|
CITY OF VANCOUVER ADMINISTRATIVE REPORT |
Date: |
March 26, 2004 | |
Author: |
Ken Bayne | |
Phone No.: |
873-7223 | |
RTS No.: |
04129 | |
CC File No.: |
1611 | |
Meeting Date: |
April 20, 2004 |
TO: |
Vancouver City Council |
FROM: |
General Manager of Corporate Services / Director of Finance in consultation with Capital Plan Staff Review Group |
SUBJECT: |
2003 -2005 Capital Plan: Funding Adjustments |
RECOMMENDATION
A. THAT Council approve the following adjustments to the 2003-2005 Capital Plan funding allocations:
Mount Pleasant Civic Centre (1 Kingsway):
_ the allocation of additional city-wide DCL funds to the day-care component ($1.5 million),
_ reallocation of tax-supported day-care borrowing authority to the community centre component ($1.0 million),
_ allocation of the estimated 2004 GST rebate savings in the Operating Budget ($2.0 million).
AND THAT the Director of Finance, in consultation with the Director of Facilities Design and Management, be instructed to report back once the tender process is completed on the final budget and funding requirements necessary to complete the project as envisioned.
Park Board Capital Plan Allocations:
_ reallocation of $695,000 of existing funding within the Park Board envelope as identified in Appendix A,
_ reallocation of $680,000 of existing tax-supported funding for Park Enhancement and Playfields to the Queen Elizabeth Park Reservoir and Killarney Pool projects, and
_ allocation of an additional $680,000 of City-wide DCL funds to the Park Enhancement ($385,000) and Playfields ($295,000) components.
B. THAT Council approve the funding for the grant to the Millennium Sports Facility project (estimated to be $1.0 million) from the $20 million of borrowing authority approved by the voters in 2002 for the City share of cost shared capital projects.
C. THAT Council confirm its commitment to a 30,000 square foot LEED Silver redevelopment of Sunset Community Centre and instruct the Director of Finance, in consultation with the General Manager of Parks and Recreation to report back on final costs and funding options.
CITY MANAGER'S COMMENTS
The City Manager concurs with the recommendations of the Director of Finance and the Capital Plan Staff Review Group contained in this report. As a result of factors beyond the City's control, significant cost increases mean that several projects - including the Mt Pleasant Civic Centre (1 Kingsway) and Killarney Pool projects - in the 2003-2005 Capital Plan will not be completed without additional funding. This report recommends a conservative but fiscally responsible approach to ensuring that the Capital Plan can be completed as contemplated and that Council can maintain its standards of maintenance and upgrading of infrastructure and facilities as well as the commitments the suggests to the communities and voters that supported it.
As a result, the City Manager recommends approval of A, B and C.
COUNCIL POLICY
Council approves the 3 year Capital Plan programs and projects and any alterations to that plan. Council also establishes the funding allocation in the Capital Plan based on recommendations of the Capital Plan Staff Review Group and Director of Finance.
PURPOSE
The purpose of this report is to advise Council of funding issues related to several projects in the 2003-2005 Capital Plan and to recommend an approach to providing for funding shortfalls. The report also seeks Council approval of a funding source for the grant approved for the Millennium Sports Facility Society.
BACKGROUND
The 2003-2005 Capital Plan and associated financial plan was approved by Council in September, 2002. The borrowing authority explicit in the financial plan was approved by the voters at the time of the 2002 civic election. The Capital Plan provides funding for major maintenance and upgrading of existing City infrastructure, including sewer and water systems, streets and electrical infrastructure, parks and buildings. The Plan also includes funding for replacement or new facilities. Limited funding is also available for provision of support to outside organizations undertaking work on their own or leased City property. A high level summary of the funding allocations and sources in the Capital Plan is included in Appendix A.
On January 27, 2004, Council approved a grant to the Millennium Sports Facility Society as follows:
THAT Council approve a grant of $1.18 million to the Millennium Sports Facility Society project to offset the following costs:
i) City-Wide Development Cost Levies for this project, to a maximum of $360,000; and
ii) the shortfall in project fund-raising to complete construction of the Millennium Sport Facility Society project to a maximum of $820,000;
source of funding to be the existing 2003-2005 Capital Plan envelope;
AND THAT Council instruct the Capital Plan Staff Review Group, in consultation with the Director of Finance, to report back before consideration of the 2004 Capital Budget on the alternatives for providing additional funding for this and other projects by: i) reallocating existing funding within the Capital Plan; ii) providing additional funding from Capital from Revenue or Development Cost Levies; or, iii) accessing the $20 million in borrowing authority approved by the voters for Cost-Shared Infrastructure projects.
With the recent decision to phase-in the revised City-wide DCL, the cost of this grant to the Millennium Sports Facility Society is anticipated to be $1.0 million.
