Appendix 7: Financial Impact Assessment

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Airdrie / Rocky View Annexation Application September 2011

APPENDIX 7:

FINANCIAL IMPACT ANALYSIS OF

PROPOSED ANNEXATION



Financial Impact Analysis of Proposed Annexation

Prepared for the

Alberta Municipal Government Board

Pursuant to s.118 of the Municipal Government Act,2010 Chapter M-26, 1

Jointly prepared by

April 5, 2011



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Table of Contents

1. Introduction ....................................................................................................................................... 3 A. Background .................................................................................................................................................... 3

B. Purpose and Organization of the Report ............................................................................................ 3

2. Existing Financial Position ............................................................................................................ 4

A. Definitions ...................................................................................................................................................... 4

B. Financial Indicators .................................................................................................................................... 5

3. Annexation Assessment ................................................................................................................. 7

A. Property Tax Revenues ............................................................................................................................. 7

B. Equalized Assessment................................................................................................................................ 7

C. Proposed Annexation Process Costs .................................................................................................... 8

D. Transfer of Assets and Infrastructure Reimbursement ............................................................... 9

4. Annexation Operating and Capital Impacts .......................................................................... 10

A. Operating Impacts on the County ....................................................................................................... 10

B. Operating Impacts on the City ............................................................................................................. 11

C. Capital Impacts on the County ............................................................................................................. 12

D. Capital Impacts on the City ................................................................................................................... 12

5. Summary ............................................................................................................................................ 15

A. Rocky View County .................................................................................................................................. 15

B. City of Airdrie ............................................................................................................................................. 15



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1. Introduction A. Background

The City of Airdrie and Rocky View County have been in discussions surrounding a

proposed annexation for the past two years. During this time, staff and members of Council

from both municipalities have had staff meetings, public consultation sessions, formal

negotiation committee meetings and a non-statutory public hearing. The resulting

annexation proposal that was agreed to by the Inter-municipal Annexation Negotiation

Committee (IANC) would involve the transfer of municipal jurisdiction for 79 quarter-

sections of land from the County to the City, as identified in the proposed annexation area

map.

B. Purpose and Organization of the Report

With the conclusion of negotiations by the IANC, this report was developed by staff fromboth municipalities at the request of the IANC. It analyzes the financial impacts of the

proposed annexation and associated compensation on both municipalities and makes this

information available to both municipalities and the Alberta Municipal Government Board.

This report is divided into five sections:

Section One provides an introduction and outlines the purpose and organization of

the report.

Section Two presents the existing financial situation of both municipalities including

financial benchmarks and comparative indicators.

Section Three details annexation related impacts based on the identified

benchmarks and indicators in Section Two.

Section Four analyzes the financial impacts of the proposed annexation on

operations and capital planning for both municipalities.

Section Five provides a summary of the information and analysis from the report.

C. Methodology

While both municipalities utilized comparable financial indicators in Section 2 and 3, themethodologies used in Section 4 vary by municipality and take into account differences inapproaches and availability of data. The City utilized its 2011 Operating Budget, whichidentified staff and expenses needed to accommodate the annexation while the Countyutilized proportional costs on a per capita basis from its 2010 Financial Statement.



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2. Existing Financial Position

A. Definitions

The indicators used in the report to review municipal fiscal health are defined below.

Net Financial Assets

This factor is the difference between financial assets and liabilities and is an important

indicator of a municipality’s viability.

Tangible Capital Assets

Tangible Capital Assets are considered non-financial asset. They are deemed to be

acquired for municipal use and not intended to be used to generate income or to be sold to

create additional economic resources.

Operating ExpendituresExpressed on a per capita basis this indicator helps provide an indication of expenditure

levels normalized for population.

Reserves

Reserve fund balances can have a number of benefits. Operating reserves provide a cushion

that can help a municipality to absorb unexpected swings in their revenues or

expenditures. Capital reserves allow a municipality to fund future capital expenditures.

Expressed on a per capita basis, it can help provide an indication of how much a

municipality has put aside.

Debt Levels

● Debt Levels refer to the debt incurred by a municipality in relationship to the site of its

annual revenues and expenditures.

