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HomeMy WebLinkAboutFND-018-12 ClarhWn REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Date: June 25 2012 Resolution ., By-law#: Report#: FND-018-12 File#: Subject: HOST COMMUNITY STRATEGIC FUNDING POLICY RECOMMENDATIONS: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-018-12 be received; 2. THAT Council approve the funding policy as summarized on Attachment "A" for the future use of the Host Community Funds received through the Agreement for the Cleanup and Long-Term Safe Management of the Port Granby Low Level Radioactive Waste Project; 3. THAT Council authorize the establishment of a new Strategic Capital Reserve Fund; 4. THAT the $10 million currently held in Trust be transferred to the Strategic Capital Reserve Fund for future use as approved through the funding policy summarized on Attachment "A"; and 5. THAT the existing Port Granby Reserve Fund be maintained and directed in future to achieve Council objectives pertaining to the End Use Plan and other mitigation measures as deemed necessary. ti d Submitted by: i ° ;rte r _ Reviewed by: Nancy Saylor, BBA, CA, Franklin Wu, Director of Chief Administrative Officer Finance/Treasurer NT/hjl CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L1C 3A6 T 905-623-3379 REPORT NO.: FND-018-12 PAGE 2 1.0 BACKGROUND 1.1 As Council is aware, Clarington entered into an agreement with the Federal Government entitled "An Agreement for the Cleanup and the Long-term Safe Management of Low-Level Radioactive Waste Situate in the Town of Port Hope, the Township of Hope and the Municipality of Clarington" with a final execution date of March 29, 2001. Article 7 of the Agreement established the Host Community Fee. The article states "Upon the approval of this agreement by the Treasury Board...Canada agrees, in order that the Municipalities will be enabled to address, as they see fit impacts of the presence of long-term waste management facilities within their communities, to make the following payments ...a payment of$10 million to Clarington." The parties also agreed to terms and conditions as set out in Schedule 9 of the Agreement which is entitled "Clarington Fund". 1.2 The terms for the Clarington Fund were essentially that the funds were for the exclusive benefit of the ratepayers of the geographic area of Clarington, the principal had to remain in a trust fund and invested by Clarington, the income earned could be used by Clarington at its discretion, and once the license was approved for the construction of a new waste management facility within Clarington, the $10 million no longer had to remain in trust. If the license was refused or the waste removed from Clarington, the $10 million would have to be repaid to the Government of Canada. 1.3 It was announced on November 30, 2011 by the Canadian Nuclear Safety Commission that they approved the issuance of a Waste Nuclear Substance License for Port Granby valid from the effective date of the land transfer of the Port Granby Waste Management property to the Federal Government. It was announced on March 30, 2012 that the land transfer had taken place. This fulfills the terms of the agreement between the Federal Government and Clarington pertaining to the $10 million host community fee. The funds can now be released from the trust fund and used at Clarington's discretion for the benefit of the ratepayers of Clarington. 1.4 At a meeting held on March 1, 2010, the Council of the Municipality of Clarington approved the following resolution #GPA-138-10: "That the Finance Department be directed to prepare a report with recommendations as to the disposition of the $10 million Port Granby Funds." Now that the conditions of the agreement have been satisfied, this report fulfills the direction of Council. REPORT NO.: FND-018-12 PAGE 3 2.0 HOST COMMUNITY TRUST AND PORT GRANBY LLRW AGREEMENT RESERVE FUND 2.1 In accordance with the Federal Agreement, the principal amount of$10 million was set aside in the Host Community Trust Fund in 2001 and has been maintained at the $10 million balance as reflected annually in the Municipality's Trust Fund financial statements. The funds have been invested in Guaranteed Investment Certificates of various Schedule 1 banks. Currently there is a spread of maturities ranging from May 2013 to December 2015. 2.2 All interest earned on the $10 million principal has been deposited into the Port Granby LLRW Reserve Fund. Commencing in 2002 to date through the budget process, interest in the Port Granby Reserve Fund has been transferred, in varying approved budget amounts, to the operating budget to assist in offsetting tax levy increases throughout the 2002 to current time frame. 2.3 For the 2001 year, when the trust was created after the budget process that year, the funds earned and continued to earn interest in the reserve fund as there was no approved budget transfer to offset the levy due to the timing of receipt of the principal funds. Some of these funds were used through the 2004 budget process to top up the then public works, fire, and community services reserve funds. As a result, there remains a balance in the Port Granby LLRW Reserve Fund of approximately $150,000. 3.0 PORT GRANBY END USE AND OTHER MITIGATION MEASURES 3.1 There is currently a balance in the Port Granby LLRW Agreement Reserve Fund of approximately $150,000. It is recommended that the Reserve Fund be retitled the Port Granby Reserve Fund. While the Federal Government, through the Port Hope Area Initiative Management Office, is responsible for the construction and operation of the new waste management facility and mitigating impacts thereof, there may be some measures that Council would like to undertake in future years pertaining to the existing residents in the Port Granby area and/or the Port Granby Project End-Use concept as endorsed by Council through report PSD-051-10. 