DISCUSSION
In developing estimates for Capital Plan purposes, departments are expected to request sufficient funding to complete their projects without the necessity for inflationary adjustments. In periods of low cost inflation this process would normally be expected to provide sufficient funding to complete projects as anticipated. However, the 2003 - 2005 Capital Plan includes several construction related projects that have faced significant cost increases since the initial estimates were developed for planning purposes in 2001/2002. A number of factors have resulted in these increases:
1. Taking project estimates from concept to design thereby refining the costs estimates to deliver the intended program.
Several projects in the Capital Plan were only at the conceptual stage at the time the plan was developed and estimates were based on a broad understanding of what would be constructed. More detailed functional design and costs estimates have resulted in funding shortfalls if the intended program is to be delivered.
2. Implementation of the City-wide DCL and its application to civic projects.
When the 2003-2005 Capital Plan was developed, it was anticipated that an exemption from City-wide DCLs would be in place for civic projects. The Financing Growth Study recommendations approved by Council supported this exemption, however, to date necessary legislative changes have not been introduced, thereby requiring the City to pay DCLs on civic projects, including some that are partially financed by DCLs.
3. Significant increases in construction labour and materials costs.
Increased costs are a problem faced by construction projects throughout the Lower Mainland, including several projects in the 2003-2005 Capital Plan. These are driven by:
_ Increased volume of work currently being undertaken and projected in the immediate future.
_ Limited pool of skilled labour, specifically in the areas of concrete formwork and iron workers. BC has lost much of its construction labour force to Alberta and Washington State in recent years and coupled with the current volume of work, has driven up the costs of labour.
_ Increased material input costs, including the cost of reinforcing steel, metals, plywood and other materials, have risen 30 percent and continue to rise. This has resulted in some bids now including qualification clauses on the materials with regard to future price escalation beyond 30 days.
These findings have been discussed by staff with development industry representatives and cost estimators, who confirm that in the last year alone projects have experienced cost escalation of up to 18 percent, well beyond that anticipated during the Capital Plan planning phase.
Capital Plan Staff Review Group Review
The Capital Plan Staff Review Group was convened to consider the funding shortfalls and the options available to provide sufficient funding to allow projects to proceed as provided for in the Capital Plan. This review considered all areas of the Capital Plan as well as the need to identify a source of funding for the Millennium Sports Facility capital grant approved by Council on January 27, 2004.
When faced with cost increases in the capital program, departments are required to look first for ways to offset the costs within the existing funding allocations. In areas of ongoing program expenditure, offsets can be achieved by altering or reducing the program. For projects with defined scope and funding, costs increases can be offset by reallocating funding within the capital plan or by reducing the scope of the projects, often leading to situations where the viability of the project or its ability to provide for the intended public service is threatened.
In reviewing the Capital Plan funding allocations, it was determined that:
Sewer and Water Program: the City Engineer will be able to complete the Sewer and Water capital programs without additional funding. Any funding adjustment necessary will be reported as part of future capital budgets.
Other Public Works: The balance of the Public Works portion of the Capital Plan includes expenditures for streets, street lighting, communications and yards. The City Engineer reports that there is sufficient funding within the existing allocation to complete the capital program in these areas. Any funding adjustment necessary will be reported as part of future capital budgets.
Community Services: This program includes contributions to the Affordable Housing Fund, funding for the Downtown Eastside and the capital grants program. These areas of the plan are not affected by cost increases.
Civic Facilities/Other: This portion of the Capital Plan includes funding for the proposed Police Training Facility, capital maintenance of other civic facilities and major maintenance and replacement of data and communications infrastructure and systems. These areas of the Capital Plan are either not far enough along in the planning process to estimate funding deficiencies or have sufficient funding to complete the anticipated program.
Park Board: With the exception of the two projects detailed below, the Park Board should be able to complete the projects within their Capital Plan, including the contemplated park development projects and the routine facilities projects. However, in order to complete the program, Park Board will be recommending a number of funding adjustments, including the allocation of additional City-wide DCL funding and the reallocation of tax-supported funding within the plan.
Projects Requiring Additional Funding
The Staff Review Group identified a number of projects where additional funding is required or original project expectations cannot be met. In addition, the Staff Review Group was asked to identify a funding source for the approved grant to the Millennium Sports Facility from within the existing Capital Plan funding envelope. The specific projects are listed below.
Project |
Functional Area |
Funding Shortfall |
Mt Pleasant Civic Centre: 1 Kingsway |
Parks, Library, Daycare |
$3.8 - $4.6 million |
Killarney Pool |
Park Board |
0.85 million |
Queen Elizabeth Reservoir |
Park Board |
0.55 million |
Millennium Sports Facility |
Capital Grant |
1.0 million |
Sunset Community Centre |
Park Board |
$1.8 million |
Total |
$7.8 - $8.6 million |
There are a number of sources of funding that can be utilized to offset these funding shortfalls without impacting on the balance of the program/project expenditures in the Plan. These include:
· Reallocation of the additional GST rebate within the capital program.