● Debt Limits refer to guidelines provided by the Province of Alberta and policies adopted

by a municipality to limit their debt to a percentage of revenues, or on a per-capita

basis.

Property Taxes

● Municipal tax rate levels give an indication of the tax burden exerted by themunicipality. Tax rates are a function of service levels, expenditures and assessments.

● The residential/non-residential mill rate split gives an indication of the burden placed

on non-residential properties relative to residential properties. A high split may

restrict a municipality’s ability to shift additional tax burden onto non-residential

properties.



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● Total tax rate levels (municipal and education combined) give an indication of the total

property tax burden placed on property owners in a municipality.

Equalized Assessments

● Equalized assessments expressed on a per capita basis help normalize assessment

bases across municipalities by taking into consideration the size of the municipalitiesbeing compared. Non-residential percent helps provide an indication of the amount of

non-residential assessment base in relation to the total assessment base.

● Non-residential equalized assessment per capita helps gives an indication of the value

of nonresidential properties in relation to population.

B. Financial Indicators

Table 1 compares the size of the proposed annexation area to the County as a whole. As

indicated in Table 1, the proposed annexation represents between 1.27% and 2.21% of

County indicators including population, dwelling units, assessment, roadways and land

area.

Table 1: Proposed Annexation Area Relative to the County

County

Total

Proposed

Annexation Area

Percent

of Total

Population 38,066 714 1.88 %

Dwelling Units 12,279 230 1.87 %

Assessment (million) $ 13,860.6 $182.3 1.32 %

Roadways (km) 2,386 km 52.8 km 2.21 %

Area in Hectares (Acres) 403,428(996,119)

5,115

(12,640)

1.27 %

Table 2 and Table 3 provide selecte financial information for the County and the City.

Information found in Table 2 is based on 2009 audited Financial Statements for each

municipality. They provide a baseline for comparative analysis of financial indicators in

Table 3 and subsequent sections of this report.

Table 2: Financial Information for the County and City

Indicator County City

Net Financial Assets $ 41,204,721 $ 26,280,276

Tangible Capital Assets $ 338,067,729 $ 379,702,376

Total Reserves $ 28,475,558 $ 56,186,047

Long Term Debt $ 60,869,049 $ 34,170,853



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Comparative information identified in Table 3 is based on the Alberta Municipal Affairs

2009 Financial Indicators Report. In this report each municipality is benchmarked against

other comparable municipalities. For the County, the comparable group consists of

Parkland County, M.D. of Foothills, Sturgeon County, Red Deer County, County of Grande

Prairie and Leduc County. For the City, the comparable group consists of the City of RedDeer, City of Lethbridge, City of Medicine Hat, City of St. Albert and City of Grande Prairie.

The indicators identified in Table 2 and Table 3 attests to the County’s and City’s existing

financial position and ability to sustain future activities.

Table 3: Comparative Financial Indicators for the County and City

Financial Indicator County CountyComparable

Group Median

City CityComparable

Group Median

i. 2010 Tax Rates

Residential Equalized 4.7 5.4 5.4 7.6

Non-ResidentialEqualized

9.1 9.1 9.7 14.6

Municipal Equalized 3.2 4.5 4.1 6.7

ii. Assessment

Equalized Assessment percapita (thousands)

$ 391 $ 342 $ 155 $ 146

Percentage of NonResidential Equalized

19 % 37 % 15 % 20 %

iii. Operating Costs percapita $ 2,077 $ 2,133 $ 1,696 $ 2,497

iv. Percentage of Debt Limit used

57 % 27 % 23 % 38 %



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3. Annexation Assessment

A. Property Tax Revenues

Due to the transfer of lands identified for the proposed annexation, there is an expectedreduction in property tax revenue for the County and a proportional increase in property

tax revenue for the City. While tax rates are set annually and are different for the City and

County, the IANC has agreed that tax rates for agricultural properties in the proposed

annexation area will remain at County rates for 30 years with all other properties

remaining at County rates for 20 years. Table 4 summarizes the property tax rates and

revenues for 2010. This figure is used to evaluate the short term financial impacts on

property tax revenues for each municipality. As growth occurs in the proposed annexation

area, the tax base is expected to expand and transition to City tax rates.

