POLICY REPORT
FINANCE
Date: July 15, 1996
TO: Vancouver City Council
FROM: Staff Review Group on the 1997-99 Capital Plan
SUBJECT: Priorities for the 1997-99 Capital Plan
RECOMMENDATION
A. THAT the funding level for the 1997-99 Capital Plan
(excluding waterworks) be confirmed at $175 million, with no
offsetting reductions to fund the cost of regional radios.
B. THAT an ongoing allocation of $10 million of the Capital from
Revenue provision for the Capital Plan be redirected to the
Operating Budget for the Information Technology
infrastructure replacement program, as detailed in the
accompanying report.
C. THAT the recommended Plan for $165 million, as set out in
this report, be received and circulated to the public,
leading up to a public meeting on September 23rd to receive
public comment, and for final adoption on
September 24th.
CITY MANAGER'S COMMENTS
The City Manager RECOMMENDS approval of A, B and C.
COUNCIL POLICY
Council has taken a number of steps towards the development of the
1997-99 Capital Plan, including:
- establishing the general priorities to guide the evaluation
of projects submitted to the Capital Plan;
- established a financial limit for the Plan of $175 million
(excluding waterworks) and an allocation of $24.5 million for
Parks Board and $5 million for Supplementary Capital;
- directed the Staff Review Group to report back on a shortlist
of recommended projects within the financial limit of $175
million; and,
- approved City participation in the regional radio system,
with external financing for City costs, and with estimated
annual costs of $3.75 million, commencing in 1998-9, and
directed the Staff Review Group to report back on possible
offsets in the Capital Plan to mitigate the overall impacts
on the Operating Budget.
SUMMARY
In accordance with Council direction, the Staff Review Group have
reviewed submissions for the Capital Plan and have developed a list of
high priority projects within the financial limits of $175 million. A
separate program of infrastructure replacement for Information
Technology has been developed, and the Capital Plan funding is
recommended to be reduced by $10 million to provide part of the funding
for that program. The details of the recommended Plan for the remaining
$165 million are set out in Appendix 'A'.
In accordance with Council's direction, a reduced capital plan has also
been developed to provide offsets for the cost of Vancouver's share of
the regional radios. Given the significant impacts on the City s
infrastructure replacement and other high priority programs of those
reductions, the Staff Review Group does not support those reductions.
This effectively means that the regional radio system would have to be
funded by either a tax increase (which is supportable in terms of the
significant public safety benefits of regional radios) or through
reductions elsewhere in the Operating Budget.
A process for public information and consultation is proposed, including
a public meeting on September 23, 1996, prior to Council concluding
decision-making on the content of the Plan on September 24th.
INTRODUCTION
City departments and boards have submitted projects for consideration in
the 1997-99 Capital Plan totalling $374 million (excluding waterworks).
Council has established a financial limit to the capital plan of $175
million, and made two allocations from that total:
- Parks Board - 14% of the plan - $24.5 million; and,
- Supplementary Capital - $5 million.
The priority categories were established to guide allocation of funds,
and a Staff Review Group was formed with the direction to report back on
priority projects fitting within the financial limits.
The Staff Review Group is composed of:
Deputy City Manager
General Manager of Engineering Services
General Manager of Park Board
Chief Constable
Manager of Non-Market Housing
Director of CityPlans
Director of Finance
PROCESS FOR REVIEW
The Staff Review Group held 10 meetings during May, June and July and
heard presentations from City departments and boards. Subsequent to the
presentations, the Group deliberated on the submissions and eventually
developed a list of recommended projects fitting within the financial
limits. The details of the recommended Plan are set out in Appendix
'A'.
Staff were guided by a number of principles and considerations in
developing the recommended short list, including:
- Council's direction on funding for the Park Board;
- the categories and priorities established by Council, where
explicit priority was given to infrastructure replacement,
safety items, and mandated environmental improvements;
- specific Council policy and commitments governing certain
programs and projects;
- the potential for phasing projects over future capital plans;
- business case analyses, looking at both paybacks and
operating costs for projects;
- policies and guidelines flowing from CityPlan; and,
- the potential for securing alternative funding sources,
including Supplementary Capital, Development Cost
Levies/Community Amenity Contributions, and internal
financing (where there will be an economic payback).
Staff also sought to be realistic about the potential for funding in
future capital plans. Given the increasing demands for infrastructure
replacement and the unlikely scenario of increased capital funding for
future Plans, staff were cautious about new initiatives where increased
capital and operating funding were forecast for the future.
During the deliberations, staff acknowledged that there were many
projects submitted, both priority infrastructure replacement items and
desirable improvements to City facilities and services which simply
could not be accommodated within the financial constraints. It was not
an easy process to come down to a short list, and many worthwhile
initiatives which will have the support of both staff and the public
were not included in the final list.
