INTRODUCTION. Municipal Budget. The Challenge. Operating Budget Capital Budget. how does a municipality do more with less?

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1 BOOST YOUR BUDGET Effective Budget Boosting Strategies that all Municipalities Can Implement Rodd C. Thorkelsson Partner Lorne I. Randa Partner Presented by: John C. McDonnell Partner Jillian L. Swainson Associate

2 INTRODUCTION

3 INTRODUCTION Municipal Budget Operating Budget Capital Budget The Challenge how does a municipality do more with less?

4 INTRODUCTION 1. Cost of Service Based Utilities 2. Capital Servicing Cost Recovery 3. Regional Cost Sharing 4. Getting Value for Money in Contracting 5. Cost Allocation Homeowners Associations

5 INTRODUCTION

6 INTRODUCTION

7 COST OF SERVICE BASED UTILITIES

8 COST OF SERVICE BASED UTILITIES public utilities - user pay system or service cost of service based utility rate setting reflecting the full cost of providing a service within the rates and charges payable by the consumer full cost accounting, full cost pricing, and full cost recovery

9 What Part of the Budget Are we Talking About? Operating Costs - to operate, maintain and administer the system and the service (e.g. labour, materials, power and other utilities) reflected as expenditures:

10 What Part of the Budget Are we Talking About? Capital Costs - costs of capital repairs, replacements and expansions of the system, which are not recoverable or funded by other means or sources (e.g. from grant sources, from developers under Development Agreements, etc.): often hidden, but could be recoverable.

11 What Part of the Budget Are we Talking About? Revenue Deficit when viewed against the revenue received from the corresponding services, a deficits begin to appear: which we want to minimize or eliminate.

12 Suggested Approach Recordkeeping & Accounting Analyze, Review and Identify Costs ensure that the municipality reports and records its costs, such that they can be accessed easily; identify the costs of developing and providing utility services wherever they may be; Cost of Service build a complete cost of service; Revenue Requirement Establish Rate/Rate Structure Recovery and Allocation determine your revenue required in order to completely fund the cost of service; to provide for the revenue required; impose and collecte the rates and charges properly (i.e. proper rate structure established under a proper rate bylaw).

13 Net Benefits Proper Planning Positive Cash Flow Eliminate Subsidization Expanded Municipal Purposes/Services

14 By the Numbers Ease into it avoid rate shock Perhaps a gradual transition to full accounting of cost of service may also be a necessary and reasonable strategy

15 CAPITAL SERVICING COST RECOVERY

16 The MGA provides municipalities with a number of tools Reduce your overall financial requirements and commitments

17 Offsite Levies (s.648) Oversized Infrastructure (s.651) What are Cost Recovery Tools? Local Improvement Taxes (ss ) Development Agreement Conditions (ss.650 & 655) Special Taxes (ss )

18 What Part of the Budget Are We Talking About? Revenue Received to assist with Capital Expenses FOR THE YEAR VARIANCE REVENUE - Capital Off-Site Levies 350, ,000 50,000 Developer Charges/Recoveries 300, ,000 50,000 EXPENDITURES - Capital Infrastructure and Public Works 1,250,000 1,675, ,000

19 Impact of Ineffective Use Invalid Off site Levies Insufficient Security

20 Recommended Approach Requiring Full Security Utilizing Professional Services Preparing Standardized Development Agreements

21 Developer and Other Capital Cost Recoveries Have a Direct Impact Upon the Capital Budget

22 By the Numbers FOR THEYEAR VARIANCE REVENUE - Capital Transfers From Municipal Operations Other Off-Site Levies 350, ,000400, ,00050,000 Developer Charges/Recoveries 300, ,000350, ,00050,000 Debt 437, ,000875,000 (63,000)438,000

23 REGIONAL COST SHARING

24 Regional services Municipal services can either be provided by yourself or together with your neighbours

25 Types of Services to Jointly Provide Water and Wastewater Types of Regional Services Recreational facilities Solid Waste Treatment Senior s Housing Transportation

26 Why Go Regionally? Economies of Scale Extra Grant Funding Capital Injections from Partners Municipal Limitations Complex Services Regional Planning

27 Choices for regionalism Proceeding regionally can be done either by: 1. A regional agreement for joint services; or 2. Creating a new entity to provide the services