Table 4: 2010 County Municipal Tax Rates and Revenue

Assessment Category Municipal Tax Rate Municipal Tax Revenue

Residential 1.9737 $ 328,399

Farm 4.4409 $ 65,185

Non- Residential 5.9212 $ 98,396

Linear 5.9212 $ 9,080

M&E 5.9212 $ 6,794

Total - $ 502,865

B. Equalized Assessment

Equalized Assessment is a process used by the Province of Alberta to collect requisitions

from municipalities to pay for educational services that are provided by the Province. The

revenue is generated through property taxes and is in addition to the municipal tax

revenue identified in Table 2. Since the equalized assessment for any given year reflects the

previous year’s tax base, the IANC agreed that the education taxes attributed to lands

within the proposed annexation area will be the responsibility of the City for a period of

one year assuming an effective date of Dec.31. If the effective date is not December 31, the

City’s responsibility for such education taxes may increase to 2 years.

For 2010 the Rocky View County education taxes associated with the Equalized

Assessment for the proposed annexation area equals $467,113. The City and County intend

to use Under/Over Levies, which allow the City to overpay the Province the proportional

amount for education taxes for one or two years, and the County to underpay the Province

the same amount. This approach will not have a bearing on the municipal tax rates for

either municipality.



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C. Proposed Annexation Process Costs

The process of preparing for, negotiating and transitioning the proposed annexation have

significant costs related to staff and elected officials time, external resources, and

supportive expenses. To summarize the costs incurred as part of this process, Table 5

separates the proposed annexation process into three distinct phases:Phase 1 June 2009 - April 2010: Involved a number of preliminary meetings between the

two municipalities, background studies to examine and understand the need for

an annexation and open houses to consult with the public prior to initiating a

formal annexation process.

Phase 2 April 2010 - April 2011: Began with the formal Intent to Annex Notice submitted

to the Province of Alberta by the City of Airdrie and involves formal Inter-

municipal Annexation Negotiation Committee meetings, annexation negotiation

related communication, and the preparation, review and approval of the

annexation application.

Phase 3 April 2011 - December 2011: Involves the annexation application review by the

Municipal Government Board, which will likely include a Board hearing, as well

as staff time required to transition the annexed lands.

Table 5: Proposed Annexation Process Costs

Phase 1:Background

Phase 2:Negotiations

Phase 3: MGB &Transition*

County City County City County City

Staff $ 5,118 $ 2,696 $ 23,525 $ 41,331 $ 9,030 $ 4,370IANC - - $ 6,640 $ 6,514 $ 576 $ 563

Expenses $ 1,025 $ 1,200 $ 1,975 $ 2,100 $ 300 $ 300

Mediation - - $ 5,000 $ 5,000 - -

Legal Fees* - - $ 15,000 $ 25,000 $ 1,500 $ 2,500

Supporting Studies** - $ 100,000 - $ 50,000 - -

Application Fee - - - - - $ 39,000

Subtotal per Phase $ 6,427 $ 113, 696 $ 52,140 $ 130,005 $ 11,406 $ 46,733

TOTALS:

County $ 69,973

City $ 290,434

Combined $ 360,407

* Based on estimates

** Supporting Studies: Comprehensive Growth Study, Ecological Inventory and Servicing Study



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Of the estimated $360,407 of costs associated with the proposed annexation process,

approximately $260,000 has already been spent by both municipalities. A significant

portion of the remaining amount is the result of legal and application fees. D. Transfer of Assets and Infrastructure Reimbursement

While Tangible Capital Assets are non-financial assets, they do have a bearing on the long

term infrastructure burden that an individual municipality carries. Table 6 summarizes the

assets that are being transferred from the County to the City as part of the proposed

annexation. In addition to road assets, two municipal reserve properties are also being

transferred to the City. The existing public works facility owned by the County within the

current City boundaries is remaining under County ownership and management.

Table 6: Tangible Capital Assets being transferredin the proposed Annexation

Asset Type Quantity Value

Oil Roads 2238.7 m $ 1,074,700

Chip Seal Roads 8855.4 m $ 5,756,020

Paved Roads 18321.9 m $ 16,617,966

Gravel Roads 23348.6 m $ 11,674,315

MunicipalReserve

2 parcels :

9.10 ha

(22.46 ac)

$ 776,280

Total 52764.7 m $ 35,899,281

In addition to the transfer of Tangible Capital Assets, the City has agreed to reimburse the

County for road improvements (adjusted for depreciation) that were undertaken prior to

the effective date of annexation. This will include the transfer of a proposed debenture for

and upgrade to Range Road 13 scheduled for 2011. A summary of the reimbursement costs

are provided in Table 7 below.