3.2 It is therefore recommended that the existing balance in the Port Granby Reserve Fund of approximately $150,000 be dedicated to future Port Granby initiatives, such as enhancements to the End Use Plan as approved by Council. REPORT NO.: FND-018-12 PAGE 4 4.0 INTEREST EARNED ON HOST COMMUNITY FUNDS/STRATEGIC CAPITAL RESERVE FUND 4.1 As referenced above, since 2002 interest from the Host Community Trust has been used to offset tax levy increases. Due to the decline in interest rates in the last couple of years, this value in the 2012 budget is now set at $250,000. Any reduction in this budget value in future years would therefore represent a tax levy increase as the offset would be lost. Essentially, if Council opts to redirect the interest income of $250,000 to another purpose, or uses some or the entire principal, for 2013, this would have an approximate effect of a 0.625% tax levy increase. 4.2 Since interest rates are at historical lows, it is anticipated that over the long run, interest rates will once again increase to a more favourable value. There is an opportunity to maintain the operating budget contribution at the $250,000 level but direct any increase in interest income above that to other priorities. It is recommended that any interest earned above the $250,000 be used to fund road reconstruction or rehabilitation works in order to maximize the life of our roads infrastructure. It is recommended that the $250,000 continue to be transferred annually to the operating budget to offset tax levy impacts. 5.0 STRATEGIC CAPITAL RESERVE FUND 5.1 As the conditions of the Host Community Agreement have now been satisfied, it is recommended that a new reserve fund entitled "Strategic Capital Reserve Fund" be established and that the principal amount of $10 million currently in the Host Community Trust be transferred to the Strategic Capital Reserve Fund. 5.2 The satisfaction of the terms of the trust provides a unique and positive opportunity for the Municipality to make significant long term strategic decisions to benefit Clarington taxpayers over the long term. There has been significant discussion and focus over the past several years in three areas, deteriorating condition of roads and other municipal assets, debt levels and financing opportunities, and lack of servicing hindering non-residential development opportunities. As the principal funds are non-replenishing, using the principal funds to offset operating expenditures does not sustain those services in subsequent years, while interest earned on the funds would slowly deplete as the funds were depleted. The funds should be considered from a long term sustainable perspective. REPORT NO.: FND-018-12 PAGE 5 5.3 This philosophy provides the basis for the recommendations that the Strategic Capital Reserve Fund be structured to address these three priorities as explained below and summarized in the Funding Policy on Attachment "A". 6.0 ASSET MANAGEMENT 6.1 Council has had dialogue over the past several budget years over the state of Municipal Assets, especially pertaining to road infrastructure, but also other municipal infrastructure to a lesser degree. The Municipality currently owns assets of approximately $596 million (valued at historical cost), with a net book value or depreciated value of $391 million. Approximately 65% are roads or assets needed to maintain roads. While we are in the very preliminary stages of addressing a long-term asset management strategy, the percentage of paved lane kilometers where the condition is rated as good to very good has been hovering around 58% for the last three years. 6.2 This clearly indicates that the need for roads and related infrastructure financing will be a priority for a long term and sustainable asset management strategy. It is therefore recommended that the Strategic Capital Reserve Fund interest earned beyond the $250,000 be transferred for road construction and rehabilitation works from 2016 onward. It is also recommended that the Strategic Capital Reserve Fund be incorporated as a key financing tool in the development of the Municipality's long term asset management strategy. This would be incorporated as part of the funding policy for the Strategic Capital Reserve Fund. 7.0 DEBT LEVELS AND FINANCING OPPORTUNITIES 7.1 Currently, the total net long-term liabilities are $24.2 million. This is represented by Indoor Recreation and Library facilities. As Council is aware, there have been opportunities to make balloon payments on municipal debt or to renew for the final five years. Another such opportunity exists in 2014 relating to the indoor soccer/lacrosse facility. 7.2 While it is not anticipated that there will be sufficient funds in the Indoor Recreation Development Charges Reserve Fund, another opportunity does exist. The Municipality may opt to issue internal debentures. These still have to be processed through proper notifications to the upper tier in compliance with the Municipal Act and with official structured loan documentation. However, the Municipality could essentially "purchase" its own debentures. The result is that REPORT NO.: FND-018-12 PAGE 6 the Strategic Capital Reserve Fund could invest in Municipality of Clarington debentures at the market rate of return. This generally results in a higher rate of return to the Reserve Fund than is earned through direct investments in banking instruments. The funds would be repaid over the five years by the development charges collections, as appropriate, exactly the same as if the debenture was floated in the marketplace. 