Facing Our Fiscal Challenges. A Report on the Financial Sustainability of Local Government in Eastern Ontario February, 2012

Transcription

1 Facing Our Fiscal Challenges A Report on the Financial Sustainability of Local Government in Eastern Ontario February,

2 Facing Our Fiscal Challenges Overview of Presentation: Background Project Description Literature Review and Identification of Financial Sustainability Indicators Primary Data Sources (FIRs, Census) Detailed Analysis offinancial Sustainability ofregion s LocalGovernments Highlights of Financial Sustainability Analysis Limited Base from Which to Pay For Local Services Limited it Financial i Flexibility to Respond dto More Challenging Times (Hitting the Wall on Ability to Pay) Limited Growth Potential if the Status Quo Persists Capital lasset tbase is Eroding, Infrastructure t Needs Loom Large (Limited it Resources with which to Address Major Infrastructure Challenges) EOWC Intention is to Use Report as Basis for Dialogue with Other Levels of Government, Recognizing Challenging Economic Times Prepared by Natural Capital Resources Inc. 2

3 Purposes Background Project Description Study of factors contributing i to overall financial sustainability of region s municipalities Support to EOWC in forging postelection relationships with federal and provincial governments Deliverables Leveraging strategy (Capitalizing on EOWC s Past Work & Successes) Report on Financial Sustainability of Eastern Ontario s Local Governments Total Capital Infrastructure Deficit Data and analytical support for Estimate & Costing Methodology dialogue about policies, program Report on Operating Situation design and/or service delivery models Scenario Testing Tools While this project is being undertaken by the EOWC, data gathering and analysis covers 114 local governments in Eastern Ontario, including EOWC members, lower tier municipalities, and separated cities and towns (including Ottawa) see Appendix A. Prepared by Natural Capital Resources Inc. 3

4 23 Financial Sustainability Indicators Di Driver Fiscal Health Ability to Pay Infrastructure t Population % Change in Populat n Percentage of total and % Change Households assessment that is Households % of Pop 65 and over residential i Economic Base Operations Management Total assessment/hh % of assessment non residential Debt servicing cost as % of total operating revenue Estimated annual cap. maintenance requ ts Net working capital as %of Total Operating Expenditures Median household income Tax rates by categ. Net fin. assets or net db debt as %of own purpose revenues Grants as % of Total Revenue % Tax receivables as % of Total Levy Lane kms of roads/ HH Netbook value of capital assets/hh Total lane kms of roads, bridges and culverts % of roads in good/ very good cond (validate if poss). Total reserves & discr. reserves as % of total op. revenue Total infrastructure deficit Total reserves/hh Net book value of assets as % of Cap. Cost (Ratio of cap. expend. to deprec.) Prepared by Natural Capital Resources Inc. 4

5 Additional Indicators Fiscal Health Ability to Pay Infrastructure Federal and provincial gas tax revenues Revenue fund expenditures per household Provincial and federal grants per household Operating Expenditures on Transportation Services Net Book Value of Capital Assets Per Household Number of persons in labour force Unemployment rates Levels of education Percentage of income from earnings Percentage of Bridges and Culverts Good/Very Good Capital Expenditures on Transportation Services Prepared by Natural Capital Resources Inc. 5

6 Cities, towns and counties of all sizes, in all regions of the country, have encountered a perfect storm. An aging population, declining property values, and an aging infrastructure t have combined to shrink hi ktax revenues, create budget shortfalls and bring local governments into one of the most challenging financial eras of our time. While the economic downturn of recent years is certainly affecting revenues, research confirms that the forces acting upon governmental revenues are more deeply rooted and long lasting. Clifton lf Gunderson LLP, Certified Public Accountants & Consultants, in Achieving Financial Sustainability in an Uncertain Fiscal Climate, USA March Prepared by Natural Capital Resources Inc. 6

7 Limited Base from Which to Pay for Local Services Prepared by Natural Capital Resources Inc. 7

8 Limited Base from Which To Pay for Local Services Highly dispersed population Comparedto the provincial average: Population growth projected to be lower Median incomes 5 10% lower Higher percentage of population over 65 Lower percentage of income from earnings Persistently higher rates of unemployment Rural region highly reliant on residential assessment Half of the working age population leaves municipality for employment (limited in region opportunities) Prepared by Natural Capital Resources Inc. 8

