Report to: From: Mayor G. A. Krantz and Members of Council Linda Leeds, Director, Corporate Services and Treasurer Date: June 28, 2010 Report No. CORS-058-10 Halton Healthcare Notice of Motion Subject: Halton Healthcare Notice of Motion RECOMMENDATION: WHEREAS access to high quality healthcare services is critical to the quality of life and well-being of residents of Milton: AND WHEREAS Milton District Hospital has a critical and urgent need to expand its facilities; AND WHEREAS Halton Healthcare Services is planning the expansion and redevelopment of the existing Milton District Hospital on its present site located at 7030 Derry Road; AND WHEREAS the Province of Ontario s cost share policy for hospital capital projects provides a provincial investment of 90% of the capital costs, conditional upon commitment from the Hospital to raising both its 10% Local Share component for the capital costs, plus its 100% share of the cost of all equipment, estimated at a further 20% of construction costs; AND WHEREAS there is not yet approval of the project nor agreement or information available on the cost and scope of the proposed expansion and redevelopment; AND WHEREAS Halton Healthcare Services are engaged in a dialogue with the Town of Milton to determine how the Town may assist Halton Healthcare Services with fulfilling its Local Share component; AND WHEREAS it is understood that the new hospital is
Page No. 2 expected to be implemented using an Alternative Finance and Procurement approach with the support of the Province and Infrastructure Ontario and this approach requires the hospital s Local Share payments to begin after the project is completed, which is estimated to be 2017, and that the cost of the Local Share commitment for this project under the AFP model can be paid by Halton Healthcare Services over and up to a 30 year period; AND WHEREAS the Town of Milton is committed to municipal infrastructure priorities and that the funding currently available to the Town does not address all existing municipal infrastructure priorities; AND WHEREAS Council would like staff to investigate funding options to assist Halton Healthcare Services in raising its Local Share before determining how to finance a municipal contribution towards the Milton District Hospital: THEREFORE BE IT RESOLVED THAT: 1) THAT the Town of Milton is committed to providing a municipal contribution to Halton Healthcare Services and that the Town of Milton staff be directed to research and identify potential funding mechanisms to assist Halton Healthcare Services in raising its Local Share; 2) AND FURTHER THAT the value of the Town of Milton s contribution to Halton Healthcare Services Local Share commitment will be determined by the Town once planning for the expansion and redevelopment of Milton District Hospital has advanced to the point where there is agreement with the Ministry of Health and Long Term Care. 3) AND FURTHER THAT the Town of Milton s financial contribution be contingent upon the full participation in the Halton Healthcare Services Capital Planning Advisory Committee for the Milton Hospital expansion project of a staff representative from the Town of Milton;
Page No. 3 EXECUTIVE SUMMARY 4) AND FURTHER THAT consideration be given in the 2011 budget to the establishment of a new Reserve Fund and revenue generation options to initiate the financing of the Town of Milton s contribution towards the Local Share of the redevelopment of the Milton District Hospital. 5) AND FURTHER THAT Town Clerk be authorized to send a letter of support to the Halton Healthcare Services, the Minister of Energy and Infrastructure, and the Minister of Health and Long Term Care, and the Premier of Ontario that the Town of Milton will assist Halton Healthcare Services in raising its Local Share component of the costs of the expansion and redevelopment of Milton District Hospital. Subsequent to Councillor Lunau s notice of motion that was tabled at the May 17, 2010 Council meeting, staff has met with representatives from Halton Healthcare Services, along with Councillors Lunau and Scherer. The recommendation contained in this report has been drafted co-operatively and meets the requirements of Halton Healthcare Services to show to the Government of Ontario the commitment of the community of Milton to support the redevelopment and expansion of Milton District Hospital and replaces the original notice of motion. Any direct financial contributions are premature at this time due to the many unknown factors of the capital project including timing of construction and estimated construction budget. REPORT Background Halton Healthcare Services was a delegation at the May 17, 2010 meeting of Council and provided Council with an update on the status of the redevelopment and expansion of Milton District Hospital. The expansion is dependent upon the Ontario government granting an approval through their budget process. The Ontario government has launched a capital review and priority setting exercise. This review is expected to be completed and announcements made regarding projects in early 2011. This provides
