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Debt Policy & Future Capital Initiatives
Committee of the Whole March 24, 2016
COW-01-16File # 100-02Staff presentation
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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)
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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
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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)
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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)
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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
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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
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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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$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
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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%
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
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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)
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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
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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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