HomeMy WebLinkAboutDTS-06-169 - Joseph & Gaukel St Project Updates
)
Report To:
Date of Meeting:
Submitted By:
Mayor and Members of Council
Prepared By:
February 5, 2007
Rob Browning, General Manager, Development and Technical
Services
Pauline Houston, General Manager of Financial Services and
City Treasurer
James Witmer, Director of Building and Environmental
Remediation
Dan Chapman, Director of Financial Planning and Reporting
Larry Lynch, Manager of Engineering Infrastructure
Ward 1
Ward(s) Involved:
Date of Report:
Report No.:
Subject:
January 30, 2007
DTS-06-169
JOSEPH AND GAUKEL STREET PROJECT UPDATES
RECOMMENDATION:
1. THAT the over expenditure of $903,016 for Phases 1 and 2 of the Joseph/Gaukel project and
$11 ,378,655 for Phases 3 and 4 of the Joseph/Gaukel project, for a total of $12,281 ,671 be
approved;
2. THAT the overexpenditure be funded as follows:
Gas current operations
Future land sale
Move Ontario grant funding
$ 8,844,743
$ 2,000,000
$ 1.436.928
$12,281 ,671
3. THAT the transfer from the Gas Utility to the Gas Capital Investment Reserve Fund be reduced
by $8,844,743 in 2007;
4. THAT a transfer in the amount of $6.1 million be made from the Tax Stabilization Reserve
Fund to the Gas Capital Investment Reserve Fund in 2007;
5. THAT the projected expenditures out of the Gas Capital Investment Reserve Fund be reduced
by $1.5 million in 2007 and the following adjustments be made to the 2007-2016 capital forecast:
Reduce Road Reconstruction budget
Reduce Road Resurfacing budget
Defer Ward's Pond works to 2009/2010
$ 120,000
$ 780,000
$ 600.000
$ 1,500,000
And further;
6. That the Mayor and CAO be directed to immediately engage senior levels of government to
investigate potential funding for the environmental clean up of 44 Gaukel Street and other future
remediation projects.
EXECUTIVE SUMMARY:
Over the past two years, the City has been involved in a large and complex project in the
Joseph/Gaukel/Richmond Street area of downtown Kitchener.
The work, which is occurring in four phases, includes: a significant amount of road reconstruction;
streetscaping and landscaping including a new entrance feature to Kitchener's historic Victoria Park;
utility upgrades including underground hydro, gas relocations and pedestrian lighting; environmental
remediation including the clean up of coal tar contamination at 44 Gaukel Street, the former Canada Post
site as well as adjacent road allowances and a required environmental risk assessment.
This report provides an update on the progress on each of the phases of the project and includes staff
recommendations for the financing of Phase 3 and 4 of the project - the environmental remediation of the
44 Gaukel Street site - as well as for financing the shortfall on Phases 1 and 2 of the project.
The following is an update on the status of each of the first three phases.
Phase 1: Reconstruction of JoseDh Street from Victoria to Water Street: and Francis Street from
JoseDh Street to Charles Street.
Status: This phase is almost complete.
Cost: This phase was completed within the tendered budget amounts. The original tendered amount for
the reconstruction work was $2,201 ,899. Additional costs, totalling $544,368, for other project work that
wasn't included in the original tender - including transfer of overhead hydro to underground; water service
upgrades from the Lang property; surface asphalt and streetlighting - bring the total cost for this phase to
$2,746,267.
Phase 2: Reconstruction of JoseDh Street from Water to Queen" Gaukel Street Richmond Street
and the new Victoria Park entrance.
Status: This phase of the project is 60 per cent complete.
Cost: Costs associated with the completion of road reconstruction and the new entrance feature in this
phase are projected to be $8,592,916 plus $4,269,629 for environmental remediation work. Included in
the road reconstruction total are additional costs of 2,033,883 for other project work that wasn't included
in the original tender - for items including engineering and consulting fees; transferring overhead hydro to
underground; added costs for temporary hydro relocations due to work done on private property and the
cost of a new Bell Duct - bring the total estimated cost of completion for this phase to $12,862,545.
Timeline: Work on this phase was stopped in December due to the onset of winter. Construction is
expected to recommence on the streetscape portion of this work beginning in early April with a projected
completion date of late July 2007.
Phase 3: Environmental Remediation of 44 Gaukel Street former Canada Post site.
