ADMINISTRATIVE REPORT
Date: September 16, 1996
File: 1.40.96.06
TO: Vancouver City Council
FROM: Capital Plan Staff Review Group
SUBJECT: 1997-1999 Waterworks Capital Plan
RECOMMENDATION
A. THAT Council approve the 1997-1999 Waterworks Capital Plan at
a total cost of $74.1 million, including elimination of the
50% City funded subsidy for new water services for
single-family homes and duplexes, effective January 1, 1997.
CONSIDERATION
As an alternative to A, the following options are submitted:
B. THAT Council not approve elimination of the 50% City share of
new water services for single family homes and duplexes and
approve an additional $4.2 million in the 1997-1999 Waterworks
Capital Plan for a total cost of $78.3 million.
OR
C. THAT Council make further reductions to the recommended plan,
as outlined in Appendix B to this report, and approve the
1997-1999 Waterworks Capital Plan with funding totalling
$63.85 million.
CITY MANAGER'S COMMENTS
The City Manager RECOMMENDS approval of A.
COUNCIL POLICY
Vancouver's water system operates as a utility, with all funding
recovered through its rates and fees. City Council, under Charter
authority, approves borrowing for Waterworks without submitting the
borrowing to a plebiscite.
In May, 1995, Council approved property owners funding 50% of the cost
of residential connections for new single-family and duplex homes.
Since the 1990 inception of mandatory residential fire sprinklers, these
services were funded 100% by the City. Prior to that time, new services
were funded 100% by the property owner.
CityPlan, adopted by Council on June 6, 1995, proposed developing
user-pay programs to reduce environmentally harmful actions.
PURPOSE
This report presents the Capital Plan Review Group s recommended funding
level for the 1997-1999 Waterworks Capital Plan, along with alternatives
for Council consideration. Two alternative funding options are provided
in Consideration items B and C, although Council also has the option of
setting the Capital Plan funding at any other level that it feels is
appropriate.
BACKGROUND
Although Council approves the Waterworks Capital Plan separate from the
overall Capital Plan, and without going to plebiscite, it is submitted
along with the rest of the Capital Plans for convenience and context.
Engineering Services presented a general review of the Waterworks
Capital Program to Council on June 11, 1996. This review outlined the
Department s submissions to the 1997-99 Capital Plan in the context of
the Waterworks long range plan, and identified funding needs totalling
$83.85 million in order to meet the long range plan objectives over the
next three year period. This presentation was for information purposes
only and no funding decisions were made. Comments from members of
Council at that time were generally supportive of the Department s
approach to planned infrastructure replacement, dealing with growth in
demand through a combination of system expansion and demand management,
and emergency preparedness. To deal with demand management, Council
approved a recommendation to pursue permanent, region wide, sprinkling
regulations with the GVRD.
The detailed explanations of the needs, making up this $83.85 million
submission, were then submitted to the Capital Plan Staff Review Group
on July 26, 1996. The review group recognized that the Waterworks
submissions were needs based, and that they represent important
programs; however they also recognized that it is important to address
the issue of affordability.
DISCUSSION
ENGINEERING SUBMISSION $83.85 million
The plan submitted to the Staff Review Group by Engineering Services
includes the following four categories:
Ageing Infrastructure Replacement $43.5 million
The water system has a replacement value of approximately $1.2
billion and an average life expectancy of 70 years. A replacement
rate of 1.5% per year is necessary to maintain a steady replacement
program and to limit the costs due to breaks, leaks and resulting
damage.
Addressing Growth $11.0 million
A number of projects are planned which are intended to address
existing pressure and fire flow problem areas in the City. These
problems are due to historic and continuing City and Regional growth.
Emergency Planning $20.3 million
This category focuses on a continuation of the development of the
Dedicated Fire Protection System (DFPS). It includes funding for
construction of the third pump station at Kitsilano Point, as well as
continuation of the construction of the DFPS pipeline system. It is
anticipated that the system will be completed over the next two
capital plans. The DFPS provides benefits on a day to day basis, as
well as in the event of a major disaster, by upgrading the water
supply available for fighting major fires in areas where building
densities have increased the design fire demand beyond the capacity
of the existing water system. The system allows the deferral of
costly upgrading of the regular water distribution network, which
would otherwise be needed to address this increased demand. This is a
particular issue in Kitsilano. Engineering is assessing whether
construction of the pipeline system in Kitsilano is a higher priority
than completion of the downtown network, as described in the Capital
Plan submission, and will report back prior to submission of the 1997
Capital Budget.
This funding category also includes exploration of alternative
emergency water supply sources, such as the Fraser River for fire
suppression and groundwater aquifers for potable water.
Customer Connections and Other Works $9.05 million
The cost of new water services for single-family homes and duplexes
are currently subsidized 50% by the City. Other works include
short-notice watermain replacements prior to street repaving
projects, Waterworks Operations building modifications, telemetry
system improvements, engineering and site investigations, and
miscellaneous and minor works.
A summary of the submitted plan, along with three reduced funding
options, is attached as Appendix A. At the Review Group s request,
Engineering has prepared the attached list (Appendix B) of potential
reductions and their impacts. The Review Group supports the order of
priority presented in this list, although Council may approve any option
in whole or in part.
