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KA- ReportLIjL^^ON Committee of Councilbrampton.co hOWei lliy Committee ofthe Council ofThe Corporation of the City of Brampton

COMMITTEE OF COUNrilDate: February 21 2014 DATB:J^K^SLFile: F 5

Subject: CapitalProject Financial Review- StatusReportContact: Bonnie Eskelson, Project Lead, Capital Program Financing(905-874-2253)Overv iew:

The City's Capital Fund, representing approved but unspent capital financing,currently stands at $766 million. In-depth review of the approximately 670 open capital projects (pre-2014) has to dateidentified 169 that can be closed or the funding balance reduced, with $62 millionreturned to source for future re-allocation to other projects. Review continues with the goal of identifying additional opportunities for re-allocationof funds where priorities may have changed and/or facilitating management decisionson alternative delivery mechanisms. Related policies and procedures are being revised to improve control of capitalfunding, and enhanced project and financial reporting is being implemented.

Recommenda t i on s :

1. TH T the report from Bonnie Eskelson, Project Lead, Capital ProgramFinancing, Corporate Services Department, dated February 21, 2014, to theCommittee of Council Meeting of March 5, 2014, re: Capital Project FinancialReview - Status Report be received.

Background:In conjunction with the recently completed 2014 budget process, review of the City'sfinancial resources revealed that unspent financing in the Capital Fund had reachednearly $800 million. The Executive Leadership Team determined that an in depthreview of this fund was in order, particularly with the potential need for debt financing toensure that the City's infrastructure priorities can continue to be delivered in a timelymanner

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Financial review of open capital projects is already carried out at least annually toensure that projects are closed out and excess funds returned to source for re-allocationto new priorities. However, with inadequate funding available to address all criticalneeds and in recognition of the continued growth in the capital fund, a more rigourousand targeted financial review has been undertaken. Additionally, related processes andpolicies are being evaluated to ensure that best practices for control of capital funds arefollowed. Where appropriate, these will be updated and enhanced to facilitate ongoingmonitoring and control.The unspent balance in approved capital funding currently totals approximately$766 million, excluding the recently approved 2014 capital budget. The amount isqualified as approximate because the 2013 year-end closing process is still underwayand recording of outstanding accruals may further reduce the balance.Schedule 1. attached, shows the distribution of the unspent funds by program and bysource of funds:

60% of the funds are sourced from development charges, 68% from alldevelopment related sources combined. Only 17% are from internal, mainly tax based, sources. 15% are from grants, subsidies and/or other external partners.Only 37% of the unspent funding has been approved and outstanding for more thanthree years. For purposes of this review, three years was considered to be reasonablynormal aging for the capital program given the multi-year nature of many projects.Therefore attention has been given mainly, but not exclusively, to projects approvedprior to 2011.Finally, 75% of the unspent funds relate to the two major programs that account formost of the City's capital investments, Public Works and Parks & Recreation.Curren t Si tuation: To date, project-by-project review with departmental staff has identified potential returnof excess project funding of approximately $62 million through close out of projects orpartial return of funds. Of the 670 currently open projects, 144 will be closed andfunding balances reduced for another 25. Several other projects remain under review.It should be noted that this amount includes the following previously identified items:

Return of $20 million of land acquisition funds approved in 2011 for theSesquicentennial Park, mainly from Cash-in-Lieu of Parkland, and Return of $1.3 million of Information Technology funds already approved for reallocation through the 2014 budget.The returned funds will be distributed approximately as follows:

Development Charges, $26 million Other development related sources mainly Cash-in-Lieu of Parkland), $20million

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KM-2, Grants, subsidiesandvariousexternal partners,$4million Internal sources,mainlytaxbasefunds,$12million