9 Highly Dispersed Population Rural Eastern Ontario: 46,500 square kilometres, 700,000 people, 360, households 15 persons/square km (average) [range = 4 to 42; Ottawa = ~ 295] 7.75 households/square km Per unit Costs for geographically based services higher in less densely populated parts of region Example: 5 households/lane km of roads in Rural Eastern Ontario (average); ~ $100,000/household to rebuild 1 lane km 25 hh/lane km in Separated Cities; ~$20,000/hh Rural Eastern Ontario has 40 per cent of the Region's households double the number in the Separated Cities and almost as many as in the City of Ottawa... But dispersed over a much larger area Sources: 2006 Census, FIRs, capital needs studies Eastern Ontario Rural Eastern Ontario Separated Cities City ofottawa Prepared by Natural Capital Resources Inc. 9

10 Population Growth to Be Below Provincial Average Upper/Single Tier Mun. Pop Change Pop Change Pop Change * Includes sep. cities (%) (%) Per Year (%) Frontenac* Haliburton Hastings* Lanark* Kawartha Lakes Leeds and Grenville* Lennox & Addington Northumberland Peterborough* Prescott Russell Prince Edward Renfrew* Stormont, Dundas, Glen.* Region Rural + Sep. Cities ONTARIO Source: Table 6 Ontario Population Projections Ministry of Finance; projections based on 2006 census 10

11 Three Quarters of Eastern Ontario Municipalities Have Median Household Incomes Below the Provincial Average Of the 87 municipalities in this category, 12 are rural upper/ single tier municipalities, 10 separated cities and 65 lower tier municipalities. One county and 23% 24 lower tier 77% municipalities are in this category. Above the Provincial Average ($60,455) Below the Provincial Average ($60,455) Jurisdiction Median Personal Income Median Household Income Before Tax (2005) Before Tax (2005) Rural Eastern Ontario $25,867 $53,261 Ontario $27,258 $60,455 Sources Statistics Canada: 2006 Census Prepared by Natural Capital Resources Inc. 11

12 Three Quarters of Eastern Ontario Municipalities have Share of Population Age 65 or Older Above Provincial Average (14% 2006) 12 of 13 counties are in this category. Bear in mind that the counties are an average of the lower tier municipalities within that same boundary This category is composed entirely of lower tier 20.4 municipalities and one upper tier municipality in Rural Eastern Ontario. 7% or Less Between 7 and 14% More than 14% In 2006, 79 per cent of municipalities in Eastern Ontario had higher than provincial average representation of persons 65 years of age or older. Note: The percentage of the Ontario population aged 65 or older is 14% (Source: Statistics Canada). Prepared by Natural Capital Resources Inc. 12

13 Lower Percentage of Income from Earnings (Than Provincial Average) IndicatesEmployment Availability Challenge Jurisdiction Percentage of Percentage of Income Income from from Government Earnings (2005) Transfers (2005) Rural Eastern Ontario Range within Rural Region 58.3 up to down to 10.7 Ottawa Ontario Average Source: Statistics Canada Census 2006 Prepared by Natural Capital Resources Inc. 13

14 Rural Eastern Ontario Heavily Reliant on Residential Assessment (as Percentage of Total Assessment) By Sub Region ( ) % Rural Eastern Ontario: Reliance on residential assessment has grown from 86 to 89% over the period. There does not appear to have been a post recession bounce back in the non residential share of the tax base. Separated Cities: Reliance on residential assessment has grown from 78 to 81% over the period, with a very small downturn in reliance in the past two years Rural Eastern Ontario Separated Cities Sources: FIR (SLC SLC )/SLC Prepared by Natural Capital Resources Inc.

15 % Post Recession Unemployment Rate in Rural Eastern Ontario Typically ~2% Above Urban Centres Kingston 6% Ontario: 7.5% Ottawa 6% Eastern Ontario 88% 8.8% includes Frontenac, Lanark, Leeds and Grenville, Prescott and Russell, Renfrew and Stormont, Dundas and Glengarry Counties. Central Ontario 8.6% includes Bruce, Grey, Simcoe, Muskoka, Victoria Kawartha Lakes, part of Durham, Haliburton, Peterborough,, Hastings, PrinceEdward Edward, L&A 1 0 Kingston Pembroke Ottawa Eastern Ontario Central Ontario Source: Labour Market Bulletins HRSDC, Government of Canada

16 Half of Rural Eastern Ontario s Labour Force is Commuting to Work in Another Municipality In Rural Eastern Ontario, 52% of the labour force works in a different municipality or census division. This is much higher than the provincial average (32.6%). Any municipality shaded rust or purple has a higher proportion of its labour force working outside the municipality than the province as a whole. Source: Statistics Canada Census Prepared by Natural Capital Resources Inc.

