Debt Policy & Future Capital Initiatives

Committee of the Whole March 24, 2016

COW-01-16File # 100-02Staff presentation

Today’s Discussion

• Information and interactive conversation on: Debt Policy and Recent capital initiatives since budget

approved. Gather feedback for future reporting on:

Comprehensive list of Strategic Plan initiatives and Financial Plan that identifies timing and resources

(capital and people) to implement.

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Agenda

• Debt Policy

• History and Projections

• Future Capital Initiatives

• Discussion & Next steps

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Debt Limit

Provincial Limit - O. Reg. 403/02 • Debt limit no greater than 25 per cent of net revenues.

City Debt Policy Limit • City’s Long Term Financial Plan and Debt Policy sets total debt limit to 12.5 % of net revenues.

o 10% tax supported limit

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Debt Limit Calculation Debt limit calculated based on Financial Information Return submitted each year to the Ministry.

Debt Limit Calculation = Total Debt Charges + Payments for Long-term Liabilities

Net Revenues

Calculation of Net Revenue: Gross revenues less

- grants - revenue from other municipalities - deferred revenues (i.e. DCs) - increase in hydro equity = Net Revenue

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City Debt Policy Consider debt financing for:

• Increased/new capital projects providing additional services to residents (e.g. BPAC)

• Projects tied to third party matching funds (e.g. New City Park) • Projects where the cost of deferring expenditures exceeds debt

servicing costs (e.g. Road Renewal) • Joint Venture projects where 100% of debt is recovered from

community groups (e.g. Soccer Domes)

Actions to use debt efficiently:

• Term structured for short period to reduce financing costs while considering current and future taxpayer benefit. Preferred term 10 to 15 years.

• Based on the current and forecasted interest rate environment. • Projects that have a useful life greater than 10 years.

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Joint Venture Policy

Collaborative arrangements for loans to community groups.

The following requirements apply: • Community benefits clearly demonstrated and financial

capacity evaluated through a business plan. • At least 10% of the project cost paid by the community

group prior to commencement. • Repayment for the loan not to exceed 10 years.

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Total Debt Outstanding (Principal only)

Dec 31 / 2015

Existing/Issued Debt $73.4M

Approved/Unissued Debt $32.3M

Total Approved Debt $105.7M

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Projects Funded by Debt

Joseph Brant Hospital $8.2M Burlington Performing Arts Centre $12.4M

Mountainside Recreation Centre $5M

Appleby Ice Centre $7.2M General Brock Land Acquisition $2M

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2016-2025 Approved Capital Budget & Forecast (Principal only)

Guidelines

2016 Hospital Debt $27.7M

2016 Debt $11.5M

2017-2025 Debt $59.1M

Total Approved and Proposed Debt (2016-2025)

$98.3M

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Projects to be Funded by Debt Forecasted

Single Pad Arena Revitalizations $4M

Storm Water Management $5.1M Joseph Brant Hospital $27.7M Road Renewal $10M

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Issued Debt and Average Yield

$6.35 $6.73

$9.76 $8.74

$12.03

$5.42 $4.41

$8.20

$27.70

3.97%

2.74% 2.84%

2.53%

2.94%

1.95% 2.00%

0.00%

0.50%

1.00%

1.50%

2.00%

2.50%

3.00%

3.50%

4.00%

4.50%

$-

$5

$10

$15

$20

$25

$30

$35

2010 2011 2012 2013 2014 2015 2016

Mill

ions

Issued Debt Hospital Actual Bond Rate

Estimate

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Debt and Financial Obligation Limit 12.5%

8.2% 8.1% 8.0%

8.6%

11.3%

10.2%

12.5% 12.1%

9.0%

9.0% 8.5% 8.4% 8.3%

8.9% 9.1%

7.2% 6.8%

7.1% 7.2% 6.7% 6.7% 6.5%

0%

2%

4%

6%

8%

10%

12%

14%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Debt Charges (incl. JBH) Debt Charges (ex. JBH)

8.9 9.0 9.3 9.6 9.9 10.2 10.2 10.2 10.2 10.2 10.2 10.2

$4 $4 $4 $4 $4

$5 $4 $4 $5 $4 $4

$2

$0.1 $1

$4 $4

$4

$4 $4 $4 $4 $4

$4

$-

$5

$10

$15

$20

2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Mill

ions

Tax Supported Debt Charges SCD and Non-Tax Supported Debt Charges Hospital Debt Charges 14

Debt Charges

Debt Outstanding to Reserve Ratio (ratio of 1:1 or below is considered to be financially prudent)

-

0.1

0.2

0.3

0.4

0.5

0.6

0.7

0.8

0.9

1.0

2009 2010 2011 2012 2013

Ratio

Source - BMA Management Consulting Inc. – Financial Condition Assessment 2015

Municipalities 2013 Debt to Reserve Ratio

Whitby - Markham - Oakville 0.3 Milton 0.7 St. Catharines 1.3 Oshawa 2.0 Kitchener 2.5

