HomeMy WebLinkAboutFIN-05-043 - Capital Forecast 2006-2015
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KITCHENER
Financial Services
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Report To:
Date of Meeting:
Submitted By:
Prepared By:
Ward(s) Involved:
Date of Report:
Report No.:
Subject:
Councillor B. Vrbanovic, Chair, and Members of
the Finance and Corporate Services Committee
December 12, 2005
Pauline Houston, General Manager of Financial Services & Treasurer
Dan Chapman, Director of Financial Planning & Reporting (2347)
All
November 23, 2005
FIN-05-043
RECOMMENDATION:
Capital Forecast 2006 - 2015
THAT the 2006 - 2015 Capital Forecast be approved in principle, subject to final budget
deliberations on January 30, 2006;
THAT the Gas Capital Investment Reserve Fund be established subject to the following
guidelines:
The fund shall finance capital projects as approved by Council from time to time;
The fund shall be funded by annual net profit generated by the Gas Utility in excess of
50% of the previous year's net profit after capital expenditure; and
All allocations shall be based on a five-year plan to ensure sustainability of the fund.
AND FURTHER THAT the Business Parks Reserve Fund be established subject to the
following guidelines:
The fund shall finance Business Park capital projects as approved by Council from time
to time; and
The fund shall be funded by capital budget contributions as well as surplus capital
balances remaining at the close-out of a business park project.
BACKGROUND:
On Monday, December 12, 2005 the Finance and Corporate Services Committee will review the
2006 - 2015 Capital Forecast. This report and related attachments provide Capital Forecast
detail as well as a discussion of the implications of a projected deficit in the Development
Charges Reserve Fund. Additionally, this report proposes the creation of two new Reserve
Funds, one for Gas Capital Investment and the other for City-owned Business Parks, in
response to opportunities identified during the administrative budget review process.
REPORT:
Caoital Forecast
Staff is pleased to present the 2006 - 2015 Capital Forecast for Committee consideration. The
Forecast is balanced, which means that there is no shortfall of funding over the 10-year time
horizon. In order to facilitate review by Committee members, the following documents have
been provided with this report:
· A line-by-line listing of all projects currently in the Capital Forecast (white). The items
are sorted by Department and Division within each Department. The staff presentation
on December 12 will focus on the highlights in each area.
· A list identifying the changes to the original Departmental submissions that are being
recommended by the Administration (yellow).
· A printed copy of the Presentation that will be given on December 12 (green).
Binders have been provided to Council members to accommodate this material and future
documents for the Operating Budget review to be held on January 16, 2006.
Proiected Deficits in the Develooment Charaes Reserve Fund
The proposed timing and costing of growth-related projects is forecast to result in deficits in the
Development Charges (DC) Reserve Fund. While these deficits are projected to be eliminated
by the end of the ten and twenty-year planning periods for non-engineering and engineering
services respectively, they will create a cash flow problem within the Reserve Fund. This was
anticipated at the time of completing the DC Study.
The following table summarizes the projected balances in the Development Charges Reserve
Fund until 2013 (in $ OOO's):
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
(Act.) (Proj.)
Eng 4,553 6,230 992 (2,181 ) (13,708) (17,326) (23,343) (25,389) (24,254) (20,915)
Non- 939 847 (404) (10,651) (16,666) (11,420) (9,128) (6,533) (3,367) 264
Eng
Total 5,492 7,077 588 (12,832) (30,374) (28,746) (32,471 ) (31,922) (27,621) (20,651 )
DC 5,227 1,202 (12,302) (15,892) (25,862) (28,121 ) (38,194) (35,746) (29,492) (23,849)
Study
To fund a deficit, the City would issue debt within the Reserve Fund either through an internal
borrowing or a Regional debenture issue. The City has traditionally avoided incurring a deficit in
the Reserve Fund because of the uncertainty inherent in the growth forecast. If actual growth
does not occur at least at the rate identified in the DC Study, DC revenues would be insufficient
to provide for the debt service requirements. As a result, the general levy or future DC
revenues would be used to make up the shortfall.
If this risk is considered unacceptable to Council, a deferral or reduction in the scope and/or
cost of existing projects would be necessary to avoid incurring a deficit in the Reserve Fund.
Prooosal to Establish Reserve Funds
Gas Capital Investment Reserve Fund
During the 2005 budget process, Council endorsed a proposal to streamline the funding of City
capital from Gasworks and the Hydro Capital Investment Reserve Fund. Instead of transferring
allocations from Gasworks and the Hydro Reserve through the Tax Stabilization Reserve Fund,
into the operating budget and then into capital, it was agreed that all transfers would be made
directly into the capital pool.
The existence of the Hydro Capital Investment Reserve Fund permits a steady allocation of
funding to the capital budget because it provides flexibility in the timing of transfers and
accommodates fluctuations in revenues. If the City is in receipt of funding from Kitchener Power
Corporation in excess of that required for the capital budget, it is retained within the Reserve for
future capital. Conversely, if funding from Kitchener Power Corporation declines in a given
year, funds would be available within the Reserve to mitigate the impact and phase it in over
time.
Staff is proposing that a similar Investment Reserve Fund be established for City capital
contributions from the Gasworks. This would permit the transfer of funds from Gasworks to the
Reserve based on the amount calculated to be available after the target level of surplus is
retained within the Enterprise.1 In turn, this would permit a transfer from the Reserve to City
capital of the amount identified in the capital forecast. Similar to the Hydro Capital Investment
Reserve Fund, the Gas Capital Investment Reserve Fund would provide a contingency in the
event that contributions from Gasworks are greater or less than the amount identified in the
Capital Forecast and would lead to a steady allocation for City capital on an annual basis. The
purpose of the Reserve Fund would be as follows:
The fund shall finance capital projects as approved by Council from time to time;
The fund shall be funded by annual net profit generated by the Gas Utility in excess of
50% of the previous year's net profit after capital expenditure; and
All allocations shall be based on a five-year plan to ensure sustainability of the fund.
Business Parks Reserve Fund
During administrative review of the Capital Forecast it was observed that the surplus funds are
likely to be available upon the conclusion of certain existing Business Parks projects. Staff is
proposing the creation of a Business Parks Reserve Fund to serve as a funding vehicle for
future Business Park projects. Similar Reserve Funds have been in use in other jurisdictions for
some time.
The purpose of the Reserve Fund would be as follows:
The fund shall finance Business Park capital projects as approved by Council from time
to time; and
The fund shall be funded by capital budget contributions as well as surplus capital
balances remaining at the close-out of a business park project.
1 Under existing policy, the Gasworks retains 50% of the previous year's net profit after capital
expenditure
FINANCIAL IMPLICATIONS:
As discussed above
COMMUNICATIONS:
Notice of all budget meetings and an invitation for public input has been placed on the City
website. Additionally, the K-W Home Builders Association has been provided with a draft copy
of the Forecast.
CONCLUSION:
Staff recommends that Council approve the Capital Forecast in principle and that a Gas Capital
Investment Reserve Fund and Business Parks Reserve Fund be created to improve the funding
structure for capital projects.
ATTACHMENTS:
· Capital Forecast (white)
· Changes to the Departmental Submissions Recommended by Administration (yellow)
· Presentation for December 12 (green)
Pauline Houston, CA
General Manager of Financial
Services & City Treasurer
Dan Chapman, CA
Director of Financial Planning
& Reporting
c.c. J. Grant
S. Lewis
Financial Planning & Reporting Division