CAPITAL PLAN STAFF REVIEW GROUP RECOMMENDATION $74.1 million total
Having reviewed the needs identified in the submissions, and also having
given consideration to the issue of affordability, the Review Group has
arrived at a recommended plan in the amount of $74.1 million, which is a
reduction of $9.75 million below the submission level.
The Review Group recommends that $4.2 million of this reduction be
achieved by elimination of the current 50% City subsidy on the cost of
installing new water services to new single family homes and duplexes.
The Review Group s rationale for proposing elimination of this subsidy
is based on the results of the CityPlan public process whereby concerns
were raised about the changing character of neighbourhoods, loss of
affordable housing, and the environmental impacts of new development.
Construction of new single-family houses results in costs to
neighbourhoods, the City, and region. Impacts can include the loss of
more affordable character housing, increased waste resulting from
demolition materials and broader regional consequences of locating low
density housing close to City jobs. Given these impacts, there is some
cause to question why it is appropriate to continue to subsidize the
construction of new single-family houses. Consequently, the Review
Group is recommending elimination of the 50 percent subsidy for new
services for single-family houses and duplexes. This would achieve a
$4.2 million reduction with no functional impact on the water system.
It would place the cost of servicing new development on the builder. It
would also result in all new water services being funded through
connection fees, with the exception of new services required for the
construction of secondary suites. These would continue to be funded
100% by the City because the construction of secondary suites is
consistent with the goals of CityPlan, and the rationale provided above
does not apply in these cases.
A further $5.55 million reduction would be from the Addressing Growth
section by deferring two transmission main upgrading projects. During
the June 11, 1996 Waterworks Capital Plan presentation to Council,
Council approved that the City pursue with the Greater Vancouver Water
District (GVWD) the adoption of permanent lawn sprinkling regulations.
If permanent watering restrictions are adopted regionally, along with
other aggressive demand management measures, staff believe that these
two transmission main projects can be deferred until the next Capital
Plan without significant further service deterioration.
This recommended plan represents an increase of $20.4 million (Appendix
C) over the funding level for the 1994-96 Plan, with the major areas of
increase being in Infrastructure Replacement and the Dedicated Fire
Protection System (DFPS).
The Review Group, in supporting the increase in the DFPS, were guided by
two major factors. First, if the additional fire protection system was
not provided in the Kitsilano area, alternative work would be required
to maintain adequate fire flows for the existing distribution system, at
a higher cost. Further, as the Citizen's Survey indicated, there is
support among the public for expenditures to improve the City's ability
to respond to disaster scenarios such as earthquakes.
The increase in infrastructure replacement for the distribution and
transmission systems, amounting to $17.75 million, reflects a
significant increase in this work and gives recognition to the targeted
replacement program of 1.5% per year. Arguably, the increase in this
program might be deferred until later Capital Plans, with maintenance
funds utilized to address leaks and emergency repairs. However, the
Review Group notes that future Capital Plans beyond 1999 will address
major initiatives for water transmission and storage facilities and the
1997-99 Plan may be the appropriate "window" for implementing this
increase.
FURTHER REDUCTIONS UP TO $10 MILLION
If Council feels that the Waterworks Plan should be reduced further than
the $10 million dollars recommended by the Review Group, a list of
potential cuts is included in Appendix B. The impacts of these
reductions are more severe, affecting levels of service, the long term
stability of the infrastructure replacement programs, and associated
costs due to breaks, leaks, and resulting damage. These reductions are
listed in order of priority. If the full $10 million is removed, the
resulting Plan would be $63.85 million.
FINANCIAL IMPACT
Waterworks capital expenditures do not effect general taxes, but do
impact the water rates charged to customers. Figure 1 projects
single-family water rates from 1996 to 2000 for the total $74.1 million
plan recommended by the Staff Review Group. Metered water rates would
increase by the same proportion.
The top portion of the rate (in black) is due to the increase in this
Capital Plan over the previous Capital Plan (increase of $20.4 million).
The light grey area in the bottom of each bar represents the City
portion of the single-family rate assuming continued capital spending at
1994 -1996 levels. This portion of the rate rises due to financing
costs for past capital budget increases. The dark grey areas of these
graphs show the increases due to GVWD projected water rates, as
presented to the GVWD Water Committee in June, 1996.
Figure 2 shows the projected water rates for single family homes in 1999
for the Review Group s recommended plan, as well as the other two
options represented by Consideration items B and C of this report.
Changes to the Waterworks Capital Plan have no effects on the water rate
in the first year of the three year plan. By the third year of the plan
(1999), the Staff Review Group recommendation would result in a $10
water rate increase, compared to current capital plan funding. For
comparison, Consideration options B and C would result in a $12 and a $5
increase respectively.
The greatest impact on Vancouver s water rates results from regional
cost increases. The GVWD s historic and projected water rates are shown
below in Figure 3. Their rates have quadrupled in the last 10 years,
and are expected to almost triple in the
next 10 years due to major water quality
and supply improvements.
As a result, there is little opportunity
to smooth out water rate increases by
deferring City work. Deferring needed
capital expenditures will further burden
future ratepayers, when their rates will
also be higher due to regional costs.
If Vancouver s water capital programs
are substantially deferred now, water
rates will increase more dramatically
during subsequent Capital Plans.
Recommendation A is proposed by the
Capital Plan Staff Review Group as a
suitable compromise between increasing
water rates, and needed City water
Figure 3 system capital works.
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