated requirements. Since the last long range plan for water and sewer services, presented in 2007, the City has developed the Ottawa River Action Plan; has responded to the requirements of new legislation such as the Clean Water Act; and has had system failures which have required priorities to be adjusted. More significantly, the 2012 tax supported budget included the Ottawa on the Move initiative which advances reinvestment in the city’s water and sewer pipe infrastructure. As water, wastewater and storm water services are all exclusively funded from revenues raised from the water bill, these services can be planned and analyzed separately from other City services.
In 2011 funds provided for the capital program, either as contributions to the capital reserves or for debt servicing repayments, represented 46% of the $264 million rate budget. Given the capital intensive nature of water and sewer services and aging of the assets, future budgets will include significantly increased capital funding requirements. This LRFP refresh focuses on the capital requirements and their impact on the water/sewer rate.
LRFP III (2007) provided a 4 year operating budget pressure forecast and a 10 year capital forecast. The plan forecast that in 2010 the operating budget would increase by $5.5 million, primarily to maintain existing services. The plan also forecasted that between 2007 to 2016, $1.581 billion would be needed for capital works, with the renewal category at $1.255 billion. The plan identified that in order to fund the capital needs identified at that time while also maintaining an average reserve balance of $20 million over 10 years, a 9% combined net rate increase would be required in the period 2007 to 2010; 5% in each of the three years 2011 to 2013; and a 2% combined rate increase for 2014 to 2016.
This new Long Range Financial Plan, LRFP IV demonstrates that the capital renewal needs have increased significantly from LRFP III. These changes stem from growth in the network, inflation, new needs that respond to recent system disruptions, additional regulatory requirements, and the development of the Ottawa River Action Plan.
In 2010, the City prepared a long term financial plan for the water system, in accordance with Provincial legislation. That plan outlined the required capital works and associated funding requirements over the 2009 to 2019 period. The capital investment needs for the water system identified in the 2010 water plan have been incorporated into this LRFP. The spending needs identified in the 2010 water plan had resulted in forecasted water rate increase of 7% per year for the four year period 2011 to 2014 and 5% thereafter. A corresponding sewer plan was not required but background work conducted in 2010 has also assisted in formulating this LRFP.
Most other major Canadian cities have undertaken some form of long range financial planning which has identified that the level of capital investment in the water/sewer area is not sufficient to fully keep the assets in a good state of repair. This has resulted in water/sewer rate increases above inflation as cities seek to close this “gap”. In Ontario, the Region of York has approved a rate increase of 10% for each of the next three years and the City of Kingston has approved a water rate increase of 9.5% and a 5.0% sewer charge rate increase for each of the next three years. Known annual rate increases across Ontario vary in the 8% to 10% range.
Rate supported capital works are mainly funded either from Contributions to Capital raised from the water/sewer bill, debt financing which is repaid along with related interest over extended periods of time from the water/sewer bill. Growth related projects are also funded from development charges collected from new development. Senior government funding may also be received in relation to specific approved projects. All figures quoted within this report refer to the City’s share of capital investments or net capital investment required, meaning that figures exclude development charges collected and senior government funding.
This objective of this report is to detemine:
· Net Capital investment needs for the period 2012 to 2021
· An appropriate funding strategy that will meet those needs in the long term and reflects the capital intensive nature of delivering these services through long lived assets that serve multiple generations.
Capital Asset Profile
The current value of the City’s water and wastewater assets is over $18 billion and accounts for approximately 50% of the City’s assets (excluding land). This includes over 8,000 kilometres of water, sanitary and storm sewer pipe inventory; two water purification plants (Lemieux and Britannia); and the Robert O. Pickard Environmental Centre (ROPEC) the City’s sewage treatment plant.
For financial reporting purposes, and in accordance with accounting policies prescribed by the Public Accounting Standard Board, these capital assets are stated at historical cost and are amortized over their useful life. At December 31, 2011 the historical cost of water and wastewater assets is $5 billion and is amortized at a rate of approximately $60 million per year. Of this historical cost value, approximately 6% was financed with debt.
A breakdown of these assets by category is as follows:
Approximate Replacement Value
The City’s linear pipe infrastructure and treatment facilities have been acquired over time in relation to the City’s development.
The following chart shows the meters of pipe infrastructure in service today based on the decade in which it was acquired with most of the current infrastructure in service dating from 1950 and onward. The renewal pattern will not necessarily mirror the original investment pattern as described later under renewal.