In certain situations where funding could not be supported within the
Capital Plan for the full requirements of a project, staff identified
alternative approaches and funding sources. The following are some of
the major issues addressed.
1. Information Technology Replacement Program
In the Capital Plan submissions, there is a proposal for funding of $28
million to provide for the first stage of replacement of the City s
computer equipment and main frame legacy systems. This submission is
based on the increasingly obsolete equipment technology presently used,
the inability of current systems to support productivity and customer
service goals of the Better City Government program, and other strategic
issues associated with the systems and equipment. The Staff Review Group
have endorsed an alternative approach to funding the replacement of the
equipment and systems.
In the past, the City s investment in computer equipment and technology
has been financed in a number of ways. The main frame computers have
generally been financed through leases or internal financing, with
repayment over the expected economic life of the equipment. Individual
Personal Computers have generally been financed on an incremental basis
in the Operating Budget, without formal funding programs. The major
application systems have generally been custom built by City staff, with
the exception of the current financial system (purchased in 1984). In
the 1996 Operating Budget, for the first time, funding of $1 million was
allocated to provide for the replacement of older PCs.
Staff recognize that this process of funding computer equipment and
systems is somewhat haphazard and does not reflect the major investment
which the City has in equipment and information systems. It is in the
evaluation of costs for replacement, as submitted in the Capital Plan,
that brought to the fore the true magnitude of the City s investment.
To illustrate the inappropriateness of the current funding program for
IT, comparison is drawn to the policies for funding vehicles and
equipment. These assets are costed out to projects over their projected
economic life and replacement funding is accumulated, such that the
vehicles and equipment can be replaced without generating funding
impacts on the Operating Budget.
The Staff Review Group recognized that the requested replacement program
of $28 million could not be accommodated, in total, within the Capital
Plan. Further, there was a recognition that the replacement costs should
be annualized so that there is on-going funding in the Operating Budget
for replacement of computer equipment and systems. Equally, these costs
cannot be simply added to the Operating Budget without offsets, less
these costs start
driving the budget increases beyond the ability of the City revenues to
fund, within the constraints which Council places on property tax
increases.
The solution proposed by the Staff Review Group is a multi-pronged
approach, involving both the Capital Plan and funding in the Operating
Budget. At present, the Capital Plan funding involves both a Capital
contribution from the Operating Budget as well as Debenture borrowing.
The Staff Review Group recommend that the Capital Plan funding be
reduced from the $175 million approved by Council down to $165 million,
and that $10 million of the Capital contribution from the Operating
Budget be redirected to the IT replacement program. This funding would
be on-going for future plans and would be matched with other funding in
the Operating Budget to provide on-going funding for the IT replacement
program. The details of this program are set out in an accompanying
report before Council this day.
2. Seismic Upgrading
There were many submissions which identified deficiencies in City assets
and the potential for loss in the event of a major earthquake. While it
is common knowledge of the potential for a major earthquake or other
disaster scenario, there is no way to predict when such an event might
occur, and scientists speak in terms of hundred of years. Given the
time range within which such an emergency situation might occur,
consideration has to be given to probabilities, and to whether assets
are upgraded at time of replacement, or at some point prior to the end
of their economic life.
Current capital work has devoted a large amount of funding to projects
related to emergency situations, such as bridge upgrading, salt water
pumping, and regional radios. Staff did not consider that it was
affordable, in light of other infrastructure replacement needs, to
direct significantly more resources to address emergency scenarios.
However, it is recommended that staff report back to Council on a
process to identify priorities for future works and a strategy for
implementation. This would include a proposal to hire outside
consultants to assist staff to identify civic facilities which would be
used as shelters in the event of a major disaster.
3. Supplementary Capital
There were a number of smaller scale projects and areas where either the
immediacy for undertaking the work was not established or where the
issues were not well defined. These items were not included in the
recommended plan, and the potential for submitting
them to future Supplementary Capital Budgets was identified. Also, some
smaller scale capital works were deferred to consideration in
Supplementary Capital, including:
- major maintenance for civic buildings
- asbestos removal
- roof replacement
- HVAC replacements
4. Civic Theatres
Staff experienced some difficulty in attempting to deal with major
maintenance projects submitted by Civic Theatres. It is recognized that
Civic Theatres are undergoing a major upgrading program, funded from the
ticket surcharge and net profits from the parking garage. The
understanding of staff is that this funding source is to be allocated to
upgrading, while maintenance issues are to be dealt with through
traditional funding sources. However, most of the major maintenance
items submitted to the Capital Plan do not make the recommended
shortlist, due to higher priorities. Also, there is the anomalous
situation where the parking garage requires major maintenance to
maintain it, while the profits from the garage are directed to the
upgrading program. Staff flag this issue as one which the Civic
Theatres Board and Council may wish to discuss and resolve.