Table 7: Infrastructure Reimbursement

Road Type Length DepreciatedValue

Chip Seal Roads 8115.6 m $ 40,360

Paved Roads 7276.5 m $ 1,073,163

Gravel Roads 23348.6 m $ 521,314

Total Cash Reimbursement 16998.3 m $ 1,634,837

Total Debenture Transfers 3200 m $ 850,000



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4. Annexation Operating and Capital Impacts A. Operating Impacts on the County

The proposed annexation will affect municipal operation costs for Rocky View County.

According to the Broad Function Expenses from the Alberta Municipal Affairs 2009

Financial Indicators Report, the two primary tax supported operating expenses that will be

impacted by the proposed annexation are transportation and recreation, as shown in Table

8 below. Transportation expenses are based upon the County’s 2010 budget and include

only tax supported expenses, as opposed to improvements funded by grants or levies.

Recreation costs are based on the Airdrie Recreation Agreement paid in 2010. The amounts

provided for the proposed annexation area are per kilometer for transportation costs, and

per capita for recreation costs.

Other tax supported operational expenses, such as general governance, protective services

and environmental costs will not be significantly affected by the proposed annexation and

are therefore not represented in Table 8 below.

Table 8: County Annual Tax Supported Expenses

Countytotal

Proposed Annexation Area

Percent of total

Road Length (StatisticalInformation Return)

2,386 km 53 km 2.21 %

Road Maintenance &Construction (2010Budget)

$ 10 million $ 222,360 2.21 %

Recreation (AirdrieRecreation Agreement -Paid in 2010)

$ 203,496 $ 24,062 11.82 %

Total - $ 246,422 -

Table 8 illustrates the 2010 Annual Tax Supported Expenses for the County, which totals

$246,422 and indicates the amount that Rocky View County will no longer pay in tax

supported operating expenses as a result of the proposed annexation. When compared totax revenue of $502,865 in Table 4, the proposed annexation will have a negative effect of

$256,443 on a yearly tax supported operating cycle. Thus, in the short term, the remainder

of Rocky View County will be required to absorb this shortfall, which amounts to 0.5% of

Rocky View County’s total municipal tax budget of approximately 47 million for 2010.



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B. Operating Impacts on the City

Proposed annexation related staffing increases

In order to be prepared for the planned 2012 annexation, a number of staff position(s)

were approved through the 2011 budget process. These positions were necessary to begin

activities as of January 1 2012 with respect to assessment, taxation, park operations andpublic works. This information is identified in Table 9 below.

Table 9: City staffing costs associated with the proposed Annexation

Budget Year Position FTE Start date

2011 Cost 2012 Cost 2013 Cost

2011 Assessor 0.80 July 1 $ 36,000 $ 74,000 $ 76,000

2011 Taxation Clerk 0.60 Sept. 1 $ 14,000 $ 43,000 $ 44,000

2011 Snow / Ice Control 1.50 Sept. 15 - $ 98,000 $ 100,000

2011 Equipment Operator 2.00 April 1 - $ 146,000 $ 150,0002011 Parks Gardener /

Operator1.00 April 1 - $ 74,000 $ 76,000

2012 Parks Gardener /Operator

1.00 April 1 - $ 55,000 $ 76,000

TOTALS All Positions 6.9 $ 50,000 $ 490,000 $ 522,000

*Staffing costs include salaries, benefits and equipment costs.

It should be noted that 2011 staffing costs for assessment and taxation were includedbecause of their role in annexation transition planning.

Other expenditures

Expenditures over and above those related to the annexation process, have been approved

through the 2011 budget process or planned for the forecasted 2012 and 2013 budgets.

They are identified in Table 10 below. The $3,709 in 2011 is a result of an agreement

between the IANC to provide maintenance for the 1 mile of Range Road 292 within the

proposed annexation area in order to facilitate the upgrade of Range Road 292 in 2012,

which would occur outside of the annexation timeframe.

