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Staff Report
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Report To: Joint Committees
Date of Meeting: September 14, 2020 Report Number: FND-031-20
Submitted By: Trevor Pinn, Director of Finance/Treasurer
Reviewed By:
File Number:
Andrew C. Allison, CAO
Resolution#: JC-131-20
By-law Number:
Report Subject: Funding Approval for South Bowmanville Recreation Centre
Recommendations:
1. That Report FND-031 -20 be received;
2. That the Council commits to the completion of the South Bowmanville Recreation
Centre and provides pre -budget approval up to $50,000,000-1
3. That the project be funded to the extent possible from development charges;
4. That the By-law attached to Report FND-031-20, as attachment 1, be approved with
a target term length of ten years to a maximum of 20 years;
5. That the impact to the tax levy of the debenture be in addition to the budget target as
set by Council for the 2021 draft budget; and
6. That all interested parties listed in Report FND-031-20 and any delegations be
advised of Council's decision.
Municipality of Clarington
Report FND-031-20
Report Overview
Page 2
The South Bowmanville Recreation Centre has been identified by Council as a strategic
priority for its term of Council. In the 2020 budget, Council approved funding for the design
work for this project and was informed on the anticipated construction costs for 2021 and
beyond. Staff applied for funding for this project but were unsuccessful; if Council wishes to
continue this project the non -development charge related portion will be taxpayer funded.
With the current low interest climate there is an opportunity to obtain financing at record low
interest rates which will allow us to save costs on this project.
Staff are looking for a commitment to this project and the direction to obtain debenture
financing.
1. Background
1.1 In October 2019, Council approved Report CSD-009-19 which included the Phase I
facility program at a budget of $48,005,300. The report also directed staff to complete a
funding application for the project through the Investing in Canada Infrastructure
Program (ICIP) that could potentially fund 73% of the total cost through provincial and
federal assistance.
1.2 This Phase I facility is planned to include a twin pad arena; full sized gymnasium; indoor
walking track; multi -purpose community and programming space; administration space
and a Clarington Public Library branch. A future expansion would include an aquatic
facility and fitness/wellness space.
1.3 Following submission of the funding application in November 2019, staff maintained
contact with the Province regularly and were expecting an announcement would be
forthcoming in Spring 2020. In recent months we would learn the requests were
significantly greater than the $1.013 approved for the entire Program. We also learned a
decision would be made in August. Unfortunately, we were recently advised our project
did not receive provincial approval to move forward for federal consideration.
1.4 As Council will recall, this project was well received by the community with many
stakeholders, user groups and the general public actively participating in the
development of the proposed amenities this community centre would provide
Clarington. Staff from Community Services and the Clarington Public Library remain
fully committed to this project and the value it would bring to our community.
Municipality of Clarington
Report FND-031-20
Process for Acquiring Debenture Financing
Page 3
1.5 As a lower tier municipality, all long-term financial debt must flow through the
Municipality of the Region of Durham (the "Region"). The Region typically has a
debenture call in the fall of each year. Regional staff have indicated that they will be
issuing debt in early October 2020, after Council approval at the September Region of
Durham Council meeting.
1.6 While the Region may consider an additional debenture issue before fall 2021, the
amount that the Region typically goes to market for is at least $200 million. The Region
may be able to get a $50 million debt issuance; however, the cost of administering this
relatively small issuance would increase the cost to the Municipality and could result in
higher interest rates.
1.7 If Council wishes to lock -in debenture financing at the current low rates, it may do so.
This would require Council to approve the project (i.e. commit to completing the
construction of the facility), pass the required by-laws and delegate authority to the
Treasurer, Clerk and Mayor to sign the required documentation. If Council did this, they
would be committed to the project.
Current Interest Rates and Forecasted Rates
1.8 The COVID-19 pandemic has resulted in significant cuts to interest rates. In some ways
this hurt the Municipality, as investment income has been reduced, while it also provides
an opportunity for the Municipality to finance long-term projects at relatively low cost.
