2018-2022 Financial Plan

APPENDIX C: INFRASTRUCTURE FUNDING STRATEGY

Our strategy now is to wait until we have collected the revenues before we do the work, but we may want to consider debt to fund the projects now.

How are DCCs Calculated? 1) The numbers of potential development units are

I have been asked to look into debt financing for DCC projects, so have prepared some projections based on information to date. Since debt financing would lock us into making payments for a period of time, it is prudent to identify some of the risk factors and limitations with the projection model. Projecting DCC revenue requires estimating the amounts, types and locations of development. The District charges different rates for single family, multi- family, downtown apartment and outside-of-downtown apartment, institutional, industrial, downtown commercial and outside-of-downtown commercial. A revenue projection involves estimating future numbers of units in these categories, then applying either the old DCC rate (if an application is in progress) or the new 2006 rate. We have used historical figures plus the projections found in several consulting reports supporting the proposed OCP to come up with future DCC revenue. Given that a future shift towards higher density residential development is likely to occur, I have built this into the projections, but it is difficult to determine whether this shift will have a significant impact on our revenue and whether that will happen within the five- year projection window or not. Also, internal interest earnings and sinking fund earnings on MFA debt may be less than anticipated The capital expenditures assumed to occur over the 2006-2010 period are based on the current Financial Plan adopted in May 2006. The project costs have been escalated according to engineering estimates, but the capital works program has not yet been reconciled by engineering. This process will occur through this year’s business planning cycle.

quantified to build-out in 2021, by development type (single family, townhouse, apartment, commercial, etc.) 2) Projects required to accommo- date growth to build-out are identified and costs are esti- mated (portion of cost may be borne by existing population) and allocated to land use types. 3) Rates are calculated that, when multiplied by the estimated development units, should achieve the revenue necessary to pay for the projects. As projects are completed and units are developed, remaining (or additional) projects costs must be covered by remaining development units, making regular review of project costs and growth estimates important. As fewer and fewer development units remain, any changes will have a greater impact on the rates.

Consideration must also be given to whether we have the internal capacity to implement the projects. In the past it hasn’t necessarily been a shortage of cash that has prevented certain works from proceeding, but a shortage in project management capacity to adequately oversee the projects to completion. An evaluation of this capacity should be done prior to any decision to borrow, with possibly consideration of outside resourcing if necessary, which will have an impact on the project cost. Since the model is used to evaluate the possibility of debt financing, I have used a conservative approach for projecting revenue to ensure we don’t lock ourselves into debt payments we can’t afford. The model is found in Appendix 2 and illustrates a capacity to borrow $4.5M over 5 years for roads projects, $1M in sewer and $1.5M in drainage. Parks spending is likely to be tapped out with the projects anticipated in the 2006-2010 program.

Oct.30, 2006: The model in Appendices 2 and 2A reflected the 2006-2010 Capital Works Program adopted by Council. The model has been revised to illustrate the impact of the draft 2007-2011 Capital Works Program on the DCC Fund and Appendices 3 and 3A have been appended to this report to illustrate the updated information. The heavier utilization of debt financing in the proposed plan will reduce the flexibility and capacity of the Capital Works Program in future years. Adherence to the guidelines outlined in Appendix 4 is recommended.

It must be noted that legislation on using DCCs for interest payments is very stringent, primarily allowing the practice for greenfield development where services are to be provided prior to collections of DCCs in an area. This is typically not our practice, as we have adopted a pay-as-you-go philosophy. Furthermore, the bulk of borrowing capacity exists in the roads component and these projects are generally held off until the tail-end of development activity to allow for underground construction in advance of completing roads. For these reasons, using debt for DCC projects will be of limited use.

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