1. Debt Strategy Presentation to City Council May 10, 2004 Click to edit Master title style

2. Debt Strategy May 10, 20042 2 Today’s Presentation Our current infrastructure and infrastructure financing situation How does borrowing fit in today? Two-year DMFP review Impact of three scenarios What changes do we want to make? –Do we continue to use borrowing? –How can we use tax-supported debt as a strategic tool for urban sustainability?

3. Debt Strategy May 10, 20043 3 Our Current Situation

4. Debt Strategy May 10, 20044 4 Our Infrastructure Today Cities are infrastructure intensive

5. Debt Strategy May 10, 20045 5 Our Infrastructure Gap Rehabilitation $1.3 billion 20% SLRT $0.58 billion 8% Growth $1.7 billion 27% Unfunded capital $3.5 billion Funded capital $2.9 billion Rehabilitation $1.8 billion 28% Growth $1.1 billion 17%

6. Debt Strategy May 10, 20046 6 Upcoming Rehabilitation Issues Risk Assessment Complete Classification Good & Very Good Fair Poor & Critical

7. Debt Strategy May 10, 20047 7 $110 million/yr Average Currant Condition $30 million/yr Risk Assessment on Infrastructure Condition Local Neighbourhood Infrastructure Recreational and Small Buildings $15 of 18 Billion)

8. Debt Strategy May 10, 20048 8 Infrastructure Financing External Funding (38%) Internal Funding (62%) Revenues are flat once Infrastructure program done 2004-2013 LRFP ($millions)

9. Debt Strategy May 10, 20049 9 Infrastructure Financing Cumulative Impact $151 M $128 M $279 M $279 million loss in spending power over ten years if sources do not increase 2004-2013 LRFP (Inflation & Population)

10. Debt Strategy May 10, 200410 10 Potential External Opportunities Federal and provincial funding changes are on the horizon (GST, infrastructure program, federal fuel tax, new deal with the province) Roadway assessment, discussions regarding developer levies Partnerships, P3s

11. Debt Strategy May 10, 200411 11 Potential Internal Opportunities Increase pay-as-you-go by inflation and population to fund rehabilitation needs in the long term Use tax-supported debt strategically Both opportunities require sustainable revenue increases

12. Debt Strategy May 10, 200412 12 Key Funding Observations External Opportunities - Most opportunities will take time to negotiate Internal Opportunities - Pay as you go and debt require ongoing sustainable revenue source Each source alone is not enough to fix the infrastructure gap... Multiple sources are needed

13. Debt Strategy May 10, 200413 13 Our Borrowing Situation Today

14. Debt Strategy May 10, 200414 14 Long-term Debt: A Misconception All government debt is not the same Federal and provincial debt has historically come from annual deficits Municipal debt can only be for an investment in capital infrastructure

15. Debt Strategy May 10, 200415 15 What Borrowing Includes Self liquidating (utility) debt Local improvements Other (external agencies, capital leases) Tax-supported debt

16. Debt Strategy May 10, 200416 16 Debt Management Fiscal Policy Considerations Council approved amendments in Oct. 2002 Key changes: –Allows consideration of tax-supported debt –Establishes debt management thresholds –New debt servicing costs must be funded from new sustainable revenues –As debt servicing costs drop off, PAYG increases for capital projects. –Establishes general project guidelines

17. Debt Strategy May 10, 200417 17 Project Selection Criteria Included in the DMFP Total project cost of $10 million or greater Expected asset life more than 15 years A valid business case: –project in line with established priorities –project demonstrates benefits: minimized costs, risk management, community impact and leveraged partnership funding –project has economic development and quality of life benefits to the community

18. Debt Strategy May 10, 200418 18 Tax-Supported Borrowing Borrowing Guidelines (from 2003 budget): –up to $50 million annually approved by Council ($250 million over five years) –funded by pne per cent annual tax increase $100 million borrowed to date Two-year DMFP review currently underway

19. Debt Strategy May 10, 200419 19 Borrowing Considerations Maximum provincial limits: –Total debt - 2x annual revenues, less transfers –Debt servicing costs - no more than 1/3 of annual revenue DMFP thresholds for debt servicing costs: –Total debt - less than 10% of revenues –Tax-supported debt - less than 6.5% of tax-supported revenues Our willingness to pay the annual debt servicing costs - requires sustainable revenues

20. Debt Strategy May 10, 200420 20 Two-year DMFP Review

21. Debt Strategy May 10, 200421 21 Two-year DMFP Review Did the DMFP meet its objectives? What issues have come up? What changes are we looking at?