1.9 Current indicative rates for debt range from 1.3 per cent for ten years to 1.90 per cent
for 20 years. Please note, these are indicative rates at August 14, 2020 and could vary
based on the date of the actual issuance of debt.
1.10 Forecasted rates are anticipated to range from 2.00 per cent to 2.25 per cent for 10-year
terms in the next year to two years. Similarly, 20-year terms are anticipated to range
from 2.75 per cent to 3.00 per cent as the economy recovers and interest rates
increase. This is still a significant decrease from 2019 when the high -end estimate for
20-year debt was above 5.00 per cent.
1.11 A 0.25 per cent change in interest rates over a 20-year period adds $1.2 million in
interest costs to the project. Interest costs provide no service -value to taxpayers, it is
money that could be used for other capital investment or service provision.
Demand for Facility
1.12 While COVID-19 has had an impact on our recreation facilities, economic development
and life in general, we continue to anticipate a demand for recreation facility services as
Municipality of Clarington
Report FND-031-20
Page 4
the Municipality grows. We have seen an increase in planning applications and building
permits in 2020 compared to 2019 despite the pandemic.
1.13 Another impact of COVID-19 will be anticipated changes to how facilities operate, time
between rentals may increase to allow for cleaning, fewer participants may be allowed
at any given time, this will actually increase the demand for facilities as capacity is
decreased. Starting the project now will allow us to complete construction earlier and be
operational sooner.
1.14 We expect the impact COVID-19 has had on participation levels for services to be short
term and in the longer term, the demand for the South Bowmanville Recreation Centre
will remain strong.
2. Financing Considerations and Options
Length of Term
2.1 The length of repayment for the debenture is typically either ten or 20 years. The
advantage with the shorter period of time is that the overall cost of the project is lower
as a result of less interest costs; however, the advantage with the longer period of time
is that the repayment cost in any given year is lower.
2.2 When determining the appropriateness of term, the asset life should be considered. It is
inappropriate to have the term of the debenture exceed the useful life of the asset. In
this case, given that the building is expected to last greater than 20 years it is
reasonable to use either a 10-year or 20-year life.
2.3 There is an approximate cost savings of $9.5 million in interest costs between the 20-
year worst case rate and the 10-year worst case rate. Under the current indicative rates
the difference is $6.3 million. The Municipality will have other financing needs in the
coming years as we look to replace existing recreation facilities, fire stations, public
works yards, roads, parks and other infrastructure. By taking the shorter -term debt we
are able to leave a buffer for these other projects.
Financial Impact of Capital Repayment
2.4 The South Bowmanville Recreation Centre is eligible for development charge recoveries
and is included in our 2020/2021 DC Study. While recreation facilities are now eligible
for 100% recovery, there are still deductions for investment capping and benefit to
existing taxpayers. The study is attributing 70% of the recreation facility and 100% of the
library portion of the facility to development charges, for an overall 74% recovery.
Municipality of Clarington
Report FND-031-20
Page 5
2.5 The debt costs associated with the development charge portion will be repaid from
receipts over the period as the reserve fund currently is not sufficient to cover the costs
of the development.
2.6 The impact using the indicative rates (which may vary from the actual rates) would
represent an estimated tax levy impact in the first year only of 2.3 per cent for a ten-year
term or 1.4 per cent for a 20-year term.
2.7 As indicated in paragraph 2.3 there is an overall savings of $6.3 million in interest costs,
which provides no added value to the taxpayer, if the Municipality uses a ten-year term
versus the 20-year term. A 1 % levy increase represents approximately $15 (using 2020
figures) for the average residential taxpayer; therefore, for an approximate $15
difference we are able to save significant costs which could be used for future projects
which we know are coming within the term of the debenture.