Status: Work on this phase has not begun. A report which includes a staff recommendation for the tender
for this phase is also before Council this evening.
Cost: The cost for this phase was originally estimated at $4.86 million, as was reported to Council by staff
in March 2006, however because of significant additional and unexpected environmental remediation
work required and the resulting cost of disposal of both greater quantities of contamination and larger
volumes of contaminated soils classified as hazardous which will require special handling, the final cost
projection for Phase 3 is now $12,938,655 - a difference of $8,078,655.
Timeline: It is anticipated that the Phase 3 work will be completed by December 31 , 2007.
Phase 4: Reauired Environmental Risk Assessment
Status: This final phase of the project, will address any remnant contamination from the site and adjacent
road allowances, has not yet begun.
Cost: $1.2 million
Timeline: It is anticipated that the required risk assessment will be completed by December 31 , 2008.
REPORT:
Historically, manufactured gas once turned the city's factory gears and lit the homes of its workers at
night. The gas came from a process by which coal was cooked in gasification plants like the City-owned
one that once stood at the corner of Gaukel and Joseph Streets in downtown Kitchener.
Like so many other wastes of an industrial age that lingered too long, the coal tar left behind as a
byproduct of the process was buried and forgotten - as was the traditional practice in many industrial
towns and cities across the province (including Waterloo, Cambridge, Woodstock and Kingston). A study
done in the mid-1980s for the provincial government estimated that there were at least 41 sites in 36
communities.
In the past, people paved over the historic coal tar problem, not realizing the implications of their actions
for the future. Today, the City of Kitchener is addressing coal tar contamination because we must. We
consider it our moral responsibility to address this issue due not only to our historic connection to the
gasification plant itself, but to our moral obligation to citizens to ensure them a healthy environment for
today, and into the future.
Environmental remediation is expensive but necessary if we are to be good community leaders with the
best interests of ou r citizens at heart.
One of the reasons that environmental remediation is so expensive is because it is also so unpredictable.
It is literally impossible to know the depth and extent of contamination under the surface of the soil until
the ground is opened up. The installation of two-inch diameter boreholes - the standard exploratory
method for testing for soil contamination - only provides information about what's under the soil in the
exact location of that hole.
In order to be more precise as to what is really below the surface, test pits can provide a more complete
picture of environmental, geologic and hydrogeologic conditions that would be encountered during
remediation. However, this type of investigation is not always possible due to space constraints, access
to the site or safety and operational considerations (Le. disruption of business operations on the
property.) In this case, test pits could not be dug any sooner in the process - in fact, not until such time as
we acquired the property, since we did not have permission for testing from the property owner.
This is not the first time that the City has faced the challenge of added cost due to the inability to
accurately predict the extent of contamination that lies below the soil's surface. Nor is this likely to be the
last project where unexpected environmental remediation costs are an issue. With our city's rich industrial
heritage, undoubtedly, this is a challenge we will continue to face on future projects.
The coal tar contamination on the Gaukellands just happens to be at the fore today.
That the coal tar contamination existed in the Joseph and Gaukel area where the city's coal gasification
plant once stood, is no great surprise. However, without a definitive method to determine the extent of the
contamination, surprises have plagued the various phases of this project. Twice in the life of the overall
project so far, the coal tar contamination has been found to be more extensive than originally thought.
The most recent discovery of more extensive coal tar contamination relates directly to Phase 3 of this
project. Phase 3, which involves the remediation of 44 Gaukel Street - represents the most complicated
component of the environmental remediation work on the overall project. This phase includes the
excavation, removal and disposal of contaminated material from all areas of the site (with the exception of
the footprint of the former Canada Post building itself).
Original estimates of the amount of impacted soil on the 44 Gaukel site were based on a significant
number of consultant reports and testing that was done between 1986 and 2004. All of the previous
testing on the site, which included more than 148 test boreholes in various areas, was done by
experienced local consulting firms.
The accumulated (1986-2004) borehole tests and subsequent reports identified that the depth of the coal
tar contamination on and around the 44 Gaukel Street site was located between 2 metres and 5.5 metres
below the surface of the soil. (See Borehole Map, Appendix A)
From 2004 until July 2006, City staff and consultants were precluded from entering 44 Gaukel Street to
do any further testing due to ongoing litigation.