Page No. 4 an opportunity for Halton Healthcare Services in that the Ontario government has defined the process and established a clear timetable. Critical to the process is to be able to demonstrate to the Ontario government a strong commitment that Halton Healthcare is able to secure the required Local Share component. It is not necessary or reasonable at this time to have a complete financial plan in place; nor to begin to set funds aside for the Local Share. The resolution associated with this report is to secure a firm commitment from the Town of Milton, in principle, for assisting with the Local Share Plan that will be required for this project. Discussion On behalf of Halton Healthcare Services, Mr. John Oliver appeared at the May 17 th Council to provide a status update on the redevelopment and expansion of the Milton District Hospital. A notice of motion regarding the role that the Town of Milton would take in supporting Halton Healthcare Services (HHS) in their pursuit for approval from the Ontario government to proceed with the next step in the process of redevelopment and expansion of Milton District Hospital was tabled. It is critical that HHS be able to provide the Ontario government with assurances that when the Local Share of the total costs associated with the hospital are required, that HHS will be able to meet it s funding obligations. It is with this assurance to the Ontario government that the Town of Milton s commitment is required. Actions taken to date A staff working group has been formed with representatives from the HHS and Town of Milton to discuss the needs of HHS and to develop an effective strategy for the Town to provide assistance to HHS. Information regarding the process and clarification of the Town s involvement at this stage has been achieved and a revised resolution has been drafted that meets the needs of the Town given the limited financial data currently available, but still provides the strong support that HHS has requested. Timing Halton Healthcare services (HHS) have been actively pursuing the expansion of the Milton District Hospital for a number of years and have provided the Town with the following overview of the current political situation. The Ontario government has launched a capital review and has deferred decisions with respect to capital development to 2011. This review has effectively delayed any
Page No. 5 prospect of a decision for Milton District Hospital to next year. This provides an opportunity for HHS in that the Ontario government has defined the process and established a clear timetable. The Ministry of Energy and Infrastructure (MEI) is leading this process, in consultation with the line ministries, including the Ministry of Health and Long Term Care. The MEI will also be consulting with both the Ministry of Finance and Ministry of Labour to develop a sense of the province s capacity to finance and build major infrastructure over the next ten years. Each ministry has been given three months to develop their priority list for capital projects. Once ministries have submitted their capital priorities, MEI will negotiate those priorities and establish timelines for approved projects over the next ten years. HHS is committed to having Milton District Hospital be identified as one of the priority projects and be included in the list of projects to be funded. In order to assist with that objective, HHS is requesting the Town to provide support in principle for assisting with the Local Share Plan that will be required for this project. The following table outlines the process and timing associated with the various phases associated with the redevelopment and expansion of the hospital following the approval in 2011. Phase of Development Key Element/Description Estimated Duration of Phase to Complete* MOHLTC and IO Approvals Required to Progress to Next Step/Phase MOHLTC Approval to proceed to Functional Programming required a) Master Program b) Master Plan c) Functional Program Early 2011 Pre Transaction Phase 1 year Provincial Approvals of functional program to move to the subsequent step Provincial Approvals required at each stage of this phase to move to the subsequent step Transaction Phase a) Provincial Approval of Project using DBFM Model b) Development of Project Specific Output Specifications, Schematic Design c) Preparation of Financial Plan, including Local Share 30 months
Page No. 6 Phase of Development Key Element/Description components d) Issuance of RFQ to market e) Issuance of RFP to market f) RFP Evaluation and Decision to Award Preferred Proponent g) Commercial Close a) Construction reaches Substantial Completion b) Begin operations with approved Post Construction Operating Plan Estimated Duration of Phase to Complete* MOHLTC and IO Approvals Required to Progress to Next Step/Phase Implementation Phase 3 years MOHLTC approval to operate in new facility Approval of Post Construction Operating Plan It is important to note that at the conclusion of each phase, additional approvals are required by the Ontario government prior to initiation of the following phase. The length of time to secure these approvals is beyond the control of either HHS or the Town of Milton. Assuming that all of these approvals are received in a timely fashion, the expected date of substantial completion would be 2017. This is when the Town will be required to supply our agreed upon portion of the Local Share. The actual amount of funding required will not be known until the transaction phase or approximately 2013. Ontario Government Financing Model In June 2006, the Provincial government announced that they will be covering 90% of eligible construction sots on all major hospital projects. Hospitals are now expected to cover 10% of the eligible construction costs, and 100% of the costs of new and replacement equipment. This funding formula splits the costs associated with the construction and outfitting of a hospital between the Province at approximately 70% and the hospital at 30%. It is a portion of the 30% of the costs that HHS is requesting confirmation from the Town of Milton to commit to funding.
