Agenda Index City of Vancouver

ADMINISTRATIVE REPORT

TO:

Vancouver City Council

FROM:

Corporate Management Team, in consultation with
Capital Plan Staff Review Group, and
Director of Finance

SUBJECT:

2000-2002 Capital Plan - Final Approval

 

RECOMMENDATION

COUNCIL POLICY

There is a variety of Council policy related to the capital planning and expenditure process which is documented in the accompanying report entitled Priorities for the 2000-2002 Capital Plan.

PURPOSE

The purpose of this report is to seek Council approval for the 2000 - 2002 Capital Plan, including confirmation of the funding limit and approval of the allocation of these funds to specific capital expenditure priorities.

BACKGROUND

The Background section of the accompanying Administrative Report entitled Priorities for the 2000 - 2002 Capital Plan (dated June 30, 1999, limited distribution) provides information about the process and decisions associated with development of the Capital Plan.

On July 6, Council considered the report on 2002 - 2002 Capital Plan from the Corporate Management Team and Capital Plan Staff Review Group and referred the draft plan for public comment.

On September 14, 1999, Council held a special meeting to hear the views of the public.

DISCUSSION

1. Status of Capital Plan Development

The draft Capital Plan summarized in Appendix A, represents the culmination of a planning process by Council and staff that began in October 1998. The draft plan is recommended to Council by the Corporate Management Team and the Capital Plan Staff Review Group.

In addition, in an accompanying report entitled 2000-2002 Waterworks Capital Plan the Corporate Management Team has referred the recommendations of the Staff Review Group for waterworks capital expenditures during the next three year period. The waterworks plan is an integral part of the capital expenditure planning of the City, however, since water costs are recovered from user fees rather than general purposes taxes, the financial limits of this plan are considered outside the balance of the capital plan and in the context of changes in water fees rather than of its impact on the operating budget and taxes.

In presenting the draft plan to Council in July, the Corporate Management Team and Staff Review Group indicated the priorities around the $173 million financial limit based on submissions from departments. These priorities are included in Appendix A. In addition, Council has heard the views of the public on capital expenditure priorities, including a specific request from the Community Centre Association presidents for additional funding for centre upgrading. Should Council wish to make adjustments to the draft plan, these should be dealt with at this time and the recommendations of this report modified to reflect those changes.

2. The Capital Plan Financial Limits

One of the issues to address in any adjustments to the recommendations is the impact they will have on the $173 million (excluding waterworks) financial limit established by Council in March. This financial limit was set as a planning guideline for use by staff during the planning process. The financial limit is intended to ensure that, in financing the capital plan,Council policies on the overall debt burden of the City and on the impact of the plan on future tax increases are observed.

With respect to the use of borrowing to fund the capital plan, Council has adopted policies that relate the cost of borrowing to the Operating Budget. In summary, these policies provide the following limits on borrowing:

· the cost of borrowing (principal and interest) should not exceed 15% of the Operating Budget
· the total commitment to capital expenditures (principal and interest on debt and revenue funds) should ideally fall in a range of 17% to 20% of the Operating Budget.

In developing the last Capital Plan, the Director of Finance cautioned that the City would likely exceed its limits on debt charges during the 1997-1999 period. While the projections overstated the actual position, at the end of 1998, debt charges were at 15.6% of the revenue budget, exceeding the policy limit. The overall capital expenditure envelope was at 17.6% of the revenue budget. While the debt charges ratio will drop slightly below the 15% limit in 1999 as a result of the recent delay in borrowing for the 1997-1999 Capital Plan, it is expected to continue near that limit over the next few years, suggesting there is little room to increase the amount of debt funding utilized in the Capital Plan.

With respect to the impact of the Capital Plan on taxes, Council’s policy has been to size Capital Plans such that the impact of their funding, either from debt charges or capital from revenue, does not adversely impact on future tax increases. In developing the limits for the 2000-2002 Capital Plan, the Director of Finance noted the budget projections indicated that, at $173 million, the impact of the plan would be neutral with respect to taxes over the course of the plan.

While these guidelines are not absolute, they do reflect long standing practice in the City that is reflective of a cautious approach to the growth of debt and the impact of the capital expenditure plan on the Operating Budget and that has contributed to the City’s AAA credit rating. What is important with respect to these guidelines is how the City performs over a period of time and, specifically, that the capital envelope does not regularly exceed the guidelines.

In March, the Director of Finance suggested that a plan in the range of $184 million could be accommodated without impacting the Council policy over the course of the plan. Although the Operating Budget projections on which this limit was based have changed, if Council wishes to increase funding in the plan, there is likely a balance between debt and revenue funding that would keep the ratios near the acceptable limits and that would impact only slightly on taxes. However, it is the view of the Director of Finance that holding closeto the current limit represents a prudent approach for Council to take at this time.

COMPLETING THE CAPITAL PLAN PROCESS

Once Council approves the structure of the Plan, there are a number of other steps leading up to the November plebiscite.

a) Financial Plan

Funding for the capital plan comes from several sources, including:

· borrowing authority approved by Council for sewer and water projects
· borrowing authority approved by the electorate for general capital purposes
· Operating Budget funding referred to as capital from revenue.

The Capital Plan financial plan will allocate these funding sources to components of the plan. The Director of Finance will be bringing forward a proposed plan to City Services and Budgets Committee on October 7, 1999.

b) Plebiscite Borrowing Questions

Voter approval for the borrowing portion of the Capital Plan is sought through plebiscite questions at the time of the November civic election. Normally, there are two or three separate questions put to the voters dealing with authority for components of the plan. In 1996, for example, two separate questions were asked, one for Public Works and Fire Facilities and one for Parks and Recreation.

Development of the 1999 borrowing questions will follow approval of the Capital Plan, with proposed questions brought to Council for consideration on October 7.

c) Public Information Process

Leading up to the election, an information program will be initiated to inform the electorate about the contents of the Capital Plan and the questions that will be asked of them related to borrowing authority. This information will include, how and by whom the capital expenditure priorities were set, the goals of the capital plan, how and where the money will be spent and what the impact on taxes will be. The primary tool for distributing this information will be a brochure to be delivered to each residence in the City along with other voter information and an appropriate media campaign.

CONCLUSION

The City is nearing the end of the process for developing the 2000 - 2002 Capital Plan. Council is being asked to finalize the Capital Plan, including confirmation of the programs and projects to be undertaken and the total amount of funding that will be available. These decisions will lead to approval of a financing plan, including identification of which components of the plan will be funded from borrowing authority and, finally, to approval of specific plebiscite questions to be put to the voters in November.

* * * * *

ag990921.htm

Comments or questions? You can send us email.
[City Homepage] [Get In Touch]

(c) 1998 City of Vancouver