In 2004, in advance of the road reconstruction projects and Victoria Park entrance project, staff retained
the services of Frontline Environmental Management to prepare estimates for the coal tar remediation
portion of the project. In preparing their estimates, they reviewed all of the consultant reports and studies
done on the property between 1986 and 2004 and found the work to be comprehensive. They were able
to determine that there were exceedances of the MOE standards in soil and groundwater that would
require remediation and recommended further testing.
Without permission to do further testing on the site, Frontline used the extensive information available in
previous reports and concluded that there was approximately 35,700 tonnes of coal tar contaminated
soils on the Canada Post site, excluding the area underneath the building, and 20,000 tonnes within the
right-of-way on Joseph and Gaukel Streets. None of the previous testing on the site between 1989 and
2004 had confirmed that any of the impacted soil would be considered hazardous, however because (as
noted earlier) borehole testing can be unreliable, an allowance of 1 ,500 tonnes of hazardous waste was
included in the estimate in the event that it was encountered.
In May 2006, shortly after construction commenced within the Joseph Street right-of-way, coal tar
impacted soils were discovered at seven metres below the ground surface contrary to the anticipated
depths of 2-5.5 metres indicated previously through the existing data. Staff immediately questioned the
available data, however they were still unable to get on the site to do any further testing to determine if
the contamination could be found at similar depths on the 44 Gaukel site.
In July 2006, following the mediated resolution of the litigation and the City's acquisition of the site, staff
could access the site for the first time. Knowing that coal tar contamination had been found in the Joseph
Street right-of-way at a much deeper level than found in any previous testing, City staff knew further
testing on 44 Gaukel was required to either confirm or deny that the contamination there went deeper
than was originally anticipated.
To enable staff to make an informed decision about how much hazardous vs. non-hazardous materials
were on the site - the City's consultant began a test pitting program. (Hazardous materials require special
handling to reduce adverse effects to human health and the environment.)
In December 2006 with 16 test pits complete, it was confirmed that there was far more contamination on
the 44 Gaukel site than originally estimated. The test pits showed that there were approximately 20,000
tonnes of hazardous soils vs. 60,000 tonnes of non-hazardous soils.
The following chart puts the original estimated hazardous and non-hazardous soils in context with the
actual tonnage of each.
Year Hazardous Soils Non-Hazardous Soils
2004 1 ,500 tonnes 35,700 tonnes
2006 20,000 tonnes 60,000 tonnes
It should be noted too that in 2000, changes to the Ministry of the Environment's criteria for "hazardous"
and "non-hazardous" soils significantly impacted what then had to be classified as hazardous and non-
hazardous soils which, in turn, significantly impacted the cost of disposing of the materials.
The cost of disposing of hazardous soils is approximately three times the cost of the disposal of non-
hazardous impacted soils. For example, the City received six bids for Phase 3 of this project. Based on
an analysis of the bids, the average price for the cost of the disposal of hazardous soils was $156 per
tonne, while the average price of the disposal of non-hazardous soils was $48.50 per tonne.
There are a variety of landfill sites within Ontario that are licensed to accept non-hazardous materials. In
investigating the options for disposal sites and costs for the non-hazardous soil, staff were able to
determine cost efficiencies in using an Ontario landfill location within close proximity hauling distance
(though not within Waterloo Region).
However, there are fewer landfill facilities within the province that are licensed to accept the soil classified
as hazardous. Additionally, landfills capable of accepting the hazardous soil within Ontario have higher
disposal costs. In evaluating all of the options for the disposal of the hazardous soils, a Quebec landfill
site was identified as the best option because of its cost effectiveness, its ability to safely and efficiently
dispose of the material and capacity to accept the material stream within the tight schedule set out in the
project.
A portion of the Quebec landfill has been reserved - at a significant cost savings as compared to what
any Ontario landfill sites could offer - to accept the hazardous materials from the 44 Gaukel site. It is
important that this project proceed in a timely manner in order to for the City to be able to take advantage
of the cost efficiencies this landfill can offer. The risk if we delay this project further is that the reserved
space in the Quebec landfill will potentially no longer be available and the City would have to find another
site likely at a considerably higher cost.
Simply put, the longer the City delays this project, the more expensive it could be. Additionally, delays
mean that precious time during the cold weather months - when work needs to occur to keep the odours
caused by the contamination down - is being lost.