Capital Investment Requirements
Investment requirements are a function of: renewal of existing assets to ensure they remain in a state of good repair and comply with current service level standards; growth related to new development; strategic initiatives established by Council; or new regulatory requirements.
To quantify the investment required over the next ten years, City staff have analysed the inventory of existing water and sewer assets; reviewed forecasted growth projects; and referenced strategic initiatives and regulatory requirements to the extent known.
Both the Capital Investment Requirements and the Capital Financing Plan plans have been presented on a “net” City requirement basis. External revenue sources such as those received from other levels of government and development charges collected in relation to growth projects are excluded. This provides a clear view of the City’s own financial responsibility with respect to developing a funding strategy.
A total investment of $2.7 billion is required in this ten year timeframe for water and sewer infrastructure which equates to an annual investment of approximately $250 - $260 million in most years. A summary is as follows:
A risk based approach has been taken in determining the infrastructure renewal needs. While the age of the infrastructure is taken into account, other factors such as pipe material, soil types, condition assessment and watermain break history are taken into consideration. As such, an “old” pipe does not necessarily imply a “high priority” project nor does a “newer” pipe necessarily represent a “low” priority project. For example, extending the service life of local, small diameter watermains may increase the risk of a failure to occur prior to replacement. However, when weighed in comparison to the risk associated with the service life for singular larger diameter water transmission mains the greater consequence on the community must be considered. It is not deemed acceptable to “run to failure” large diameter transmission mains and collectors as the regulatory and service impact to the community is too significant. A more aggressive replacement requirement is necessary for these larger pieces of infrastructure.
For this reason, the yearly capital renewal program includes major projects to construct transmission mains prior to the projected end of service life.
Of the $2.7 billion total needs identified, the vast majority or $2.6 billion is for renewal. Linear (pipe) assets require $2.1 million for renewal and includes: a provision for the combined storage tunnel ($140 million) as part of the Ottawa River Action Plan; an ongoing program for a Condition Assessment of water and sewer assets; and an estimate for works required as a result of the ongoing sewer and water reliability assessment program. The remainder of the renewal needs, totalling $0.5 billion, is regarding vertical assets such as water and wastewater treatment facilities and pumping stations.
The capital growth needs were prepared based on projects that have been identified in the Development Charge Background study. Only projects that have a development charge component that is greater than 30% of the total authority requested have been categorized as growth related. Projects where the development charge component is 30% or less are usually classified as renewal projects with replacement assets’ capacity expanded to service growth. These are captured in the renewal category.
The strategic initiatives category includes Council-directed initiatives identified in the City Corporate Plan. Strategic initiatives include projects that implement the various City master plans or enhance services currently being provided to residents, implement new legislative requirements, and respond to changes in demand for service. The Strategic Initiatives needs include $42 million identified in 2020 for a Water Disinfection Program.
This ten year forecast has been updated from earlier plans to include the following:
· Advancement of $178 million of water and sewer infrastructure renewal through the Ottawa on the Move program.
· An ongoing program to assess the condition of water transmission mains and trunk sewers, totaling $60 million over 10 years and $200 million over 10 years to deal with the results of these condition assessments
· 417 widening and resulting rate supported infrastructure investments
· Ongoing flood mitigation work
· The Ottawa River Action Plan
Initiatives included in this ten year forecast may be subject to change. Council reviews and approves operating and capital budgets on an annual basis. Capital investment requirements and related financing plans may also be adjusted as a result of new regulatory requirements (i.e. Clean Water Act/Source Water Protection Act, Municipal Wastewater Effluent Standards legislation) or as a result of the City’s own planning process such as updates to the Official Plan and Infrastructure Master Plan, and development of the Stormwater Master Plan.
Capital Financing Strategy, Goals and Assumptions
Currently, the City’s operating revenues provide funding of approximately $120 million annually; $104 million as cash contributions towards new water/sewer capital investments; and $18 million towards debt service payments for previously financed capital investments. With a forecast of approximately $250 million on average per year for capital investment requirements, this leaves approximately $130 million per year to be financed through a combination of reserve funds, debt financing and rate increases.
The funding strategy aims to strike the optimal balance between these sources and is guided by the following principles:
· Debt financing for the capital program will be set at a level sufficient to fund needed capital investment while not impacting the City’s credit rating.
· A limit for debt servicing levels for the water and wastewater program will be set independently from those of other city services to reflect the more capital intensive nature of water and wastewater services.