28 Effects of regionalism

29 Reduced Operating Costs Type of Cost (Regional water system example) Actual Cost Cost to Be Incurred by One Party Cost to each be Incurred by Parties Administration Costs* $398,613 $398,613 $132,871 Water Treatment Plant Costs** $749,624 $749,624 $249, Location #1 Operations*** $224,739 $224,739 $74,913 Location #2 Operations *** $38,597 $ $12, Location #3 Operations*** $16,317 $ $5,439 Location #4 Operations*** $24,564 $ $8,188 Vehicles and Machinery Expenses $22,495 $22,495 $7, Total Cost $1,474,949 $1,395,471 $491,649

30 Capital Injection Net Book Value Less Less Equals Assets should be sold at Adjusted Net Book Value $2,500,000 is original cost Zero Cost Capital for cost of project Ex. Grants, developer contributions $1,000,000 Accumulated Depreciation on Asset $500,000 $1,000,000 in remaining value Selling party gets $666,666 (2/3) PLUS still gets use of asset!!

31 New Asset Some projects are not possible without cooperation Regionalism can help This may help new projects proceed

32 Increased Scope of Project The dollar stretches more with more participants More participants may permit an expansion of project

33 Transfer of Municipal Debt Debt related to infrastructure might be able to be transferred to new Regional Entity Effect on Municipality The debt that was formerly municipal debt is now off the books This will raise municipal debt limit and municipal debt servicing limit Effect on Regional Entity True cost of providing service is captured in rates, as debt must be paid. Ability to do this depends on Accounting treatment

34 By the Numbers

35 GETTING VALUE FOR MONEY IN CONTRACTING

36 Types of contracts Construction services Maintenance services Operational services Consulting services Software related services or any other service that is outsourced

37 What Part of the Budget Are we Talking About? Operating Costs - to operate and maintain municipal facilities and obtain services from third parties for a variety of projects reflected as expenditures:

38 What Part of the Budget Are we Talking About? Capital Costs - costs of capital repairs and replacements, such as software acquisition and implementation, or the construction of a new facility:

39 Suggested Approach 1) Clear Description of Services and Expectations a) Consultant contracts often vague b) Software contracts routinely problematic

40 Suggested Approach 2) Contractual Remedies a) Right to contract with third parties to perform and set off b) Default and cure period c) Termination for default d) Termination for convenience

41 By the Numbers Avoid duplicating same costs year after year Avoid spillover into subsequent years

42 COST ALLOCATION TO HOMEOWNERS ASSOCIATIONS

43 Cost Allocation To Homeowners Associations DECREASING budget allocations of non grant sourced funding to non critical services. INCREASING nature, extent and cost of amenities to be constructed by developers as part of residential, commercial and industrial subdivisions.

44 Cost Allocation To Homeowners Associations A fairly consistent trend/theme. DUE TO developer's marketing desires the ever increasing expectations of the typical consumer the planning and development requirements of the municipality itself or all of the above. RESULT: Budget Crunch Reconciliation loss of service deferred cost big cost.

45 Cost Allocation To Homeowners Associations Operational Costs the maintenance and repair of the amenities the budgeting for this expense is a significant and growing issue Capital Replacement long term cost of replacing portions of these amenities or replacing them entirely significant budgetary costs that fewer and fewer municipalities are willing or able to plan for or absorb

46 What Part of the Budget Are We Talking About? Maintenance costs, grounds keeping

47 What Part of the Budget Are We Talking About? Capital repairs, replacements, etc.,

48 What Is A Homeowners Association? Incorporation of the Association Bylaws Financial Encumbrance Restrictive Covenant/Architectural Controls Maintenance Agreements, Easements or Arrangements

49 What Is A Homeowners Association?

50 Defining Elements Association Membership Automatic Rights & Privileges Purpose Self Funding

51 What Is the Function and Value of a Homeowners Association? Remove/Avoid/Allocate Responsibilities Remove/Avoid/Allocate Costs Facilitate Budget Constraints Free Up the Budget

52 By the Numbers

53 Homeowners Association Take Aways goal is to avoid the accumulation of new expenditures before they have an opportunity to show up on the municipal budget only works with new subdivisions the seeds for this strategy are sown as part of the planning and development and approval process for new subdivisions very early implementation is necessary

54 QUESTIONS? Rodd C. Thorkelsson Lorne I. Randa John C. McDonnell Jillian L. Swainson