FINANCIAL IMPLICATIONS:
The projected shortfall in funding on the Joseph/Gaukel project is comprised of the following:
$ 903,016
$ 11.378.655
$12,281 ,671 *
* ($9,372,380 in increased environmental remediation costs)
Phases 1 and 2 (within road right of way)
Phases 3 and 4 (Canada Post site)
Staff has identified two main funding options, should Council authorize the over expenditure of funds to
complete the works. Given that the contamination has arisen as a result of the City's historic coal
gasification processes on the Canada Post site, it would be appropriate for the Gas Utility to fund the cost
of environmental remediation. The existing budget for phase 3 and 4 as well as portion of phases 1 and 2
have been funded through the Gas Utility consistent with this philosophy.
Option 1 - Debt financing
Under this option, the shortfall would be funded as follows:
Debt funding within the Gas Utility
Future land sale
Move Ontario grant funding
$ 8,844,743
$ 2,000,000
$ 1.436.928
$12,281 ,671
The three funding components of this recommendation are outlined below:
1. Debt funding within the Gas Utility - A debt issuance in the amount of $8.84 million would
result in annual principal and interest payments of approximately $1.1 million commencing in
2008, for a ten-year period. In the event that the works are not eligible for debt financing either
through a Regional debenture issue or the FCM Green Municipal Funds program, the City could
consider debenture-financing the other Gas Utility infrastructure works in 2007 and 2008 to create
capacity to fund the costs of remediation. This option would reduce the annual net operating
surplus of the Gas Utility by approximately $1.1 million annually, being the annual debt service
cost, for a ten-year period. This would reduce the balance available for transfer to the Gas
Capital Investment Reserve Fund in the future, which would necessitate the deferral of some
works or the introduction of new funding sources. It is assumed that the debt service costs would
not result in a rate increase in the Utility given that delivery rates are set consistent with Union
Gas rates.
2. Future land sale - At the time of preparing the 2006 budget for phase 3 of the project, $1.8
million was included in the estimate for future land sales. Staff has removed this potential
recovery from the projection given uncertainty around the future use of the site, which has
increased the projected funding shortfall. Council could consider building a land sale recovery
into the projections, to reduce the shortfall. $2 million has been included above.
3. Move Ontario grant funding - In its 2006 budget, the Provincial government introduced "Move
Ontario" a $1.2 billion investment in roads and bridges. Included in the program was a one-time
allocation to the City of Kitchener of $4,045,704. As of this date, $1,436,928 remains
unallocated. Staff recommends that this funding be utilized on the project given that this project
is a high priority for the City of Kitchener. This funding will be notionally allocated to the Phase 1
and phase 2 components of the project - being the road reconstruction portion - which is
consistent with the intent of the Move Ontario grant.
Option 2 - Fund through current operations (preferred)
Should Council prefer to avoid a debt issuance to fund the works, the following debt-free option exists:
Reduce transfer to Gas Capital Investment R.F. in 2007
Future land sale
Move Ontario grant funding
$ 8,844,743
$ 2,000,000
$ 1.436.928
$12,281 ,671
The only change from option 1 is that, instead of issuing debt in 2007, the Gas Utility would fund the
remediation costs out of current operations and reduce the transfer to the City's Gas Capital Investment
Reserve Fund by the same amount in order to avoid incurring a deficit for the year. This would maintain a
year-end operating surplus in the Gas Utility consistent with Council policy, avoid debt and not impact
Gas user rates.
A reduction in the transfer to the Gas Capital Investment Reserve Fund will reduce the balance available
to fund works through the Capital Pool (c/c). As a result, staff recommends that the projected shortfall in
c/c funding be offset by a partial reduction of c/c works in 2007 and by increases in other revenue
sources, as follows:
Transfer from Tax Stabilization Reserve Fund
Reduce Road Reconstruction budget
Reduce Road Resurfacing budget
Defer Ward's Pond works to 2009/2010
$ 6,100,000
$ 120,000
$ 780,000
$ 600.000
$ 7,600,000
An adjustment in the amount of $7.6 million maintains a positive projection within the Gas Capital
Investment Reserve Fund over the five-year period. These adjustments are discussed in further detail
below:
1. Tax Stabilization Reserve Fund - The balance in the Tax Stabilization Reserve Fund is
projected to be $13.4 million for 2006. A transfer would be consistent with the intent of the fund,
specifically to fund "extraordinary type expenditures arising from time to time", a transfer to fund
the capital shortfall will have a significant impact on the fund balance but it is anticipated that this
level of expenditure can be accommodated at this time, based on current projections.
