Capital Financing Strategy Jason Bevan Mike Mayes CNAM

Capital Financing Strategy Jason Bevan Mike Mayes CNAM 2014 Conference Toronto, Ontario May 20 -23, 2014

Today we will discuss. . . • Study background • Process • Key recommendations and findings • Lessons learned • Questions

About the Town of Newmarket • Lower tier municipality in the Region of York • Population of 80, 000 • Relatively compact community • Responsible for local water and sewer infrastructure

Capital Financing Study Phases 1. Peer review of existing asset management reports, policies and funding deficiency estimates 2. Prepared report with technical and policy recommendations • Excel model for sensitivity testing to be left with the Town 3. Development Charges Study and By-law • Thorough examination of growth-related capital

Study Context

Funding Options Considered Capital Funding Options Category Asset Replacement Fund (ARF) Recommending a Strategy (RAS) Surcharge Other User Fees (for capital) Pay-as you-go Capital (capital funded out of operating) In Use in Newmarket Potential Annual Funding Amounts Yes Millions Yes Hundreds of thousands Primary Use of Funds Replacement Enhancement Growth X X X X Yes Hundreds of thousands Regional Uploading Yes Hundreds of thousands X City of Toronto Act Charges Local Improvement Charges No (not permitted) Millions X X Minor Hundreds of thousands X X Development Charges Yes Millions X Cash-in-Lieu Parkland Parking Yes Hundreds of thousands X

Funding Options Considered Capital Funding Options (cont. ) Category In Use in Newmarket Potential Annual Funding Amounts Density Bonusing (Sec 37) Future Secondary Plan Hundreds of thousands Primary Use of Funds Replacement Enhancement X Growth X X X Stormwater Rate No Federal Gas Tax Yes Millions X Other Infrastructure Grants Yes Most funding has ended X X X Debt Yes Millions X X X(DC) PPPs, Private Contributions and Sponsorships Yes Developer Funded Items Yes Collaboration with Other Municipalities Yes Variable X Sale of Property Yes Hundreds of thousands X (of land) Hydro dividend Yes Millions X Hundreds of thousands X X

Key Model Considerations: Smoothed Contribution Increases 35, 000 30, 000 25, 000 20, 000 15, 000 10, 000 5, 000 - 2 2 2 2 14 016 018 020 022 024 026 028 030 032 034 036 038 040 042 20 Tax Supported - Smooth Tax Supported - Flat Rate Supported - Smooth

Key Model Considerations: Integration of Future Growth • In growing municipalities, new development can have significant impact on future AM funding requirements • Assessment of new units is often higher than existing base • Intensification can lead to reduced infrastructure requirements • Not always the case e. g. ring roads in Newmarket Urban Centre

Key Model Considerations: Use of Debt/Borrowing • The Town has effectively used debt to reduce spikes in tax rates • Particularly with buildings • Better aligns to benefiting principal i. e. those that use the refurbished/upgraded facility are the ones that pay for the facility • The Town has also made use of internal loans to undertake capital improvements that lower operating costs • Energy retrofits

Key Recommendations 1. Establish dynamic asset inventory • Establish service level targets to assist with funding decisions 2. Consider a more advanced (software) asset management solution 3. Create assessment management report cards

Key Recommendations (cont. ) 4. Move to a 10 -year capital budget 5. Establish three categories of capital (i. e. growth, repair & replacement, enhancement) 6. Establish a Storm Water Utility Rate

Key Recommendations (cont. ) 7. Review and Update Corporate Debt Policy 8. Follow recently completed Investment Strategy 9. Other • Review carry-forward projects and reassign funds if projects are no longer required • Merge outdated, small or infrequently used capital reserves with the Asset Replacement or other reserves

Funding Option 1: Status Quo • Asset Replacement Fund contribution increases at inflation only • Recreation surcharge and operating capital held static • Gas tax growth at 2% per year • $500 M cumulative funding shortfall at 2033

Funding Option 2: Full Funding • Full funding of useful life and replacement cost based contributions • Asset Replacement Fund contribution, recreation surcharge and operating capital increases with growth and inflation • Requires 1. 8% annual tax increase to 2033

Funding Option 3: Adjusted Targets • Same as Option 2 with adjusted funding targets: Asset Type % of Ideal Contribution Buildings 70% Land Improvements 70% Vehicles and Equipment 100% Roads and Related 90% Storm 100% • Requires 1. 08% annual tax increase to 2033

Funding Option 4: Rate Supported Storm • Adjusted funding targets • Assume taxation room from storm infrastructure is applied to other taxsupported assets • Requires 0. 85% annual tax increase to 2033

Lessons Learned • Centralized asset inventory is key • The Town, like many municipalities, had several asset inventories already on hand • Interest and inflation assumptions can have a significant impact on the results • Storm and land improvement services (parking, park development etc. ) will likely take longest to reach targets • There are no “magic” revenue sources

Questions? Jason Bevan Mike Mayes CNAM 2014 Conference Toronto, Ontario May 20 -24, 0214