DEVELOPMENT CHARGES & ASSET MANAGEMENT: FULFILLING … · 2019. 5. 24. · Case Study –Ottawa: AMP for Transit Services 25 O.Reg. 82/98 Section Comments and Relevant Sections of

DEVELOPMENT CHARGES & ASSET MANAGEMENT:

FULFILLING THE NEW REQUIREMENTS OF THE DCA

Monday, June 12, 2017

Today we will discuss…

• Overview of Development Charges and Asset Management

• Regulatory Context

• Asset Management Requirements under the DCA

• Calculation methodology

• Case Study

1

What Are Development Charges?

• Charges imposed on development to fund “growth-related” capital costs

• Pays for new infrastructure and facilities to maintain service levels

• Principle is “growth pays for growth” so that financial burden is not borne by existing tax/rate payers

2

Overview of the

Development Charges Act (DCA)

• DCs are imposed by by-law

• Maximum life of a DC by-law is 5 years after the day it comes into force

• Prior to passing a by-law, Municipality must:• Undertake a background study

• Hold at least one public meeting

• Appeals adjudicated at the Ontario Municipal Board

3

What is Asset Management?

• It’s not one thing!

• Multidisciplinary exercise– Accounting

– Engineering

– Operations

– Finance

– Planning

– Others

• It’s really about “Service Management”

4

Asset Management Context

5

GROWTH RELATED STUDIES

(DC, GROWTH MGMT.)

WATER & SEWER FULL COST

RECOVERY STUDIES

ROADS MANAGEMENT

STUDY/SOFTWARE

FLEET MANAGEMENT

PROGRAM/SOFTWARE

BUILDING CONDITION

ASSESSMENTS

INSURANCE SCHEDULES

PROVINCIAL SUBMISSIONS

(AMP, FIR, GRANTS)

LONG-RANGE

FINANCIAL PLAN

PERFORMANCE

MEASUREMENTS

SERVICE LEVEL

TRACKING & ANALYSIS

FINANCIAL DOCUMENTS

OTHER

ASSET

MANAGEMENT

OTHER

Asset Management in the News

6

Municipal Asset Management:

Gaining Some Perspective

• AMO estimates the Ontario municipal

infrastructure deficit is at $60 billion

7

From AMO’s Submission to Infrastructure Canada 2012

Regulatory Context in Ontario:

PSAB 3150

• Jan 1, 2009 Public Sector Accounting Board 3150 Requirement

– Mandated accounting for

tangible capital assets

– Involves lifecycle deprecation approach

8


Asset Management Plans

• Dec 31, 2013 Ministry of Infrastructure

Requirement

– Initially covers roads, bridges,water, wastewater & housing

– Used in determination of grants (i.e. Ont. Community Infrastructure Fund & Small Communities Fund)

– Plan must consider condition of assets, desired service levels, mitigation & funding

9


Asset Management Plans (cont.)

• Bill 6: Infrastructure for Jobs and Prosperity

Act

– Demonstrates province’s commitment to long-term asset management planning

– Strategic Asset Management Policies which would specify how AMP would align with other municipal plans

– Advancement in determining asset levels of service

• Common set of service level indicators

10


Asset Management Plans (cont.)

• Dec 31, 2016 AMO Gas Tax Requirement

– Required for all services eligible for Federal Gas Tax grants

– Still to be based on Building Together Guide

– In 2018 outcome report must show AMPs are being used to guide decisions

11


Changes to the DCA• Smart Growth for Our Communities Act, 2015 made amendments

to the DCA and Planning Act

• Focus largely on increased funding for Transit

• No longer subject to 10% reduction

• Based on a “planned” level of service

• Consideration for area rating

• Ineligible services to be prescribed by Regulations

• Waste collection, recycling collection and management, and organic waste collection and management are now eligible

12

Changes to the DCA

• Requiring municipalities to better integrate how

development charges fit with long-term planning,

including local asset management plans.

• DCs payable upon first building permit

• Additional reporting requirements

13

Overarching AM Requirements:

Development Charges Act

14

• Asset Management Plan must be included as part of the DC Background Study

• Deal with all assets whose capital costs are proposed to be funded under the development charge by-law;

• Demonstrate that all the assets mentioned are “financially sustainable” over their full life cycle;

Specific AM Requirements:

Transit Services

• Requirements are much more stringent for Transit services

• Consistent with the Building Together Guide, the DC study must set out:– State of the Local Infrastructure

– Proposed Level of Service

– An Asset Management Strategy

– A Financial Strategy

15

Are All Capital Costs to be

Considered in AMP?