The precise amounts can only be finalized through the close-out process for eachproject, particularlywhereindividual projectsare funded from multiplesources.The projectsto be closed have forthe most partbeendelivered and will therefore beclosedby staffthrough normal accounting processes. Averyfewcases result from reevaluation of priorities or timing and will therefore require Council approval. Thisapproval will be requested through the CapitalBudget reporting process inthesecondquarter of 2014. The mostnotable item inthis category is the Sesquicentennial Parkland acquisition project, closing ofwhich was proposed to Council ina report in early2013. However, formal approval was not requested at thattime. A few projectswillneed to be re-budgeted at some point inthe future but funds will not be required forseveralyears.While theactionsidentified to dateand the resulting returnof fundsdo not representamajor reduction in the amount of unspent capital funding, the review has producedtarget datesfordeliveryofmanyofthe remaining projectsforcontinued monitoringoverthe course of the year. Additionally,those projects with large funding balances arebeing categorized to provide seniormanagement a clear pictureof the nature of theoutstanding programs, facilitate review of priorities and, where appropriate,consideration of alternative delivery mechanisms. Based on the expenditure review,most of the open projects are well underway. The majority of the projects with asignificantportionofthetotalbudgetunspentarerelativelyrecent. Othersaredeliveredby external parties, notably developers, and invoices are expected indue course orhavebeenreceivedforworkthatisalready done.Capital ProjectControlPoliciesandProceduresManagementrecognitionofthe continuedincrease inunspentcapitalfundingbalances,together withthe detailed project review, have highlightedthe need forenhanced ormodified processes to facilitate programdeliveryand free up funding forre-allocation.Withoutsuchchanges,anyreductionintheunusedbalanceswill betemporary. Thesemeasures,tobefinalizednolaterthansecondquarter2014,mayinclude:

Documentationoftheprocedureforprojectclose-outtoclarifyresponsibilities Consideration of project financialcontrol mechanismssuch asautomaticlapseof budgets for projects not started or inactive for a prescribed period, andalternativefundingsourcesforoutstandingliabilitiesoncompletedprojects

Consideration of budget process and methodology improvements, such ashurdlesto be met forapproval of construction funding, alternative methodsofreleasing budgets such as cash flow budgeting, and capital budget limitsinformedbyaverageannualspendingand demonstrateddeliverycapacity

Expanded financial reporting on capital programs, to be reinstated by theFinanceDivision

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ICM-Senior Management Team is currently initiating a formal project status review processto ensure early identification and resolution of impediments to project delivery.CorporateImplications:

Financial Implications:The financial actions outlined in this report will help to ensure that use of the City'sfinancial resources is optimized so that corporate priorities can be achieved withinexisting funding sources.Other Implications:The process and reporting measures proposed in this report will require increasedattention to project management and control. Implementation of improved procurementmethods and alternative project delivery programs can potentially shorten turnaroundtime on approved projects. Reinstatement of the Integrated Project Management Teamconcept at the Senior Management level will address roadblocks to project deliveryearlier, and reinstatement of Capital Project Financial Reporting will serve to maintainfocus on program delivery and productive use of available resources.StrategicPlan:The actions outlined in this report contribute to achievement of the Strategic Planpriorities of Continued Financial Stability and Cost Containment, specifically throughimplementation of best practices for long-term funding.Conclus ion:

Significant unspent capital fund balances are to be expected given the multi-year natureof capital projects, especially those related to delivery of major infrastructure. However,the continual year-over-year increase resulting from consistent approval every year ofmore capital funding than is ever expended in a single year is not sustainable. Thedetailed review of the capital program now underway will free up significant funds for reallocation. Implementation of best practices for capital program budgeting, control andreporting should further reduce unspent balances. Analysis of the remaining activecapital programs will facilitate continuous management review of both project deliverymodels and evolving priorities to ensure maximum return in terms of service forres idents .

He ^Bonnie Eskelson Peter HoneyborneProject Lead, Capital Program Financing Executive Director, Finance &TreasurerAppendices: Schedule 1, Unspent Capital Budgets by Funding Source C C S O Report authored by: Bonnie Eskelson Project Lead Capital Program Financing

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