Table 10: Budgeted expenses associated with proposed Annexation

2011 2012 2013

Roads – gravel $3,709 $ 17,400 $ 17,400

Roads – snow and ice control - $ 41,000 $ 41,000

Roads – perimeter road dust control - $ 20,700 $ 20,700

Roads – guard rail maintenance - $ 5,000 $ 5,000

Total $3,709 $ 84,100 $ 84,100



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Additional tax revenue associated with the proposed annexation

Additional tax revenue will be realized as describe in Table 4. Based on 2010 property tax

requisitions this amount stands at $502,865. This revenue will work towards offsetting the

planned annexation expenditures detailed above.

Net effect of proposed annexation on operations (excluding operating reserve) Excluding the costs associated with the annexation process and taking into account all

remaining variables, the net result of the proposed annexation on operations is identified

in Table 11 below. The net operating cost associated with the proposed annexation

increases to $204,364 in 2013 and is expected to decline rapidly as development begins to

occur in the proposed annexation area. The additional operating costs for 2012 and

subsequent years will be incorporated into future funded operating budgets.

Table 11: Net Operational costs of the proposed Annexation on the City

2011 2012 2013Revenue

Additional tax revenue - $ 502,865 $ 502,865

Expenses

Salaries wages, benefits $ 50,000 $ 490,000 $ 522,000

Roads maintenance – gravel,snow and ice, guard rails etc

$3,709 $ 84,100 $ 84,100

Debt cost - $ 101,129 $ 101,129

Total expenses $ 53,709 $ 675,229 $ 707,229

Net cost $ 53,709 $ 172,364 $ 204,364

Additional governance costs would be required for the City as a result of the annexation,

however governance costs for the County will remain relatively the same, which accounts

for some of the difference in expenses versus savings for the County and City.

C. Capital Impacts on the County

The primary impact of the proposed annexation on the County is on operating expenses

rather than on capital projects. In order to capture capital investments made by the County

between 2006 and 2011 on roads within the proposed annexation area, the IANC agreed toreimbursement as identified in Table 7.

D. Capital Impacts on the City

The City annually prepares a ten-year capital plan for Council consideration. The current

years plan was adopted by City Council as part of the City’s budget process. The plan

assigns current and future projected revenue sources for projects identified in the plan.



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Whenever possible, the City attempts to fund capital projects with grants, developers

contributions, or other sources such as community fundraising where applicable, as part of

its broad capital improvement plan. When such funds are insufficient, the City uses

debenture financing and/or draws on other reserves. Key affordability factors from the

2011-2020 capital planning process are summarized in Table 12.

Table 12: City’s 2011-2020 ten year capital plan debt projections

2011 2012 2013 2014 2015

Provincial Debt Limit

Total debt under limit $ 60.1 M $ 60.5 M $ 72.2 M $ 80.8 M $ 100.2 M

Service on debt under limit $ 14. M $ 14.1 M $ 15.2 M $ 16.6 M $ 19.1 M

Self imposed Debt limit (10%) 6.067 % 6.864 % 7.091 % 6.436 % 5.552 %

Debt per capita – gross $ 1,193 $ 1,427 $ 1,364 $ 1,411 $ 1,343

Debt per capita – tax supported $ 603 $ 825 $ 727 $ 697 $ 614

Capital costs included within 2011 capital budget

The 2011 capital budget included approval to purchase a Fire Services Tender. The tender

is required to move large volumes of water into areas that are not protected by fire

hydrants for structural and wild-land fire fighting. Fire equipment requires plenty of lead

time for delivery. This vehicle will be ordered in 2011 with an expected receiving date in

early 2012. It is expected that sufficient parks and public works machinery and equipment

is available to provide the necessary services to the proposed annexation area.

The budgeted cost for this equipment currently stands at $255,000. It should be noted that while the annexation process was identified as a trigger for the acquisition of this

equipment, it is expected that this equipment will also service the needs of the current City.