16

• Not all assets considered under a DC

By-law need to be analyzed

Capital Costs Reason and Examples

1. Capital costs covered by other funding sources

Local Services, Separate City-wide or ASDC studies

2. One-time costs Costs which are temporary in nature- Site improvement - Temporary access

3. Not related to infrastructure No maintenance, operation costs and ultimately no replacement - development-related studies- Land acquisition - Recovery of negative reserve fund balance

AMP Calculation

17

• All assets are to be identified in the background study – Identify each capital project and applicability

– Identify the DC recoverable component

– Calculate the annual provision for asset replacement

Represents

grouped cost

of individual

elements

Only related to in-year

share plus legislated

discount

Capital

Project

Description

Estimated

Useful

Life

Gross Costs

2016-2025

DC

Recoverable

AMP

Annual

Provision –

DC Related

AMP Annual

Provision –

Total (incl

DC)

Transit Garage,

Plaza and

Terminal

40 years $83,880,000 $9,768,318 $256,000 $1,957,000

Transit Fleet 14 years $23,000,000 $3,263,650 $251,000 $1,504,000

Technology

Implementation

8 years $14,027,000 $916,257 $115,000 $1,626,000

Total Annual Provision $622,000 $5,087,000

AMP Calculation

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• Total calculated annual provision has been netted down to consider:

– Grants/subsidies – shares for projects which the municipality is not responsible for;

– the replacement of existing infrastructure or benefit-to-existing development;

– infrastructure as it relates to development occurring outside of the respective planning periods; and

– services for which capital assets have been acquired at a greater rate than the level of service provided over the preceding ten-year period.

Demonstrating

“Financially Sustainable”

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• How does the total annual capital requirement fit into the municipality’s corporate asset management plan

• Represent annual need as a

% of total own source revenues

• The calculated annual funding provision should be considered within the context of the municipality’s projected growth

• Development industry expectation is quantifiable tax rate and user rate impacts

Case Study – Ottawa:

AMP for Transit Services

• $3 Billion LRT expansion plan

• City currently amending existing DC by-law to calculate DCs for Transit services under the new requirements of the legislation

20

– Removal of 10% statutory

deduction

– Use of a “planned” level of

service rather then “10-

year historical” average



• Relevant analysis and existing City documents

assisted with addressing the AMP requirements

21

Fiscal Framework

• “Road map” of sustainable finances for the City

• Overarching principles of responsible financial management

Transit Long Range Financial Plan and

Affordability Model

• Long-term operating and capital costs related to transit

• Identified City’s definition of “affordability”

• Tax and user fee implications

Comprehensive Asset Management Plan

• State of local infrastructure

• Assets used to deliver Transit services

State of Assets Report

• State of local infrastructure

• Useful life assumptions

• Inventory of assets



• The City’s Long Range Financial Plan (LRFP) for Transit was informed by an Affordability Model

• Key assumptions of the model included:

– Integrated full range of capital, operating and life-cycle costs

– 32-year planning horizon to 2048

– Forecasts revenue – fare and tax increases to align with increases in transit costs

– Incorporated anticipated government funding (i.e. gas tax contributions)

– Ridership analysis and relationship to revenue

– Debenture assumptions where capital costs exceed the amount of funds available from other revenue sources

22



• The City’s LRFP and Affordability Model concluded that the system was “financially sustainable” based on the following assumptions:

– Transit taxes and transit fares will increase at the same rate as transit costs at 2.5%

– Contributions of two-thirds funding from other levels of government for LRT and BRT projects

– Interest rates remain below 6%

23


AMP for Transit Services• A “checklist” was

included in the DC Study to demonstrate how the AMP requirements had been addressed

– Identified relevant “section of the legislation

– Provided comments on the relevant section of the DC Background Study and how the requirement was addressed

24



25

O.Reg. 82/98 Section Comments and Relevant Sections of this

Development Charges Background Study

1. The calculations that were used to prepare the

estimate for the planned level of service for the

transit services, as mentioned in subsection 5.2 (3)

of the Act.

Appendix C provides details on this calculation.

The City’s transit planned level of service is the

provision of a higher order transit system (bus

and light rail transit), integrated with the

existing, which is to be expanded, as well as a

bus transit system for the residents and

businesses of the City of Ottawa.

2. An identification of the portion of the total

estimated capital cost relating to the transit services

that would benefit,

i. the anticipated development over the 10-year

period immediately following the preparation of the

background study, or

ii. the anticipated development after the 10-year


background study.

Appendix A provides details on the anticipated

development over the 10-year planning period.

Appendix B provides details as it relates to

transit ridership over the 10-year planning

period.

3. An identification of the anticipated excess

capacity that would exist at the end of the 10-year


background study.

Appendix B provides details on the excess

capacity calculation.

The analysis arising from the ridership forecast

is applied to the Transit development charge

calculations is contained in Appendix C. 4. An assessment of ridership forecasts for all modes

of transit services proposed to be funded by the

development charge over the 10-year period

immediately following the preparation of the

background study, categorized by development

types, and whether the forecasted ridership will be

from existing or planned development.

5. An assessment of the ridership capacity for all

modes of transit services proposed to be funded by

the development charge over the 10-year period

immediately following the preparation of the

background study. O. Reg. 428/15, s. 4.

Appendix B provides details on the ridership

capacity calculation.

• O.Reg. 82/98 Transit DC Requirements

– Background Study example



• Lessons learned in Ottawa…

– Transit AMP was strengthened through relevant documents including the City’s Corporate Asset Management Plan and other financial analysis

– City’s LRFP and Affordability Model identified key assumptions to demonstrate the “financial sustainability” of assets

– “AMP Checklist” provided transparency and ease of reference to key documents and assumptions

26

Questions?

Craig Binning, Hemson Consulting

Andrew Mirabella, Hemson Consulting

27

Documents

DEVELOPMENT CHARGES & ASSET MANAGEMENT: FULFILLING … · 2019. 5. 24. · Case Study –Ottawa: AMP for Transit Services 25 O.Reg. 82/98 Section Comments and Relevant Sections of