Average 1.0 Median 0.7

Burlington 0.7

Debt Outstanding to Reserve Ratio Municipal Comparisons (2013)

Debt Outstanding per $100,000 of Weighted Assessment

$-

$50

$100

$150

$200

$250

$300

2010 2011 2012 2013 2014

Source - BMA Management Consulting Inc. - Financial Condition Assessment 2015

Municipalities

2013 Debt Outstanding per

$100,000 of Weighted

AssessmentWhitby -$ Markham 19$ Oakville 131$ Milton 210$ Kitchener 427$ Oshawa 525$ St. Catharines 528$

Average 263$ Median 210$

Burlington 202$

Debt Outstanding for $100K of Weighted Assessment Municipal Comparisons ( 2013)

Future Capital Initiatives

Not fully funded in 10 year

forecast

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Convert High Pressure Sodium (HPS) street lights to Light Emitting Diode (LED) Gross cost: $9.82 million City share: $8.74 million (Not included in Capital Budget)

Light Emitting Diode (LED) Streetlights Projected Timeline (1-5 years)

City Operated Service Future City Operating Savings

Community Benefit High Medium Low

Alignment with Strategic Plan Promotes intensification Promotes employment growth Increases transportation flow Promotes healthy lifestyles Shows environmental leadership Encourages culture/community engagement

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Expansion to City’s Trail Network Gross cost: $16.6M City share:

$10.8M (Excluded from Capital budget)

$5.8M (Included in Capital budget)

Community Trails Strategy Projected Timeline 1-20 years

City Operated Service Future City Operating Costs

Community Benefit High Medium Low

Alignment with Strategic Plan Promotes intensification Promotes employment growth Increases transportation flow Promotes healthy lifestyles Shows environmental leadership Encourages culture/community engagement

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Pedestrian and Bikeway crossings over highway and rail

Gross cost: $15M City share:

$10.7M (Excluded from Capital budget)

$4.3M (Included in Capital budget)

Active Transportation Crossings Projected Timeline 1-10 years

City Operated Service Future City Operating Costs

Community Benefit High Medium Low

Alignment with Strategic Plan Promotes intensification Promotes employment growth Increases transportation flow Promotes healthy lifestyles Shows environmental leadership Encourages culture/community engagement

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Revitalization of Sherwood Forest Park Gross cost: $18.6M City Share: $15.1M (Included in Capital budget) Potential Joint Venture Loan: $3.5M (Excluded from Capital budget)

Sherwood Forest Park Projected Timeline 1-10 years

City Operated Service Future City Operating Costs

Community Benefit High Medium Low

Alignment with Strategic Plan Promotes intensification Promotes employment growth Increases transportation flow Promotes healthy lifestyles Shows environmental leadership Encourages culture/community engagement

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Renewal and enhancement of Nelson Stadium amenities Gross cost: $4M + City funding: $2.7M (Excluded from Capital budget) Potential Joint Venture Loan / 3rd party funding: $1.3M (Excluded from Capital budget)

Nelson Stadium (JV) Projected Timeline 1-5 years

Proposed Nelson

Clubhouse

City Operated Service Future City Operating Costs

Community Benefit High Medium Low

Alignment with Strategic Plan Promotes intensification Promotes employment growth Increases transportation flow Promotes healthy lifestyles Shows environmental leadership Encourages culture/community engagement 22

Replace existing floating wave break with a permanent wave break Gross cost: $12M + Potential Joint Venture Loan: $4.58M (Excluded from Capital budget)

LaSalle Park Marina Wave Break (JV) Projected Timeline 1-5 years

City Operated Service Future City Operating Costs

Community Benefit High Medium Low

Alignment with Strategic Plan Promotes intensification Promotes employment growth Increases transportation flow Promotes healthy lifestyles Shows environmental leadership Encourages culture/community engagement

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In consultation with Parks and Recreation, a number of other Joint Venture Organizations have identified capital requirements over the next 10 years Potential joint venture loan requirements: 1-5 years: $4.5M 6-10 years: $1.9M Total $6.4M

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Other Joint Venture (JV) Partner Needs

Options to Consider

• Status Quo (maintain debt limit at 12.5%)

• Defer capital initiatives post 2018

• Temporarily increase debt limit

• Permanently increase debt limit

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Status Quo

• Maintain 10 year capital budget debt guidelines ($70.6M)

• Pros

– Debt limit is maintained at 12.5% – 0.2% planned tax increase for road renewal

debt (2016-2019)

• Cons – Funding future initiatives will require deferral

of renewal projects in 10 year capital forecast.