In the federal budget introduced on March 23, 2004, the federal government agreed to provide an additional rebate of GST paid by municipalities, equivalent to 3%. Capital projects will benefit from the additional rebate beginning in 2004. Based on actual experience in 2003, the total amount of the rebate in the capital program is anticipated to be approximately $3.0 million in 2004.
Reallocating these rebates within the capital budget will be complicated because of the funding sources utilized. For example, sewer and water capital programs are funded entirely by debt and Council cannot use this debenture authority to fund other capital programs. As a result, the GST rebate will remain within the sewer and water programs to offset cost increases in the programs, to increase the amount of work that can be done, or to reduce the cost of the programs overall.
The recommendation of the Staff Review Group is that the GST rebates in the capital budget be utilized first to offset individual project funding shortfalls and, secondly be available for reallocation to other projects with funding shortfalls.
The Director of Finance is also recommending that Council allocate the GST rebate in the Operating Budget - estimated to be $2.0 million in 2004 - as a one-time contribution to the capital program. Ongoing use of these savings will be the subject of a subsequent report to Council.
· Allocation of additional City-wide DCL revenues to DCL eligible projects in the Capital Plan.
With the increase in the City-wide DCL rate in 2004, additional developer contributions will be available for allocation to the Capital Plan. Allocating additional DCL revenues to eligible projects would make existing tax-supported funding (debenture or capital from revenue funding) available for reallocation to projects with funding shortfalls.
· Accessing the $20 million in borrowing authority approved by the voters to provide the City share of projects that receive funding from outside governments or organizations.
The electors authorized Council to borrow up to $20 million to fund the City share of projects that receive a majority of their funding from outside sources, including senior governments. The Staff Review Group notes that one of the projects requiring funding - the Millennium Sports Facility - has approximately 70% of its funding provided from outside sources.
Recommended Funding Changes
The Staff Review Group recommends a combination of these funding options to address the shortfalls that have been identified.
1. Mount Pleasant Civic Centre: 1 Kingsway
In an accompanying report, the Director of Facilities Design and Management outlines the status of the 1 Kingsway project and seeks approval to proceed to the tender process. As noted in that report, if the project is to be completed as intended, there is a potential funding shortfall of up to $4.6 million.
The Staff Review Group has made the following recommendations with respect to project funding (summarized in the table):
_ Reallocation of the anticipated GST savings of $500,000 currently within the capital budget.
_ Allocation of an additional $1.5 million in city-wide DCLs to the daycare component of the project.
_ Reallocation of $1.0 million of borrowing authority for daycare to the community centre component of the project.
_ Allocation of the anticipated GST rebate savings of $2.0 million in the Operating Budget in 2004. This will be a one time allocation, leaving the ongoing savings in the Operating Budget subject to Council review at a later date.
Mt Pleasant Civic Centre
Revised Funding Allocations1
Existing Allocation |
Reallocated/New Funding |
Revised Funding | |
Borrowing Authority |
13,175,000 |
0 |
13,175,000 |
City-Wide DCLs (daycare) |
$1,300,000 |
1,500,000 |
2,800,000 |
Community Amenity Contributions
|
$2,000,000 |
2,000,000 | |
GST Rebate
|
$500,000 |
500,000 | |
GST Rebate
|
0 |
2,000,000 |
2,000,000 |
16,475,000 |
2,500,000 |
20,475,000 |
1. In an upcoming report the Director of Current Planning is recommending the allocation of $100,000 in CAC funding from 950 Quebec/939 Main Street to the Mt Pleasant Civic Centre. This will bring the total funding available for the project to $20.575 million.
Should Council not approve the allocation of additional Operating Budget funding to the 1 Kingsway project, the alternative would be to provide the necessary funding from the $20 million of borrowing authority for cost shared projects. However, the Director of Finance believes that further commitment of these funds will not only result in an unnecessary increase in debenture debt but could also result in the City having difficulty funding its share of future approvals from the list of projects submitted to the Canada-BC Infrastructure Program.
Should the project requirements exceed the $20.575 million (see table and note above) once the tenders for the project are in place, the Director of Finance, in consultation with the Director of Facilities Design and Management will report back on options to further reduce the cost of the project or to provide additional funding.
2. Park Board: Funding for Killarney Pool and Queen Elizabeth Park Reservoir
The Park Board requires additional funding of $1,375,000 for two projects. Council has already adjusted funding for the Dr. Sun Yat Sen Garden project by $13,000 to account for the costs of City-wide DCLs payable on the project.