Page No. 7 The process for the hospital is completely under the authority of the Ontario government. The Ontario government currently utilizes alternative financing and procurement (AFP) for most large hospital projects as one o fits investment strategies to enable these types of infrastructure investments. Under this new model of financing, the private sector is responsible for the design, construction, financing and maintenance of the project. This allows the provincial government to pay for the assets while they are being used, like a home mortgage, rather than paying for them at the time of construction. It also allows the HHS to pay the Local Share, including the portion being supplied by the Town of Milton, over the same time horizon. Financial Options and Potential Impact to the Town It is important that Council be aware of the impact of their decision to support the hospital with a municipal contribution. This is a development project that extends beyond the current term of Council, and falls within the provincial jurisdiction. Staff notes that the long range financial planning for the Town of Milton has never contemplated a financial contribution from the Town toward hospital redevelopment. While the Town has not included this in the financial planning for the Town, since the provision of health care is the responsibility of the provincial government, there are benefits to the Town of Milton and the community for having a hospital with facilities that are sized to meet the demands of the growing population. There are significant financial challenges being handled by the Town, including trying to balance the financing of growth related infrastructure along with ensuring that the Town s existing capital assets are maintained and replaced as needed. Making a contribution to the Milton District Hospital redevelopment project may impact the Town s operating and / or capital budget, affecting the Town s ability to move forward on Town projects. It will be an important consideration of any financing plan that is adopted by Council to consider the impacts on financing the infrastructure and services that the Town is responsible for providing. A municipal contribution to the Milton District Hospital redevelopment project could be funded in a number of ways. The period for making the contributions can also be determined by Council. The timeframe can range up to a maximum of 30 years. As the Milton District Hospital redevelopment is unlikely to begin construction prior to 2017, various funding scenarios can be considered. With timelines extending beyond the current term of Council and without a known amount for the municipal contribution, it is difficult to develop a comprehensive and fiscally viable financial plan. As additional details become available regarding the magnitude of the municipal contribution and the timing associated with the payments, staff will consider the details of a contribution to
Page No. 8 ensure that the financial plan is well thought out and thoroughly reviewed. This work will include any other options that are presented and will continue into 2011 and future years. Future Councils will be able to determine the final funding mechanism once the quantum being requested of the Town is known. Some of the options that can be considered and a brief overview of the pros and cons is listed below: Capital Related Options A) Redirection of funds received from Slots Current Council policy has the allocation of the slots fund to finance capital projects and to provide grants to community groups: a) Each year $500,000 is set aside for community grants. As part of the funding strategy for the Arts & Entertainment Centre, $100,000 was set aside on an annual basis from the community grants program to build a fund to finance the capital project. With the completion of the Milton Arts Centre, the $100,000 could be now set aside to initiate the financing of the Milton Hospital instead of being re-instated to the pool of funds available for community grants. B) GTA Pooling b) It is currently primarily utilized in the funding of our capital budget. Redirection of a portion of the funds towards the Local Share of the Hospital would reduce the Town s capital program. The funds received from the GTA pooling are specifically directed at the repair and maintenance of the existing Town s assets under the capital budget. Current estimates show that the Town, consistent with other municipalities, is deficit in the amount of annual funding dedicated towards asset repair and replacement. The sharing of the savings from the GTA pooling costs is a result of the Fairness for Halton campaign. Redirection of
Page No. 9 these funds would delay the repair and maintenance of existing assets which could result in higher maintenance costs and operating budget impacts. C) Debenture Financing There are two options that could involve debt financing. Once the quantum and the timing of the Town s Local Share, a debenture could be issued. Staff has confirmed that it is legislatively possible for the region to issue debentures on behalf of a local municipality to finance assets that will not be owned by the municipality itself (i.e. a hospital), subject to some conditions. a) The debt could be issued by the Region of behalf of the Town. This would provide the full amount of the Local Share to HHS upon settlement of the offering. Consideration would need to be given to the Town s debt capacity limits. If the issuance was going to exceed the Towns limit, permission from the OMB would be required first. This has been a critical issue for the Town as we do our long range planning and it is possible that we may not be able to accommodate the debt issue without exceeding the OMB guidelines. b) The alternative option is to have HHS issue the debt. The Town could then make annual payments to HHS to cover the principal and interest payments. This option would still enable HHS to have the entire Town Local Share available at substantial completion of the project, and it would not have an impact on the Town s debt capacity. In both options, the repayment of the principal and interest would need to be accommodated within the annual budget process. Developer Related Contributions D) Development Charges / Capital Provision Prior to 1998, Halton Region provided hospitals with capital funding for up to 1/3 of the costs for projects approved by the Province to a limit established in by-law 185-84, Hospital Capital Grant By-law. During this time, the Region collected development charges as a source of funding the hospital capital projects. In 1997, the Province approved the Development Charges Act, 1997 which made hospitals ineligible for development charge funding. On April 15, 1998 Regional Council suspended By-law 185-84 and enacted By-law 57-98. This bylaw states:
