ADMINISTRATIVE REPORT Date: June 21, 1995 TO: Vancouver City Council FROM: General Manager, Park Board SUBJECT: Reserve Fund for Andy Livingstone Artificial Turf Playing Fields RECOMMENDATION A. THAT City Council approve that the revenue from the user fees from the Andy Livingstone Artificial Turf Playing Fields be placed in a reserve account to be used for improvements or replacement of artificial fields. B. THAT City Council approve that interest be added to the reserve account each year to offset the effect of inflation. GENERAL MANAGER'S COMMENTS The General Manager of Parks and Recreation RECOMMENDS approval of A and B. The General Manager of Corporate Services does not support the payment of interest to the Artificial Turf Reserve and RECOMMENDS that Council NOT approve Recommendation B for the reasons outlined in the body of this report. COUNCIL POLICY City Council approval is required for the establishment of a funding reserve. BACKGROUND On January 5, 1987, Council approved the establishment of the Eric Hamber Artificial Turf Reserve. This approval was based on a recommendation from the Park Board indicating that a new user fee schedule had been approved for this field and recommending that these user fees be put aside and be placed in a reserve account for the future replacement or repair of this expensive field.On the same date, Council also considered the Park Board's request that interest be added to this reserve each year. This request was not approved. The motion passed as follows: - That revenue from the user fees be placed in a reserve account to be used for future improvements to the artificial turf playing field at Eric Hamber School. - That no interest be added to the reserve account. Subsequent to the above, in early May of 1995, Concord Pacific turned over Andy Livingstone Park to the City. As part of the development agreement, the construction of this park was completed prior to turnover and was fully paid for by the developer. The park contains two artificial turf fields and a ball diamond of the same calibre as the Eric Hamber field. In anticipation of assuming and operating these fields, the Board approved the following resolutions at its May 1, 1995, meeting: - That the Andy Livingstone Turf Playing Field user fees be the same rates as those established at the Eric Hamber Artificial Turf Playing Field as outlined in Appendix I. - That the Board request that the revenue and the interest from the user fees from the Andy Livingstone Turf Playing fields be placed in a reserve account to be used for improvements or replacement of artificial turf fields. DISCUSSION The original logic for the establishment of the Eric Hamber Reserve was based on the fact that the field provided a higher level of service than regular fields and that the users should contribute by way of a user fee. Also, it was estimated that within 10 to 12 years the Park Board could be faced with costs estimated at $550,000 allowing for inflation, to replace the synthetic turf. The accumulation of user fees in a reserve together with interest would provide most of the funding required at replacement time (10-12 years). This same logic applies to the Andy Livingstone Park Artificial Turf Fields and the Board is again requesting Council approval to transfer these user fees into a reserve account. The Board is also requesting that the City add annual interest to this account in order to offset the annual inflation. The interest rate would be the average rate earned by the City on its investments of surplus funds. This request is being made in spite of the fact that interest was not allowed on the Eric Hamber Reserve. The reason being that the circumstances related to the Livingstone Park Reserve are different than Eric Hamber. In the case of the Hamber fields, the City incurred additional annual debt servicing costs on the $900,000 debt incurred to pay for this field. However, in the case of the Andy Livingstone Fields, this rationale does not apply as the construction costs were paid for by the developer and no additional debt was incurred by the City. Therefore, the Board feels justified in requesting the addition of interest to the new reserve being requested. The established user fees are expected to produce annual revenues of approximately $80,000. In 1995, this will amount to $40,000 as the fields will be open for a half of the year. It is estimated that in 10 to 12 years the turf will have to be replaced at a current cost in the area of $1.0 to 1.5 million. At an inflation rate of 3% per annum, this would amount to $1.3 to 2.0 million in 10 years. Assuming that user fees are inflated by 3% per year and that these are placed in a reserve earning 6% interest per year, at the end of a 10-year period the funds available would be around $1,350,000. At the end of 11 years it would amount to $1.53 million which would provide most of the funding required for replacement. COMMENTS OF THE DIRECTOR OF FINANCE The new facility at Andy Livingstone Park will add significant new operating costs to the Operating Budget. The Park Board has requested additional funding of $160,000 annually for the park, of which $85,000 was added in 1995. The decision to direct user fees to the reserve means that these additional maintenance costs would increase the Board's Global Budget. Alternatively, these fees could be used to offset operating costs, as is the case with other Park Board operations. Payment of interest to the reserve would further increase the City s operating costs, and possibly at the expense of other city operations. The City has generally limited the establishment of reserves to provide for the replacement of trucks and equipment. Replacement of other capital assets is provided through capital funding allocations which are determined during the course of developing the City's three-year capital plans. Since a precedent has already been established with the Eric Hamber field, it seems reasonable to continue with the practice for the Andy Livingstone facility. The Director of Finance does object to the payment of interest on reserve balances, and recommends that Council NOT approve Recommendation B of this report. Council should note that the Park Board budget is not charged for the debt servicing costs that arise from capital borrowing for park and recreation purposes, and to allow interest on reserved funds which are derived from capital expenditures on park facilities, whether those funds are provided by the City or not, is not consistent with that debt policy. CONCLUSION The establishment of this reserve will ensure that the users of these high cost high quality playing fields pay for the future replacement costs. This will ensure that the necessary funding is available and will not have to be included in future debenture capital borrowing which would be repayable by a levy against all property owners. * * * * *