17 Hitting the Wall on Ability to Pay Prepared by Natural Capital Resources Inc. 17

18 Hitting the Wall on Ability to Pay Discretionary reserve funds & reserves peaked in 2008 Reserves per household flat over past decade Payments in Lieu flat over past decade Debt levels increase by ~ 300% over past decade Local governments unable to preserve value of assets Net financial assets declining now net liabilities Own purpose revenues growing faster than operating expenditures Social services upload will relieve some pressure Policy and program design limit region s options Prepared by Natural Capital Resources Inc. 18

19 Total Discretionary Reserve Funds and Reserves Peaked in 2008 $600,000,000 $500,000,000 $400,000,000 By Sub Region ( ) 2010) Rural Eastern Ontario s DRF&R funds rose by 68 per cent over the period, to $516 million. $300,000,000 $200,000,000 $100,000,000 $0 DRF&R funds held by the Separated Cities rose by 97 per cent over the period, to $413 million Rural Eastern Ontario Separated Cities Rural Eastern Ontario has $516 million in Discretionary Reserve Funds and Reserves, compared to $413 million for Separated Cities. Rural Eastern Ontario s DRF&R funds have increased by 68 per cent, compared to 97 per cent for Separated Cities. These reserves peaked in Rural Eastern Ontario in 2008 and declined din the following two years. Source: FIR SLC SLC Prepared by Natural Capital Resources Inc. 19

20 $1,600 $1,400 $1,200 $1,000 $800 $600 $400 $200 $ Reserves Per Household Flat Over Past Decade (Total Reserves Obligatory, Discretionary and Reserves) Sources: FIR SLC , 2 and Rural Eastern Ontario Separated Cities On a per household basis, total reserves increased in Rural Eastern Ontario from $907 in 2000 to $955 in 2006, then began to fall to $918 in The same trend was seen in Separated Cities except that average per household reserves have been about 50% higher than in Rural Eastern Ontario throughout the past decade. Prepared by Natural Capital Resources Inc. 20

21 Payments in Lieu of Taxation Show Slight Decline in Rural Eastern Ontario in Past Ten Years ( ) Source: FIR SLC $35,000,000 Total Payments in Lieu (provincial and federal) for Eastern Ontario 2010 ~$221.8 million $30,000,000 $25,000,000 $20,000,000 $15,000,000 $10,000,000 $5,000,000 $0 PIL increased by 108% in Ottawa in the period, a large share of which h was in PIL increased by 6% in Separated Cities in the period., almost PIL increased all of which by was 6% in Separated Cities in the period., almost all of which was in Rural Eastern Ontario Separated Cities In Rural Eastern Ontario, total Payments In Lieu have decreased from $23.9 million in 2000 to $23.0 million in The cumulative (rural) total over the 10 year period is $275 million. For Separated Cities, the total is $318 million. Prepared by Natural Capital Resources Inc. 21

22 Total Municipal Debt Burden Climbs Dramatically in Rural Eastern Ontario Over Past Decade ( ) Source: FIR SLC $600,000,000 $500,000,000 Total Debt Burden of municipalities in Rural Eastern Ontario increased by 299% in from $125 million to $499 million. $400,000,000 $300,000,000 $200,000, $100,000,000 $ Total Debt Burden of Separated Cities increased by 155% in from $170 million to $433 million Rural Eastern Ontario Separated Cities Across the region as a whole, Total Municipal Debt has risen by 216% since 2000, now at $2.1 billion. Prepared by Natural Capital Resources Inc. 22

23 Local Governments Losing Ground on Net Assets or Liabilities (Debt) $300,000,000 $250,000,000, $200,000,000 $150,000,000 $100,000,000 $50,000,000 $(50,000,000) $(100,000,000) ) Net Financial Assets (Or Liabilities) By Sub Region ( ) $ $(150,000,000) $(200,000,000) Source: FIR SLC , Rural Eastern Ontario transitioned from Net Financial Assets of $266 million (2000) to Net Financial Liabilities of $159 million (2010). Separated dcities i still have Net Financial i Assets of $30 million Year in which Rural Eastern Ontario went from net positive to net negative.. Rural Eastern Ontario Separated Cities Since 2000, the Net Financial Asset or Liability Position for EOWC members has deteriorated by $246.5 million. A third of the region s municipalities are now in the moderate or high risk categories as defined by MMAH. Source: FIR (SLC SLC ); Note: SLC includes cash, accounts receivable, taxes receivable, investments, debt recoverable from others, and other financial assets. SLC includes temporary loans, accounts payable, deferred revenue, long term liabilities (debt) and other liabilities. Prepared by Natural Capital Resources Inc. 23