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Defer Initiatives post 2018 • Increase debt guidelines post 2018 • Pros

– Debt limit is maintained at 12.5% – Some future initiatives could be accommodated

post 2018 – Renewal projects not deferred

• Cons

– Limited opportunity for 3rd party funding – Increased debt charges required (requires tax

increase post 2018)

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Temporarily Increase Debt Limit • Debt guidelines temporarily increased to

accommodate some future initiatives. • Pros

– Some future initiatives could be accommodated – Flexibility for 3rd party funding opportunities – Renewal projects not deferred

• Cons

– Increased debt charges required (requires further tax increase)

– Limits ability to provide life cycle renewal funding for new assets

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Permanently Increase Debt Limit • Debt guidelines permanently increased to accommodate

future initiatives. • Pros

– Some future initiatives could be accommodated – Flexibility for 3rd party funding opportunities – Renewal projects not deferred

• Cons

– Increased debt charges required (requires further tax increase)

– Risk of debt affordability increases – Limits ability to provide life cycle renewal funding for

new assets

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30

$9.6

$9.9

$10.2 $10.2 $10.2 $10.2 $10.2 $10.2 $10.2

$10.6

$10.9

$11.2 $11.2 $11.2 $11.2 $11.2 $11.2 $11.2

$11.6

$11.9

$12.2 $12.2 $12.2 $12.2 $12.2 $12.2 $12.2

$12.7

$13.0

$13.3 $13.3 $13.3 $13.3 $13.3 $13.3 $13.3

$8

$11

$13

$16

2017 2018 2019 2020 2021 2022 2023 2024 2025

Mill

ions

Status Quo .5% Debt Limit Increase 1% Debt Limit Increase 1.5% Debt Limit Increase

Tax Supported Debt Charge Scenarios

Status Quo

0.5% Increase

1% Increase

1.5% Increase

8.9% 9.1%

7.2% 6.8%

7.1% 7.2% 6.7% 6.7% 6.5%

8.2% 8.1% 8.0%

8.6%

11.3%

10.2%

12.5% 12.1%

9.0% 9.0%

8.5% 8.4% 8.3%

12.5%

14.0% 13.6%

10.5% 10.5%

10.0% 9.9% 9.8%

5%

6%

7%

8%

9%

10%

11%

12%

13%

14%

15%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Debt Charges (ex. JBH) Debt Charges (incl. JBH) .5% increase 1% increase 1.5% increase

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Status Quo

0.5% Increase

1% Increase

1.5% Increase

Debt and Financial Obligation Limit Scenario Analysis

Temporary increase of $10M or 0.6% debt limit increase in years 2017 and 2018. This increase translates to a tax impact of 0.8%.

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Staff Proposal

Debt Capacity Increase

Debt Available (millions)

Debt Charges (millions)

Estimated Tax Impact

Tax $ increase per $100k

assessment

0.5% $8.75 $1.00 0.7% $2.52 0.6% $10.00 $1.14 0.8% $2.88 1.0% $17.50 $2.00 1.4% $5.04 1.5% $26.25 $3.00 2.0% $7.56

Note: debt charges are based on 2016 interest rate assumption of 3%.

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8.9% 9.1%

7.2% 6.8%

7.1% 7.2% 6.7% 6.7% 6.5%

8.2% 8.1% 8.0%

8.6%

11.3%

10.2%

12.5% 12.1%

9.0% 9.0% 8.5% 8.4% 8.3%

12.5% 13.1%

12.7%

9.6% 9.6% 9.1% 9.0% 8.9%

0%

2%

4%

6%

8%

10%

12%

14%

2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023

Debt Charges (ex. JBH) Debt Charges (incl. JBH) .6% Increase (inc. JBH)

0.6% increase

Debt and Financial Obligation Limit with 0.6% Increase ($10M)

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$9.6

$9.9

$10.2 $10.2 $10.2 $10.2 $10.2 $10.2 $10.2

$10.8

$11.1

$11.4 $11.4 $11.4 $11.4 $11.4 $11.4 $11.4

$7

$9

$11

$13

2017 2018 2019 2020 2021 2022 2023 2024 2025

Mill

ions

Status Quo .6% Debt Limit Increase

0.6% increase

Status Quo

Tax Supported Debt Charges with 0.6% Increase($10M)

Questions of Council

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Question #1 Should the 10 year capital budget and forecast be reprioritized to accommodate some future initiatives?

a. Yes

b. No

c. Partly

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Question #2 What level of tax increase, above the 0.2% planned for road renewal, would you support to fund some future initiatives?

Tax

Increase Additional New Debt

a. 0.0% no additional debt b. 0.7% $8.75M in new debt c. 0.8% $10M in new debt d. 1.4% $17.5M in new debt e. 2.0% $26.25M in new debt

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Question #3 Would you support exceeding the City debt limit policy to accommodate Joint Venture loan requests?

a. No

b. Temporarily

c. Permanently

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Question #4 Would you support a longer repayment period for Joint Venture loans?

a. Yes

b. No

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Question #5 Which option do you prefer?

a. Status Quo (no additional debt)

b. Defer initiatives post 2018

c. Temporarily increase debt limit

d. Permanently increase debt limit

Next Steps • Burlington Bucks $

• Report on feedback from today – Incorporate into budget directions report

(July) – Inform Strategic Plan funding and alignment

of resources

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Questions

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Unfunded Future Capital Initiatives

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