2. Defer works funded through the capital pool - Staff have identified the following options for
potential reduction in 2007:
a. The annual road reconstruction and resurfacing contracts have not yet been let. The
reductions proposed above represent 31 % of the total program in 2007.
b. Engineering for the Ward's Pond works will be completed in 2007. Deferral of the works
will result in construction between 2008 and 2010 which is the limit for Environmental
Assessment approval for the project.
Staff recommends this option as it provides funding for the works through current operations and does not
necessitate the issuance of long-term debt. However, it should be noted that a reduction of the balance
in the Tax Stabilization Reserve Fund will limit the City's future flexibility to fund other extraordinary
expenditures or mitigate tax rate increases.
Other Options
The following other options were considered but discounted as being infeasible for the reasons identified:
1. Economic Development Investment Fund - Council could consider funding all or part of the
remediation cost through the Economic Development Investment Fund (EDIF). The Fund
currently is projecting an allocated/uncommitted balance of $18.1 million at the end of 2013 and
an unallocated/uncommitted balance of $6.0 million. In view of other forthcoming proposals with
respect to a new Environmental Fund or the reallocation of EDIF works to other priorities such as
parking structure development, staff does not support this approach at this time. In addition, this
use would seem inconsistent with the intent of the fund.
2. Monetization of Investment in Kitchener Power Corporation / Kitchener Wilmot Hydro Inc.
- The City of Kitchener holds $61.2 million of common shares in Kitchener Power Corporation
and $71.0 million of long-term notes receivable in Kitchener Wilmot Hydro Inc. The City could
consider the monetization of part of this investment to fund the shortfall in project funding. Some
other municipalities have monetized part or all of the investment in notes receivable to fund
capital works. This is not recommended as the City currently enjoys an interest rate of 60/0 on the
senior notes which is higher than the current debenture rate, and the common shares confer
community ownership in the electrical utility.
3. Hydro Capital Investment Reserve Fund - The balance in the Hydro Capital Investment
Reserve Fund is projected to be $2.3 million at the end of 2006. $1.6 million has been earmarked
to fund the increased costs associated with the Twin Pad. A further $0.6 million is recommended
to fund the Laurel Creek embankment emergency works. The remaining projected balance of
$0.1 million is insufficient to address the funding shortfall on this project.
CONCLUSION:
The overall project (all four phases) will cost $29,747,467 to complete. Sixty-two per cent of the total cost
- or $18,408,796 - is required to fund much more extensive environmental remediation measures than
were originally anticipated for the site. The following chart indicates the environmental remediation costs
of each phase of the project vs. the cost of infrastructure.
Adjusted
Budget
Revised
Projection
Variance
Phase 1
Road Reconstruction - Joseph
(Victoria to Water)
Environmental
2,702,023
o
2,746,267
o
44,244
o
Phase 2
Road Reconstruction
( Joseph/Gaukel/Richmond/
Victoria Park Entrance)
Environmental
7,827,869
8,592,916
765,047
4,175,904
4,269,629
93,725
Phase 3
44 Gaukel St. Environmental
4,860,000
12,938,655
8,078,655
Phase 4
Environmental Risk Assessment
o
1 ,200,000
1 ,200,000
Total 19,565,796 29,747,467 10,181,671
Total Reconstruction 10,529,892 11 ,339,183 809,291
Total Environmental 9,035,904 18,408,284 9,372,380
19,565,796 29,747,467 10,181,671
Total funding 19,565,796 17,465,796 2,100,000
Funding Required 12,281 ,671
Note: adjusted budget as per Staff
Report DTS 06-046 March 2006
Cities and towns across the province have come to a day of reckoning where coal tar contamination is
concerned. In the past, without giving much thought to future environmental implications, people simply
paved over the coal tar in the ground and forgot about it. Today, it is imperative that we face, head on, the
challenges that these decisions of the past have created. In Kitchener, we consider it our moral
responsibility to address this issue due not only to our historic connection to the gasification plant that
once stood at the corner of Joseph and Gaukel Streets, but more importantly, because it is also our moral
obligation to ensure citizens a healthy environment for today, and into the future.
Rob Browning, General Manager of Development and Technical Services
Pauline Houston, General Manager of Financial Services and City Treasurer
James Witmer, Director of Building and Environmental Remediation
Dan Chapman, Director of Financial Planning and Reporting
Larry Lynch, Manager of Engineering Infrastructure