24 Region s Local Governments Unable to Preserve Value of Capital Assets Net Book Value as Percentage of Capital Costs (2010) Municipalities in Rural Eastern Ontario hold $8.1 billion in capital assets (valued at cost). After accumulated depreciation, these assets are now estimated to be worth $4.6 billion. Rural Eastern Ontario s municipal assets have lost $3.5 billion in value since their purchase (book value). The cost to replace these assets would be much, much higher than the original ii cost (replacement value). Inflationary increases for municipal goods and services has been considerably higher than CPI. For rural areas as a group, municipal capital assets are worth 57% of their original cost. (Separated cities have preserved 58% of the value of their assets.) Sources: FIR: SLC 51A /SLC 51A Prepared by Natural Capital Resources Inc. 24

25 Municipalities i in this category have experienced at least 25% asset value loss (based on cost). Region s Local Governments Unable to Preserve Value of Capital Assets Net Book Value as Percentage of Capital Costs (% of Municipalities in Each Category 2010) Source: FIR PM % 5% 23% Municipalities in this category have the most seriously depreciated assets (at t least 50% of asset value, at cost). Municipalities 50% Or Less NBV/CCA Municipalities Between 75 and 100% NBV/CCA Municipalities Between 50 and 75% NBV/CCA Note: 42 per cent of municipalities in Eastern Ontario saw their Net Book Value of Assets as a Percentage of Cost of Capital Assets decline from 2009 to 2010, even though there were significant cost shared infrastructure investments. More than half of the region's counties (7) are in this position..four others saw no change and two saw improvement. Prepared by Natural Capital Resources Inc. 25

26 Local Property Taxes and User Charges (Own Purpose Revenues) Increased Faster than Total Operating Expenditures Over Past Decade $2,000,000,000 $1,800,000,000 $1,600,000,000 $1,400,000,000 $1,200,000,000 $1,000,000,000 $800,000,000 $600,000,000 $400,000, $200,000,000 $ Rural Eastern Ontario Only ( ) 2010) Source: FIR SLC SLC Total Operating Expenditures have increased by 68% over the past decade to $1.83 billion. Own Purpose Revenues have increased by 87% over the past decade d to $1.0 billion Total Operating Expenditures have increased by 68% (a portion of which is cost shared with other levels of government); Own Purpose Revenues (local property taxes and user charges) are being increasingly relied upon to cover operating expenses. Rural Eastern Ontario Total Operating Expenditures Rural Eastern Ontario Own Purpose Revenues Prepared by Natural Capital Resources Inc. 26

27 Social Services Upload Will Relieve Some Pressure Total Municipal Share of SocialServices Services Upload: Rural Eastern Ontario Thank You! Estimated Cumulative Municipal Share of Social Services Upload ( ) $ 332 million (2% increase over 2011 budget) Estimated Cumulative Total Levy ( ) $8.877 billion (2% increase over 2011 actual) Upload dbenefit as Percentage of Levy 37% 3.7% Total 2011 OMPF Funding (provincial estimates) one year only: Rural Eastern Ontario: $94.5 million* $12 million Upper/Single Tiers $82 million Lower Tier Municipalities *FIRs indicate $138.3M for 2008, $132.0M for 2008 and $110.2M for Sources: municipal share EOWC calculation; FIRs for levy data (2010); 2011 OMPF Funding Ontario Ministry of Finance notifications Prepared by Natural Capital Resources Inc. 27

28 Policy and Program Design Limits Options for Rural Eastern Ontario Crown land, farm tax program and managed forests limit potentialassessment assessment growth less than25per cent ofthe region s land mass and even some of these areas have limitations (eg. wetlands, species at risk, quarries) Unpredictable, competitive processes stall planning and increase costs Provincial gas tax focused on transit, limits ability of rural areas to address other types of transportation infrastructure Eligibility rules limit participation p (eg. EODF) Prepared by Natural Capital Resources Inc. 28

29 Of the 45,000 square kilometres in Rural Eastern Ontario, only the white areas (see map), less than 25% of the total t area, are available for development at full assessment. Crown Land (25% of total land area) represents as much as $145 million in foregone residential property taxes each year from an additional 85,250 households. Light green lands are Crown land (0% assessment), red indicates lands that are part of the farm land tax program (25% assessment) and purple indicates managed forest tax program lands (25% assessment).