The Staff Review Group recommends that the additional funding be provided by a combination of new funds and the reallocation of existing funding within the Park Board capital plan, as follows:
_ Reallocation of $112,000 in project funding from the completed False Creek Community Centre project, including CAC funding of $66,000.
_ Reallocation of $456,400 of funding from other Park Board projects that are completed or deferred.
_ Reallocation of $126,000 of GST savings from within the Park Board capital plan.
_ Reallocation of $680,000 of tax supported funding from Park Enhancement and Playfields and its replacement with an additional $680,000 of city-wide DCL funding.
Park Board Capital
Capital Plan Funding Adjustments
Funding Area |
Existing Allocation |
Reallocated/ New Funding |
Comments |
Killarney Pool |
$8,900,000 |
$825,000 |
· Construction cost increases
|
Queen Elizabeth Park Reservoir |
3,400,000 |
550,000 |
· Construction cost increases |
Recreation Facilities |
(602,900) |
· Reallocation of existing tax supported funding, including GST rebates
| |
Park Development |
(772,100) |
· Reallocation of existing tax supported funding, including GST rebates
| |
Net Adjustment |
$ 0 |
.
3. Park Board: Millennium Sports Facility
As noted above, Council approved a grant of up to $1.18 million to allow construction of the Millennium Sports Facility to proceed. With the delay in implementing the full city-wide DCL until July 1, 2004, the anticipated DCL costs of this project have been reduced to $170,300 bringing the maximum amount of the grant to $1,000,000.
As this project is funded approximately 70% by outside funders, the Staff Review Group recommends that Council access the $20 million in borrowing authority for cost shared projects approved by the voters in November 2002 for the civic share.
4. Park Board: Sunset Community Centre
Sunset Community Centre was identified by the Park Board as the highest priority for replacement during the planning for the 2003-2005 Capital Plan. However, because of other demands on the Plan, including the need to complete the Mt Pleasant Community Centre replacement, no funding in the base plan was recommended. Instead, Council agreed to allocate a $3.0 million City contribution to be funded from the $20 million of borrowing authority for cost shared projects, subject to contributions from the Federal and Provincial governments to the replacement project.
The Canada/British Columbia infrastructure program has now awarded $4.0 million toward replacement of Sunset Community Centre. The application was based on a 30,000 square foot Community Centre to be built to the LEED Silver standard. An architect has recently been retained to begin design work and the project is estimated to be ready for tender in the spring of 2005. At that time a cost estimate will be available that more accurately reflects the effects of the costs of completing the project as submitted to the Infrastructure Program.
The project team will be instructed to design a 30,000 square feet, LEED Silver community centre to current Park Board quality specifications. It is anticipated that a request will come forward to Council in early 2005 to provide the balance between the $7,000,000 currently allocated ($3.0 million City / $4.0 million Infrastructure Program) and the actual project cost. Depending on actual cost escalation in the year ahead this could possibly require additional funding of between $2 and $3 million to complete the project as envisioned.
No Council action related to funding for the Sunset Community Centre replacement is necessary at this time. However, Council is being asked to confirm its commitment to the original project scope - and the anticipation of increased costs - prior to further design work proceeding.
FINANCIAL IMPLICATIONS
There are a number of financial implications associated with the recommendations of this report:
_ Additional City-wide DCL funding of $2.18 million will be allocated to Parks and Daycare uses in the 2003-2005 Capital Plan. This additional allocation can be funded within the principles established by Council as a result of the Financing Growth Study.
_ There will be some reallocation of borrowing authority approved by the voters. At the time Council approves budgets for these projects, the appropriate recommendations requiring eight affirmative votes will be brought forward for approval.
_ Council is being asked to make a one-time contribution from the Operating Budget for the 1 Kingsway project with the source of funding to be the anticipated $2.0 million of GST savings in 2004. Ongoing use of this funding source will be the subject of a future report to Council.
_ Council is being asked to commit additional funds from the $20 million of borrowing authority for cost shared projects. To date, Council has committed $3.0 million to Sunset Community Centre (with the potential for a further $2.0 million required based on the information in this report), $2.0 million for Transport Canada Urban Showcase Initiative, and now, $1.0 million for the Millennium Sports Facility, bringing the total committed and anticipated to a total of $8.0 million.
CONCLUSION
A number of factors including the application of city-wide DCL costs, the process of taking projects to final design and the significant escalation of construction costs have resulted in under-funding of several major construction projects in the 2003-2005 Capital Plan. Without the identification of additional funding, these projects could not be completed as intended affecting the delivery of public services. The recommendation in this report attempt to find a balance between identifying funding within the existing capital expenditure envelope, committing additional tax supported funding (capital from revenue and debenture borrowing), and accessing other City funding resources (City-wide DCLs).
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APPENDIX A
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