7.3 While a specific recommendation on the Indoor Soccer/Lacrosse facility is not requested at this time, it is recommended that a funding policy for the Strategic Capital Reserve Fund be approved whereby whenever Municipal debentures are being considered as a financing tool for municipal infrastructure, the Strategic Capital Reserve Fund be considered as a source of internal debenture issuance, thereby increasing the return on investment in the Strategic Capital Reserve Fund and allowing some flexibility for the Municipality in repayment options for its future debt needs. One item of future debt consideration will be the Green Road Grade Separation. Each future project would be addressed though the annual budget process. 8.0 SERVICING OF NON-RESIDENTIAL DEVELOPMENT OPPORTUNITIES 8.1 This represents the third funding policy being recommended for the Strategic Capital Reserve Fund. As Council has seen through many planning documents as well as observed through presentations from the Clarington Board of Trade, servicing of non-residential lands remains a critical barrier to the development of non-residential areas within Clarington and as a result limiting the opportunities for new job creation in Clarington. This is particularly the case for industrial development. 8.2 There are some circumstances in Clarington where the lack of servicing, whether it be roads, sanitary sewers, water, or storm sewers is an impediment to development, but there are barriers for the private developers to provide the upfront costs that are required. There are some opportunities that may exist in the near future whereby a capital investment on behalf of the Municipality may provide for a sufficient level of service to "open up" those areas for development. This would create both jobs and investment in Clarington as well as converting vacant lands to lands and structures in the industrial tax class. 8.3 Should the Municipality consider up fronting the costs of the basic required servicing, the cost could be structured through a cost sharing agreement on title whereby the benefitting property owners would repay the costs incurred plus an indexing factor. In this way the principal amount of the investment would be returned to the Strategic Capital Reserve Fund over time indexed and with the potential of interest also. This would ultimately result in economic development REPORT NO.: FND-018-12 PAGE 7 and job creation, as well as increased tax revenue to the Municipality. This funding policy would only be considered in circumstances whereby the principal would be returned to the Strategic Capital Reserve Fund once the development proceeds through an appropriate cost sharing agreement. 9.0 CONCURRENCE - Not applicable 10.0 CONCLUSION 10.1 This issue has been extensively reviewed with the Chief Administrative Officer and we have provided these recommendations based on long-term sustainable financial principles. As referenced above, the release of the Host Community Funds from the trust provisions provides a unique opportunity to establish and generate some significant long term benefits to Clarington residents. 10.2 It is therefore recommended that a Strategic Capital Reserve Fund be established and a Funding Policy be endorsed outlining the future uses of the funds as described in the attached Appendix "A". CONFORMITY WITH STRATEGIC PLAN — The recommendations contained in this report conform to the general intent of the following priorities of the Strategic Plan: (Place an "X" in the box for all that apply) X Promoting economic development X Maintaining financial stability Connecting Clarington Promoting green initiatives X Investing in infrastructure Showcasing our community Not in conformity with Strategic Plan Staff Contact: Nancy Taylor, Director of Finance/Treasurer Attachments: Attachment A - Funding Policy for Strategic Capital Reserve Fund List of Interested Parties to be advised of Council's decision: None ATTACHMENT "A" TO FND-018-12 STRATEGIC CAPITAL RESERVE FUND FUNDING POLICY INTRODUCTION: Pursuant to Report FND-018-12, the Strategic Capital Reserve Fund has been established by By-Law # 2012-XXX. The Host Community Fee received through the Agreement for the Clean-up and the Long-term Safe Management of Low-Level Radioactive Waste Situate in the Town of Port Hope, the Township of Hope and the Municipality of Clarington has been transferred to the Strategic Capital Reserve Fund. PURPOSE: The receipt of the Host Community Fee provides a unique and positive opportunity for the Municipality to make significant long term strategic decisions to benefit Clarington taxpayers over the long term. The purpose of this funding policy is to set out the authorized uses of the funds, along with interest earned to maximize the positive benefits of this funding for many years to come. FUNDING POLICY: It is approved by Committee at its meeting of June 25, 2012, and ratified by Council on July 3rd, 2012, the following policies pertaining to the newly created Strategic Capital Reserve Fund: a) The current $250,000 contribution from interest earned on the principal funds continue to be used to offset the tax levy through the current budget for future budget years; b) Interest earnings in excess of $250,000 be used for road construction and rehabilitation; and c) The principal amount of the Strategic Capital Reserve Fund be invested for three priorities: 1) Long-term asset management strategic financing tool, particularly for Roads, 2) Investment in Debt financing opportunities through internal debenture issuance, or 3) Investment in Servicing of Non-Residential areas as a front-ending tool.