30 Unpredictable, Competitive Processes Stall Planning and Increase Costs Year by year decisions about stimulus and other infrastructure funding contributes to significant fluctuations in annual capital expenditures in municipal governments. A program of consistent infrastructure funding is required to improve ability to plan and manage program delivery and their associated costs. % Percentage Change in Capital Expenditures By Sub Region ( ) Rural Eastern Ontario Separated Cities Prepared by Natural Capital Resources Inc. 30

31 Policy & Program Design Limits Participation The restriction on use of provincial gas tax revenues for transit purposes limits Rural Eastern Ontario s access to a vital source of infrastructure funding. 32 municipalities a quarter of Eastern Ontario s local governments have benefited from provincial gas tax. Twenty three (23) are rural municipalities. All rural local lgovernments benefit from federal fd gas tax funding. Sub Region Prov.. Gas Tax ($M) Average Fed. Gas Tax ($M) (Est.)* Allocation Rural Eastern Ontario $3.0 $43.7 Separated Cities $3.8 $23.5 City of Ottawa $3.5** $49.8 Multi Year Total: $11.2 $117.1 * Based on best available information from FIRs. Numbers may change as 2011 or 2012 data become available. Federal Gas Tax data was taken from allocations as listed on the AMO website. City of Ottawa s provincial gas tax revenues, as shown on the FIR returns, fluctuate significantly, reducing usefulness of multi year averages. Prepared by Natural Capital Resources Inc. 31

32 Capital Asset Base is Eroding, Infrastructure Needs Loom Large Prepared by Natural Capital Resources Inc. 32

33 Capital Asset Base is Eroding, Infrastructure Needs Loom Large Infrastructure t much more expensive to repair or replace now than when first built Spending 2/3s of what is needed to maintain assets on an annual basis Have not yet developed a method to meet capital infrastructure needs on a sustainable basis (eg. capacity in reserves, debt financing, levy insufficient) Roads and bridges are especially challenging: Rural Eastern Ontario is responsible for 73% of the region s roads and 60% of its structures (bridges and culverts) Downloaded highways and bridges put stress on local systems (Rural Eastern Ontarioreceived received 40% of provincial downloadin late 1990s; most expensive to maintain) [~3,986 lane kms] Structures (bridges and culverts) are a particular challenge (each structure expensive; difficult to finance in single year) Prepared by Natural Capital Resources Inc. 33

34 Annual Capital Investment Required to Maintain Existing Infrastructure All Types (Assuming Replacement Value is Twice Original Cost) Annual Capital Requirements Replacement Value of Capital Assets (at Cost) 2010 ($billion) Annual Investment Required Life: 25 years ($billion) Average Annual Expenditure ($billion) Average Annual Shortfall ($ billion) Rural Eastern Ontario $16.6 $0.67 $0.44 $0.23 Annual capital investment in existing infrastructure should be in the $650 $750 million range. Note: these estimates t do not include the accumulated deficit itdue to underexpenditure, nor is there any provision for growth. Until 2007, Rural Eastern Ontario was spending $327 million or less on annual capital investment. Spending jumped to $360 million (2007), $430 million (2008), $496 million (2009), and $572 million (2010). Transportation services (roads and bridges) accounts for about 40 45% of the annual expenditure. Methodology: Used 2010 FIR Value of Capital Assets at Cost, calculated annual capital allocation based average useful life assumptions; translated into % of cost replaced each year (eg.4%). Prepared by Natural Capital Resources Inc. 34

35 Municipalities Are Challenged to Finance Infrastructure Three Options: Tax levy. Hitting the wall on ability to pay py Debt financing. Municipal debt has increased dramatically, must be serviced Reserves Not nearly enough and not growing as fast as expenditures plus provincial/federal infrastructure funding (but municipalities must still fund a portion from own funds). Prepared by Natural Capital Resources Inc. 35

36 Municipalities Are Challenged to Finance Infrastructure $ million $3.0 billion Total operating expenditures are $1.8 billion/ year. Municipalities are paying $46 million a year in debt servicing costs (principal plus interest) $665 million $633 million Annual Capital Roads and Bridges Total Reserves Total Debt Investment Deficit (Roads to 75%) Requirements $499 million Over the past decade, more than half of Eastern Ontario municipalities have seen their reserves as a percentage of total operating revenue fall. Prepared by Natural Capital Resources Inc. 36