5. Planning Department Submissions
The Planning Department submitted a number of projects to the Capital
Plan, reflecting needs arising out of planning studies. Many of the
submissions overlap on program funding of Engineering and Parks, and
there was agreement that some of the submissions will be dealt with
within the those funding allocations.
Park acquisitions for emerging neighbourhoods, especially Downtown
South, were identified as needs. At present, funding is available for
some acquisitions through the proceeds of DCLs, and a $10 million
reserve has been established to interim finance park acquisitions in
advance of receipt of DCLs. However, it is recognized that these sources
will not be sufficient to fund the magnitude of expenditures being
proposed, and $2.5 million of additional Capital Plan funds has been
supported by staff.
6. Little Mountain Neighbourhood House
Three community groups made a joint submission in a letter to Council
for a new Hillcrest Centre, at a total cost of $3.4 million, excluding
land costs. Social Planning also made a submission for a Little Mountain
Social services Centre. Neither concept was particularly well developed,
although the Staff Review Group did recognize both the need and the
importance placed on this area by Council. Due to overall constraints,
the Staff Review Group
recommended $2.5 million to be allocated for City-owned social and
cultural facilities, with a view that priorities for utilization of
these funds will be worked out over the next three years.
FUNDING FOR THE REGIONAL RADIO PROGRAM
On June 13, 1996, Council approved the City s participation in the
Regional Radio project. Estimates of the capital cost of the City s
equipment are $23.5 million, but it is also recognized that these costs
would be financed in another manner (such as by way of lease or
financing by another agency), and not directly financed out of the
City s Capital Plan. Regardless, the City will have to fund the annual
lease/repayment costs associated with this project, and those annual
costs were roughly estimated to be in the range of $3.75 million.
In approving the City s participation in this project, Council deferred
addressing the issue of how these annual costs might be accommodated in
the annual Operating Budget. Options which might be considered would
include:
- reducing the size of the Capital Plan by $23.5 million, so as
to reduce the City s annual debt charges; or
- deferring the matter until the costs related to regional
radios actually impact on the operating budget (1998 or
1999), and then seeking expenditure offsets or additional
revenues at that time to fund the costs; or
- giving explicit recognition that regional radios are an
important public safety issue, and that property taxes might
have to be increased above the rate of inflation to
accommodate the project (this could involve an increase in
taxes of roughly 1%, spread over two to three years).
The Staff Review Group gave consideration to the first option of a
one-time reduction to the size of the Capital Plan. If the Plan was to
be reduced by $23.5 million, that reduction would be made in the following areas:
Streets - Arterial reconstruction $1,000,000
- Greenways 1,000,000
- Transit and safety improvements 1,000,000
- Property Fund 500,000
Fire - Training facility 770,000
- Replace Firehall #3 2,700,000
Vancouver Museum Revitalization 3,000,000
Downtown South Park Acquisition 2,500,000
City Owned Social/Cultural Facilities 500,000
Orpheum Washroom Upgrade 350,000
Information Technology Replacement program 10,000,000
Other 180,000
Total Reduction 23,500,000
It is important to note that the Staff Review Group do not support the
concept of making reductions to the Capital Plan, and are submitting
these projects for Council s consideration, should Council choose to
reduce the Plan ceiling. Of the above possible reductions, most are for
infrastructure replacement, and deferral of this work will only put
further pressure on future Capital Plans. We also note that most of the
recommended plan is devoted to infrastructure replacement, and staff
believe that these infrastructure needs will only increase over time.
Arguably, it is unlikely that there will be much of a window in the
future to increase capital expenditures over the current levels, so
deferral of infrastructure replacement is problematic.
SUBSEQUENT PROCESSES
This report of the Staff Review Group complies with Council s
instructions to report back on a recommended plan reflecting the highest
priority projects for inclusion within the funding ceiling of $175
million. By its very nature, this list of projects reflects staff views
on priorities, and it is acknowledged that it is lacking the views of
Council and the public. The next stage in the process
is the Public Information program which Council approved on July 11th.
This program will publicize the contents of the recommended Plan and
encourage written response, as well as participation at the September
23rd Public Meeting. On September 24th, Council will review the
responses and the results of the public opinion survey, and make final
decisions on the content of the Plan. Those components of the Plan which
are funded by debenture borrowing, and require voter approval will be
submitted to plebiscite in November, along side the Civic Elections.
In addition to this recommended Capital Plan, Council has yet to
consider the Waterworks Capital Plan. This is being dealt with
separately, as it is funded from user fees, and is not considered within
the financial constraints which Council established for the Capital
Plan. The Staff Review Group will review and report on a recommended
waterworks plan, including the financial impacts on user fees, for
consideration by Council in September.
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