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HomeMy WebLinkAboutFND-026-08~~~11Z~~WI1 Energlzing Ontario REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Date: MONDAY OCTOBER 20, 2008 Resolution #: O~' 3'd~ Report #: FND-026-08 File #: By-law #: Subject: ASSESSED VALUE OF COURTICE WATER POLLUTION CONTROL PLANT Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-026-08 be received. Submitted by: / Reviewed b~ Nancy T or, B ., C.A., Franklin Wu, Director of FinancelTreasurer Chief Administrative Officer. NT/hjl REPORT NO.: FND-026-08 BACKGROUND: PAGE 2 1.0 As Council is aware, the Courtice Water Pollution Control Plant is a significant facility constructed in Clarington by the Region of Durham. As the facility was due to open very early in 2008, it became the subject of budget discussions in the fall of 2007. Typically, no property assessments are included in the budget process unless they have been included in the returned roll by the Municipal Property Assessment Corporation (MPAC). This is due to the risk involved in estimating what dollar value to include prior to the facility being assessed. 1.1 Since the Courtice Water Pollution Control Plan was a project of such significant magnitude, a different approach was taken. A concern was raised that if no assessment was included in the growth estimate, than other taxpayers would incur a property tax increase that was not necessary. As MPAC cannot provide an estimate until they have had a chance to fully review and analyze any facility, it was up to Clarington to determine what value to use for estimation purposes for 2008. 1.2 There is a water pollution control plant in the City of Pickering (Duffins Creek WPCP). It is an older facility that would have depreciated significantly for property taxation purposes. Its depreciated assessed value in 2008 was $38,572,000. In order to determine a ballpark estimate for use for budget purposes for the Courtice plant, one half of the commercial component was used or $19,000,000. As the Courtice plant is new and therefore would have no depreciation, this seemed like a reasonable estimate. 1.4 The estimate used for the Courtice plant resulted in a budget revenue estimate of $400,000 for local purposes (Clarington's share of the tax rate plus education retained). When the supplementary assessment roll was issued, the actual assessment for the Courtice facility was determined by MPAC to be $8,704,000. This was determined to be effective as of March 1, 2008. That was the date the facility was fully commissioned and under the full care and control of the Region of Durham. This resulted in a supplementary tax bill issued to the Region for $235,245.91. If this is annualized, this translates to an annual tax revenue of approximately $280,000. Clarington's annualized share of revenue from this (local levy plus education retained) is $183,430. 1.5 Obviously this is much lower that what was estimated for budget purposes. This result is the reason why the use of estimates is only used in exceptional circumstances. The following section of the report is intended to explain the reason for the lower assessed value and some of the reasons for the difference between the estimate and actual value. REPORT NO.: FND-026-08 PAGE 3 PRIMARY CAUSES OF VALUATION DIFFERENTIAL: 2.0 From an overall perspective, there are several overriding reasons for the variation between the actual assessed value and the ballpark budget estimate including, site differentials between Pickering and Clarington, allocation of the total construction cost for Courtice and implications of the Assessment Act provisions for a modern facility design. 2.1 With respect to site differentials between Pickering and Clarington there are several factors affecting this. Firstly, there is quite a variance in the site and building areas. The Duffins Creek Water Pollution Control Plant (Duffins WPCP) site area is 156 acres versus the Courtice WPCP at 106.7 acres. The Courtice site is 50 acres smaller. Also, the land rate for assessment purposes is much higher in Pickering at $87,120 per acre rather than $37,500 in Clarington. 2.2 Secondly, the total building area is much smaller in Clarington. This is triggered from the differences in modern facility design. Total floor area at the Duffins WPCP is 1,038,765 square feet versus Courtice at 46,768 square feet. The Courtice Plant is very minimal with respect to buildings that are accessible to employees as work areas. Many of the buildings are simply enclosed mechanical processes. This will be discussed in detail below. None of this information was available at the time of the 2008 budget process. 2.3 As has been highly publicized, the total cost of the project was $164 million. However, what is not commonly understood is the breakdown of how these costs are allocated amongst the major components of the facility. The investment of $164 million is not solely at the Courtice site. For the entire system to work, the project included components at the Harmony Creek Pumping Station, Conveyance of flows to the Courtice WPCP, the Courtice WPCP and the ouffall into Lake Ontario. The costs attributable to the Main Treatment Facility are approximately $110 million, not the total $164 million. Unfortunately, the total cost created some expectations with respect to order of magnitude for the resulting assessed value that did not materialize. This will be elaborated upon in the following section dealing with specific assessment issues of the Courtice WPCP facility. ASSESSMENT OF THE COURTICE WATER POLLUTION CONTROL PLANT: 3.0 During the course of the research to review the assessment of the Courtice WPCP and how it compares to other facilities, several meetings were held with various experts including the Senior Valuation Analyst of Industrial Properties and the Manager of Industrial Properties at MPAC, as well as senior staff at the Region of Durham Finance Department. Detailed information was provided by all parties to clarify the status of the assessment. REPORT NO.: FND-026-08 PAGE 4 3.1 There are several relevant sections of the Assessment Act that are quite pertinent. Section 27(3) dictates that the assessment of public utilities is deemed to be in the commercial property class, rather than what would otherwise be in the industrial class and attract a higher tax rate. Public utilities are specifically defined based on ownership and activity with the Courtice WPCP falling into this definition. 3.2 The primary section of the Assessment Act that has a significant bearing is Section 27(10) which states (in part): ...there shall be no assessment of machinery whether fixed or not nor of the foundation on which it rests, works, ...substructures, superstructures, except where a substructure or superstructure forms an integral part of a building..., rails, ties, poles, towers, lines... nor of other property, works or improvements "not specifically referenced as assessable"(italics added) 3.3 The result of Section 27(10) of the Assessment Act is to make significant portions of the structures at the Courtice site not assessable. For a public utility building to be assessable, it must be a building that can not only be entered into in the normal course of activities (as opposed to enclosed machinery), but it also has to serve a purpose as a work area, office or administration area, garage etc. 3.4 Upon detailed review of the specific structures at the site, many do not qualify for assessment. They form part of the "liquid train" for the treatment of waste and therefore fall into the definition of machinery. The design of the site was planned such that structures were minimized since any additional structure would increase the overall cost of the facility. Modern design and technology played a significant role in the final implications on assessment of the site, although this was not a planned outcome. CONCLUSIONS: 4.0 Although expectations were high from the assessment perspective for the Courtice WPCP, upon a detailed review of the final site and the specific assessment attached to each component, the assessment valuation has not transpired as hoped. As explained above, the three overriding factors were site differences between Duffins Creek and Courtice, allocation of the total construction cost for Courtice and implications of the Assessment Act provisions for a modern facility design. 4.1 It is not recommended that the assessed value be appealed at this time. Based on a thorough review as well as the fact that a fairly recent appeal was concluded on the Duffins W PCP that clearly laid out assessment methodology, there appears to be no basis on which to launch an appeal. It is therefore recommended that this report be received for information. REPORT NO.: FND-026-08 PAGE 5 4.2 The budget shortfall from the 2008 estimate will have some implications on any surplus/deficit in the 2008 year but it is too early to determine the overall impact. There will also be an implication from the 2009 budget perspective since the base growth will have to be adjusted to reflect the shortfall. This will be addressed during the 2009 budget process. CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOW MANVILLE, ONTARIO L1C 3A6 T (905)6233379 F (905)623-4169