37 Rural Eastern Ontario Responsible for Majority of Region s Roads and Bridges Responsibility for Roads in Eastern Ontario (Lane Kms All Types) Total Lane Kms: 94,423 11,716 (12%) 7,000 (7%) Responsibility for Structures in Eastern Ontario (Bridges and Large Culverts): Total Structures: 8, (9%) 6,587 (7%) 69,110 (73%) 2,678 (31%) 5,113 (60%) Rural Eastern Ontario Separated Cities City of Ottawa Ministry of Transportation Rural Eastern Ontario City of Ottawa Separated Cities Sources: Based on Best Available Information from 2006 Study by EOWC members, supplemented by 2009 and 2010 FIR data; PM /06. As much as possible, the data has been reconciled against data provided d by OGRA (MDW). Prepared by Natural Capital Resources Inc. 37

38 Required Investment to Address Roads Deficit (Rural Eastern Ontario $2011 Bold; Regional Total $2011 Roman) ) % Needs Addressed Paved Lane Surface Treated Gravel Lane Total Kms Lane Kms Kms All Roads ($ billion) ($ billion) ($ billion) ($ billion) Worst case scenario Rebuild to 100% $4.99 $1.68 $1.32 $ 8.00 Good/Very Good $7.17 $1.68 $1.37 $10.22 Use Rebuild Extend to Achieve 75% Good/Very Good; (1/3 rebuild; 2/3 extend) $2.04 $2.40 $0.24 $0.24 $0.20 $0.20 Note: These estimates do not provide for system growth. The deficit for structures is not included inthese numbers. Seenextslide $2.48 $2.84 Model developed to estimate the roads deficit is based on Based on Best Available Information from 2006 Study by EOWC members, supplemented by 2009 and 2010 FIR data; PM /06 (percentages of roads and bridges in good/very good condition). As much as possible, the data has been reconciled against data provided by OGRA (MDW). Cost data was drawn from capital needs studies and infrastructure plans provided by a cross sectionsection of municipalities in Eastern Ontario. A range of scenarios were considered based on the target for roads to be brought to good/very good condition. This is a global estimate only. Prepared by Natural Capital Resources Inc. 38

39 Investment Required to Address Structures Deficit (Rural Eastern Ontario $ 2011) More than 60 per cent of the Region s structures (bridges and large culverts) are in Rural Eastern Ontario (geology and extensive road network drive numbers). Some were downloaded with provincial highways in late 1990s. Number of Bid Bridges Number of Culverts Total Structurest Est. # of Structures t in Poor/Fair Condition Est. Cost to Repair All Structures ($M) 1,354 3,765 5,119 1,571 $526 Model developed to estimate the infrastructure deficit for bridges Used numbers of structures from FIRs, combined with average condition reports from MDW (county by county roll-up provided by OGRA); validation by municipalities as much as possible Used average cost to repair a bridge: $670,500 and to repair a large culvert: $225,000; based on capital needs studies presenting data from a range of bridge reconstruction projects. Assumed need to repair all sub-par bridges to good/very good condition Prepared by Natural Capital Resources Inc. 39

40 Total Capital Investment Required to Maintain Infrastructure (All Types) and Address R&B Deficit Rural Eastern Ontario: Annual Capital Requirements Maintain existing infrastructure (all types) Annual Investment to Maintain Existing Infrastructure ($million) Total Transportation Infrastructure Deficit (Roads, Bridges and Culverts ($million) $650-$750 $450 (includes ~ $200 for transportation) Average Annual Actual Annual Shortfall Expenditure (Needed vs Actual) ($million) ($million) $200-$300 Address Roads and Bridges Deficit $300 (over 10 years) $3,000 $300 Total $950-$1050 $450 $500-$600 In 2010, Rural Eastern Ontario made $238 million in capital investments in transportation services; atypical: average for last five years is $195 million (roughly 45% of total). Note that there is also $600 million in operating expenditures for transportation services each year, some portion of which is used for capital improvements. Methodology: Used 2010 FIR Value of Capital Assets at Cost, calculated annual capital allocation based average useful life assumptions; translated into % of cost replaced each year (eg.4%). Prepared by Natural Capital Resources Inc. 40

41 For further information Kathryn Wood Or speak to a member of the FinancialSustainabilityUpdate ProjectSteering Committee (CAOs and Treasurers of Frontenac, Lennox and Addington and Lanark Counties) Prepared by Natural Capital Resources Inc. 41