22. Debt Strategy May 10, 200422 22 Did the DMFP meet objectives? Objective - Give Council an additional tool to deal with infrastructure issues Outcome - $100 million in projects approved: –Neighborhoods (roads and parks) - $20.4 m –Growth in arterial roads - $19.7 m –Interchanges including 23 Ave drainage - $32.8 m –Facilities (police & fire stations, Hall D) - $27.1 m

23. Debt Strategy May 10, 200423 23 Issues…what needs to be done? When should Council be approving tax- supported debt projects? Which projects should we select? Projects over $50 M - how to accommodate? Administrative issues - fix through process Total project versus annual cash flow approvals - no change needed; decision made once

24. Debt Strategy May 10, 200424 24 Three Borrowing Scenarios

25. Debt Strategy May 10, 200425 25 Debt Use Strategies to Consider For major hot spots until long term financing solution in place Based on project merits (current approach) Support strategic plans Larger growth projects so that those who use should also pay Large high impact (city- transforming) project (e.g. SLRT)

26. Debt Strategy May 10, 200426 26 Three Borrowing Scenarios Scenario One, Limited Debt - $150 million of additional tax supported borrowing over three years (status quo); stop in 2007 Scenario Two, Managed Debt - as above with tax-supported borrowing continuing at $50 million annually; no stop date subject to interest rates Scenario Three, Aggressive Debt - Scenario Two, plus borrowing to fund LRT to Heritage

27. Debt Strategy May 10, 200427 27 City’s Debt Position - Three Scenarios Debt Capacity Available

28. Debt Strategy May 10, 200428 28 City’s Debt Servicing Costs: Three Scenarios

29. Debt Strategy May 10, 200429 29 Scenario 1, Limited Debt Infrastructure Impact: –$150 million (4%) of $3.5 billion gap eliminated –Strategy - Deal with hot spots (growth and/or rehab) Financial Impact: –debt servicing increase of $5 million annually for three years for each $50 million borrowed

30. Debt Strategy May 10, 200430 30 Scenario 2, Managed Debt - $50 million borrowed annually Infrastructure Impact: –$.5 billion (14%) of $3.5 billion gap eliminated over 10 yrs. –Strategy: Capacity to fund strategic plans (growth or rehab) Can use debt to deal with hotspots until ongoing revenue source in place (bridging), or... Implement high impact City building projects

31. Debt Strategy May 10, 200431 31 Scenario 2, cont’d. Financial Impact: –Debt servicing below 10% threshold –Debt servicing increase of $5 million annually for 10 years for each $50 million borrowed

32. Debt Strategy May 10, 200432 32 Scenario Three, Aggressive Debt - $50 million annually plus LRT Infrastructure Impact: –$1.0 billion (28%) of $3.5 billion gap eliminated over 10 years –Strategy: Capacity to fund strategic plans (growth or rehab) Can use debt to deal with hotspots until ongoing revenue source in place (bridging), and... Implement high impact City building projects

33. Debt Strategy May 10, 200433 33 Scenario Three, cont’d. Financial Impact: –Debt servicing costs will approach threshold in future –Debt servicing increase of $5 million annually for each $50 million borrowed; $34 million base increase phased in over construction period for $460 million SLRT borrowing

34. Debt Strategy May 10, 200434 34 Should we continue to use tax-supported borrowing?

35. Debt Strategy May 10, 200435 35 Why Use Debt? Can address infrastructure gap more quickly Spreads cost over a longer period Those who benefit will pay Borrowing works well for infrastructure expenditures, when debt tolerance is factored in Today’s rates are attractive - ACFA 15-year term - 4.6%, 25 years - 5.1%

36. Debt Strategy May 10, 200436 36 Administration’s Recommendation That tax-supported debt continue to be used as a tool to address infrastructure issues

37. Debt Strategy May 10, 200437 37 How can we use tax- supported debt as a strategic tool for urban sustainability?

38. Debt Strategy May 10, 200438 38 Administration’s Recommendations That a recommended project plan for Scenario One, Limited Debt be brought forward for approval as part of the 2005 Budget That a strategy to close the infrastructure gap using Scenario Two, Managed Debt in combination with other financing sources be developed and brought back for Council approval by June 2005