Additional capital costs associated with proposed annexation

Table 6 describes the agreed upon reimbursement with respect to this proposed

annexation. Cash reimbursement is expected in the amount of $1,634,838 and is related to

the cost of road improvements undertaken prior to the effective date of annexation. A

transfer of debenture is planned for the Range Road 13 upgrade in 2011. Some capital costs

associated with agricultural services and weed control may also be required that are yet to

be determined. We do not anticipate these costs to be significant and therefore have not included them in this calculation.

Impact of proposed annexation on operating reserves

The cash reimbursement associated with the proposed annexation is projected to be

funded using general operating reserve dollars. The opening general operating reserve

balance at January 1, 2011 is projected at $9,838,106. Of this balance, approximately



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$7MM is considered uncommitted. Payment of the cash reimbursement from this reserve

will bring the uncommitted balance down to $5,361,027. This represents a 23% reduction

in uncommitted operating reserves.

Additional debt associated with proposed annexation

As part of the infrastructure reimbursement agreed to by the IANC and detailed in Table 7,

the City will take on additional debenture payments related to the Range Road 13 upgrades

scheduled for 2011. The amount to be finance totals $850,000. Interest rate on this

debenture is estimated at 3.5% based on a ten year term and rates posted for March 2011

on the ACFA web site. The debenture will become the City’s responsibility in 2012 for a

period of 10 years. Payment of interest and principal are detailed in Table 13 below.

Table 13: Annual Debenture Payments for 2011Range Road 13 Upgrade

2011 2012 2013Debt interest - $ 28,538 $ 26,027

Debt principal - $ 72,592 $ 75,102

Total - $ 101,129 $ 101,129

Impact of proposed annexation on City debt limit

An increase of the City of Airdrie’s debt will occur as a result of the negotiated debenture

transfer for the upgrade of Range Road 13. The City’s 2011-2020 Ten year Capital Plan has

been revised to include the cost of this additional debt. The increase in debt is minimal and

thus will have a minor affect on City of Airdrie debt limits. Self imposed debt percentagesand debt per capita change are identified in Table 14 below. The proposed annexation will

result in a short term increase of approximately 1% in annual debt payments and will

continue to enable the City to remain well within its self-imposed debt limits.

Table 14: Revised Debt Factors for the City that includes proposed annexation related debt

2011 2012 2013 2014 2015

Self imposed Debt limit (10%)

Without proposed Annexation 6.067 % 6.958 % 7.172 % 6.525 % 5.639 %

With proposed Annexation 6.067 % 7.041 % 7.251 % 6.581 % 5.685 %Debt per capita (gross)

Without proposed Annexation $ 1,193 $ 1,427 $ 1,364 $ 1,411 $ 1,343

With proposed Annexation $ 1,193 $ 1,444 $ 1,379 $ 1,423 $ 1,354

Percentage Change% 0 % 1.2 % 1.1 % 0.9 % 0.8 %



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5. Summary

A. Rocky View County

The financial impact of the proposed annexation on Rocky View County will be minimal asit represents less than 2% of its population and dwelling units, 1.3% of its assessment,

2.2% of its roadways and 1.3% of its land area. However, the proposed annexation area

generates $502,865 in municipal tax revenue, which would no longer be available for the

County. At the same time, the County will also experience $246,422 in savings on tax

supported operating expenses. Thus, the annexation will have a negative effect on a yearly

operating cycle that will need to be absorbed by the remainder of the County. However, as

$246,422 represents 0.5% of the approximately 47 million 2010 municipal tax budget for

the County, the affect on the County is minimal.

B. City of Airdrie

The financial impact of the proposed annexation on the City of Airdrie will be minimal as

large portions of the operating costs associated with this proposed annexation are already

budgeted for by the City in 2011. With short term net operating losses peaking in 2013 at

$204,364 the City anticipates that subsequent growth and development in the proposed

annexation area will result in a decrease to this amount. Additionally, the proposed

annexation related impact on long term debt peaks at 1.2% in 2012 and will decrease over

the ten year payment period.

A 23% reduction in uncommitted operating reserves to pay for infrastructure

reimbursement is the only significant financial impact associated with the proposed

annexation on the City of Airdrie. It should be noted that these improvements are attached

to the value of increased life expectancy of roads in the proposed annexation area and

therefore should help lower road maintenance costs for the City had they not been

undertaken by the County.

Documents

Appendix 7: Financial Impact Assessment