· Longer terms for debt financing will be established for water and wastewater projects to better match the life of the assets they are funding. This will result in lower annual debt service payments that will be funded over a longer time period by both the current and future residents who will benefit from these assets.
· Capital reserves targets will be established from a long term perspective with the intention that they be achieved over a period of years. Reserves will be leveraged to the fullest possible extent to allow needed capital projects to proceed without delay.
· Reserve fund balances should have a target balance equal to one year’s debt servicing costs for liquidity purposes.
· Rate increases required to fund water and wastewater programs will be minimized as much as possible and smoothed over the 10 year forecast period. This will provide ratepayers with some predictability of what increases they can anticipate from year to year.
Capital Financing Plan
The funding strategy allows the City to invest $2.1 billion in water and wastewater assets over the ten year period through a combination of operating revenues and debt financing. By the year 2019, the City will have achieved a funding level of $240 million per year from its own revenues. This funding level is based on the adoption of the funding strategies outlined in this document.
Of the proposed $2.1 billion investment program, $1.675 billion of funding will be raised from water and wastewater fee revenues, with the balance of $460 million to be funded from issuing new debt.
Based on the above plan, annual debt servicing costs as a percentage of rate supported operating revenues grows from 7.9% to 12.8 % over the forecast period. When viewed from the context of the City’s overall debt picture, combined debt service costs as a percentage of total municipal revenues are limited to 8.5% which is viewed as reasonable and sustainable.
The impact of the Ottawa on the Move (OTM) program established in the 2012 budget is included in the above figures. The Ottawa on the Move (OTM) program requires $178 million in rate supported funding. This will include $75 million from debt financing and $103 million from “cash” sources including existing reserves and annual capital contributions from operating revenues. Combined with debt previously approved under the tax component of OTM, total debt will be $200 million against the $340 million investment program. Debt will be issued in 2012 with debt servicing commencing in 2013.
Debt Servicing Targets
Current debt service costs of $18 million per year will increase to approximately $61 million or 12.8% of the annual water and wastewater operating budget by 2021.
Debt Servicing Costs ($ millions) / As a Percent of Rate Revenues
This report recommends that Council amend the Fiscal Framework (2007) Targets for Debt to allow for principal and interest on rate supported debt to be limited to no more than 15% of rate supported revenues. This differs from the existing fiscal framework which requires that both the rate and tax supported debt service charges be limited to no more than 7.5% of revenues.
Water and wastewater services are primarily delivered through substantial capital investments that are used by many generations. To date, the degree of asset investment financed by debt has been relatively minimal, with only 6% of assets having been funded through debt. However, given the extent of renewal required in the upcoming years, debt financing must be considered as a greater part of a funding strategy. To limit the amount of debt that can be used to purchase or renew these assets puts a huge burden on current day ratepayers. The unique nature of these services necessitate a separate debt servicing level from those of other city services that are more labour rather than capital intensive. This is consistent with other utilities. For instance, a 2008 Survey: NACWS – Financial Survey -.A National Survey of Clean Water Agency Financing and Trends was published by the National Association of Clean Water Agencies (US) and showed that debt service represented 28% of 2007 utility expenditures. The city’s proposed plan remains well below such debt service levels.
As the City does not have a separate credit rating for water and wastewater services the impact of this change to the rate debt limit needs to be assessed in the context of the City’s overall debt levels.
The rate revenues currently represent about 12% of combined rate and tax revenues. If rate supported debt servicing reaches the forecasted 13% of rate revenues, the combined city debt servicing limit for rate and tax supported debt would be 8%. Even if the maximum limit of 15% for rate supported debt was reached, which is not forecasted within this plan time period, this would result in a combined 8.5% debt servicing percentage.
In conclusion, this proposed change in the debt servicing limits for rate supported spending is expected to have a manageable impact on the City’s overall debt servicing as a percentage of revenues.
Reserve Fund Levels
Water and Wastewater reserve balances are forecasted to be $56 million at the end of 2011.
The funding strategy sets a target for the reserve funds balances equivalent to one year of debt service payments. This provides a liquidity measure ensuring financial stability and which would support the City’s favourable credit rating.