2.8 The following chart outlines the impact of the debenture, based on the 2020 budget:
Years
10
Interest Rate
1.30%
Total Payments Total Interest
$ 53,414,192 $ 3,414,192
55,252,603 5,252,603
', Levy Increase
2.3%
2.5%
10
2.00%
10
2.25%
55,909,178
5,909,178
9,743,356
2.5%
20
1.90%
59,743,356
1.4%
20
2.75%
64,102,226
14,102,226
1.6%
20
3.00%
65,384,247
15,384,247
1.6%
Financial Impact of Operations
2.9 Recreation facilities are taxpayer subsidized; they do not break even. Ice pads are less
subsidized than aquatic facilities; however, when the total life -cycle cost is considered
there is a taxpayer subsidy for all recreation facilities. Development charges only
support capital costs, any start-up operating costs are not included.
Municipality of Clarington
Report FND-031-20
Page 6
2.10 A large multi -purpose facility, as is proposed for South Bowmanville, provides a wide
range of programs and services under one roof. This approach provides the most
effective control over annual operating costs and is the approach that will be taken for
future recreation facility expansion programs.
2.11 A preliminary operating budget overview estimates the annual net levy impact would be
in the area of $750,000 (excluding debt financing costs). This is based on estimates
revenues of $1,300,000 and expenditures of $2,050,000. It is estimated the facility will
be open to the public in Fall 2023 and a detailed operating budget will be prepared in
September 2022. Based on 2020 budget figures this represents an increase in the tax
levy of approximately 1.2 per cent.
3. Concurrence
This report has been reviewed by the Director of Community Services who concurs with
the recommendations.
4. Conclusion
It is respectfully recommended that Council approve the project, authority to debenture
and the attached draft by-law to allow for the project to commence with financing at the
lowest cost possible.
Staff Contact: Trevor Pinn, CPA, CA, Director of Finance/Treasurer, 905-623-3379 ext.2602
or tpinn@clarington.net.
Attachments:
Attachment 1 — Draft By-law for debenture issuance
Interested Parties:
The following interested parties will be notified of Council's decision:
• The Municipality of the Region of Durham
Attachment 1 to Report FND-031-20
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Coordinator at 905-623-3379 ext. 2131.
The Corporation of the Municipality of Clarington
By-law 2020-XXX
Being a by-law to authorize the Regional Municipality of Durham to issue debentures in
the maximum amount of $50,000,000 as financing of the South Bowmanville Recreation
Centre project.
Whereas the Council of the Municipality of Clarington at its meeting of September 14,
2020 passed a resolution to authorize the written request to the Council of The Regional
Municipality of Durham to issue debentures on behalf of The Municipality of Clarington
for a total principal amount not to exceed $50,000,000 for a maximum term not to
exceed 20 years for financing of the South Bowmanville Recreation Centre.
And whereas the total costs of the South Bowmanville Recreation Centre project are
estimated at a total of $50,000,000;
And whereas the above project may be undertaken as a project for municipal purposes
under the authority of the Municipal Act, 2001, as amended (the "Act");
And whereas the Treasurer of The Municipality of Clarington has updated the 2020
Annual Debt Repayment Limit and this limit has not been exceeded and will not be
exceeded as a result of the issue of the proposed debenture, and therefore Local
Planning Appeal Tribunal approval is not required;
Now therefore the Council of the Municipality of Clarington enacts as follows:
That debentures in the principal sum not to exceed $50,000,000 be issued by the
Regional Municipality of Durham for a term not to exceed 20 years, for the
purposes of The Municipality of Clarington referred to above.
Attachment 1 to Report FND-031-20
2. That a written request be submitted to The Regional Municipality of Durham to
issue the aforesaid debentures and this By-law shall constitute such written
request.
3. That the money required to repay the principal and interest obligations in respect
of the debentures be funded from Development Charges Reserve Fund and
raised by tax levy in accordance with the Act.
Passed in Open Council this 21 day of September, 2020.
Adrian Foster, Mayor
C. Anne Greentree, Municipal Clerk