This is a long-term target with the intention that it be achieved over a period of years and provides flexibility in the annual use of reserves to fund needed capital projects to proceed without delay. Starting in 2017, reserves will reach the set target level equating to one year’s debt servicing (principal and interest) payment requirement
Projected Year End Reserve Fund Balances ($ millions)
The Water and Wastewater (Sewer) reserves had been managed as a single entity until 2007 when the Clean Water Act required that the water reserve be segregated. Staff have reviewed the projected spending needs and existing reserve balances of each program and are recommending that a transfer of $10 million be made from the Water capital reserve fund to the Wastewater (Sewer) reserve. This transfer will address the current imbalance between the two reserves and provide adequate funding for each program to meet their projected investment requirements.
The City currently maintains an Aaa credit rating with Moody’s Investors Service and an AA+ rating from Standard and Poor’s.
The credit rating agencies look for the following items in preparing their credit analysis:
· A strong regulatory environment - which is the case in Ontario
· The strength of the local economy – Ottawa has a high income, stable work force
· A municipal Council that is willing to increase rates to meet its capital investment needs
· A commitment to long term financial planning
· That debt servicing costs are reasonable in relation to revenues, so that the City can meet its debt repayment obligations
· That liquidity is built into the financial framework through the use of reserves and investments
· Total debt levels as a percentage of the total budget are manageable.
The funding strategy being proposed respects these requirements while ensuring that the necessary capital works can be undertaken.
Projected Revenue Increases
The funding strategy contemplates a continued need to increase water and sewer revenues over the 10 year program. These increases are smoothed over the period so that there is some predictability for the public on the expected rate increase from one year to the next.
The following table shows the projected revenue increases over the ten year period. It is important to note that the projected rate increases include inflation.
Projected Annual Rate % Increases / Projected Annual Rate Revenues ($ millions)
It should be noted that the above rate increases assume that consumption patterns remain constant. Council has directed staff to bring forward a report on the rate structure by 2013. The projections above reflect annual revenue requirements without consideration of changes to the rate structure.
As previous reports on the rate structure have indicated, there is a need to review the current rates which are entirely variable with consumption volumes as compared to expenditures that are largely fixed in nature. As capital spending increases and debt servicing becomes a larger proportion of the budget, this variable revenue source to fixed cost differential will only increase.
Administration of Capital Financing and Debt Policy
This report recommends that the current Administration of Capital Financing and Debt Policy - Objective 5, be revised to state the following: “The City’s practice will be to issue debt for a term that is consistent with, but will not exceed, the anticipated useful life of the underlying asset.”
In 2007, Council approved the Administration of Capital Financing and Debt Policy. The policy established objectives, standards of care, authorized financing instruments, reporting requirements and responsibilities for the prudent financing of the City’s operating and infrastructure needs. The Policy states that debt funding is considered an appropriate way to finance longer-life capital projects since future taxpayers who will benefit from the project will pay for it through future debt charges.
The Policy (Objective 1) requires that the City adhere to Statutory Requirements. Accordingly, in accordance with Provincial legislation, the term of capital financing may not exceed the lesser of 40 years or the useful life of the underlying asset. This requirement will remain as stated in the Capital Financing and Debt Policy.
The Policy (Objective 5) states that the City will match the term of the capital financing to the useful life of the related asset. The existing policy also states that the City’s normal practice will be to issue debt for a term that does not exceed 20 years.
Water and Wastewater assets are long lived assets. They deliver services to today’s residents and to future generations. For example, water main pipes, storm pipes and sanitary pipes may last up to 90 years, depending on the type of material used in their construction.
Given that many water and wastewater assets have useful lives that extend beyond 20 years this current limitation does not match the term of the debt with the useful life of the assets. By extending the debt term, future generations who benefit from these assets will also assist in funding these assets.
It is anticipated that debt will be issued for terms of 10, 20 or 30 years, depending on the useful life of the underlying asset. Debt issuance will not exceed a term of 40 years consistent with Objective 1 of the Policy and in compliance with the statutory limit established by the Municipal Act. In this LRFP, the debt term is assumed to be 30 years.
There are no rural implications as a result of this report.
The public consultation process will be incorporated with the review process for the 2012 Rate supported budget.
Comments by the Ward Councillor(s)
There are no legal impediments to receiving and tabling this report and subsequently approving the recommendations at a later meeting.
The Strategic Plan includes an objective of updating the Long Range Financial Plan: Water and Sewer Rate. This document establishes the goals and policy framework to guide water and wastewater rate increases over the next 10-years.
Financial implications are identified within the report.
Information contained in this report will be utilized during the annual budget setting process.