Page No. 10 THAT the Region of Haltons Hospital Capital Grant By-law 185-84 be suspended until such time as the Province of Ontario re-institutes the authority to impose development charges for hospital growth related capital costs, and in the event thereof, the Region of Halton shall again consider imposing development charges to recover capital costs and may also consider lifting the suspension of By-law 185-84. Regional staff recognizes that the significant capital requirements identified by Halton hospitals are primarily related to expansions required to accommodate growth of the communities. Regional Council has consistently expressed concerns that the Development Charges Act, 1997 does not provide adequate financing to address the infrastructure requirements of the growth municipalities within Halton. Most recently on September 16, 2009, Regional Council approved the following resolution: That the Regional Chair write to the Minister of Municipal Affairs and Housing requesting the Development Charges Act, 1997 be reviewed and amended to better define the Provinces direction in terms of planning and financing the growth of Ontario and the need to fairly fund new infrastructure for all residents and businesses. The gaps that were created in the Development Charges, Act 1997 impacted other services provided by the Region and the Town. Given the significant growth occurring, alternative financing solutions have been developed, including the requirement for a financial agreement at both the regional and local level prior to development proceeding. Components of these agreements deal with the financial shortfalls created as a result of the change in the legislation. Since the removal of the ability to include hospital funding as an eligible expense, consideration should be given to including it as a charge in the Regions or the Town s financial agreements. External Revenue Generation Options E) Hydro / Hospital Generation Partnership (similar to Oakville Hydro) Oakville Hydro Energy Services' Integrated Energy System (IES) will provide heating and cooling to the new hospital in Oakville as well as to potential future customers as the employment lands around the hospital site are developed. It is anticipated that this Energy model will not only be cost effective for the new
Page No. 11 hospital in Oakville, but also increase revenues to Oakville Hydro. Similar to the Town of Milton, Oakville is the sole shareholder of Oakville Hydro and the incremental revenues from the Integrated Energy System is a key element of the Town of Oakville s commitment to the Local Share program. The ability to implement a similar system in Milton and the resulting revenue streams should be explored as a mechanism for meeting the Town s portion of the Local Share. F) Parking Facility Development of parking facilities at the Milton District Hospital to accommodate the increased size, including the construction of a parking structure could be considered as part of the Town s Local Share contribution. Parking amenities can be provided above or below ground and can be operated in a variety of ways: Hospital operation Town operation Shared operation Alternative service delivery such as private sector operation. The existing parking revenues collected at Milton District Hospital are collected and utilized by the Hospital in funding their operations. However, a review of the financing model for any parking expansion could be explored for opportunities for the Town to contribute to the capital requirements and then be repaid through subsequent parking revenues to mitigate the impact on Town budgets. The inclusion of some form of mixed use within the parking structure, including residential condominiums, office or retail space, could also be considered as a further means of generating on-going incremental revenues. G) Tax Levy The imposition of a separate tax levy to support the hospital is the option presented in the original notice of motion submitted by HHS. This would ensure that the funding required by the HHS would be in place when they require it, and would not detract from Town of Milton operating and capital budget priorities and needs. This is the only option, which does not negatively impact on the Town; however, it would increase the overall property tax burden for residents and businesses in Milton. The above options are for illustration purposes only and all require further analysis and investigation. It is anticipated that other alternatives will be discovered as the Town and
Page No. 12 HHS continue to work together on the development of a financial plan for the redevelopment and expansion of Milton Hospital. Next Steps Continuation of Working Group and Community Consultation It is anticipated that the established working group would continue throughout the project to ensure: - regular dialogue and updates continue between administrative bodies of the hospital and the municipality; - share all research that will help the working group develop recommendations to Council about appropriate public consultation and financial support from the Town; - help develop a co-ordinated communications plan to enable the parties to consult widely with the community about the level of municipal contribution and the Local Share plan including but not limited to the various options as outlined in this report. Reserve Fund Staff is recommending that the establishment of a reserve fund dedicated to funding the redevelopment and expansion of Milton District Hospital be included as a recommendation in the 2011 budget for consideration. Relationship to the Strategic Plan Goal - A responsible, cost effective and accountable local government. Direction - Engage is transparent and accountable decision-making processes and actions. Financial Impact This report provides a range of options for assisting Halton Healthcare Services with meeting their Local Share. There is no need to determine or select an option through this report as the timing and quantum of funding required is unknown and to dedicate funding to this project is premature. Approvals from the Provincial government need to be secured and significant additional work needs to be undertaken prior to the municipal s portion of the overall project being calculated and agreed upon.
Page No. 13 Respectfully submitted, Linda Leeds, C.G.A. Director, Corporate Services and Treasurer LL: If you have any questions on the content of this report: Linda Leeds, 905-878-7252, ext 2142 Attachments: Letter of support from Halton Healthcare Services CAO Approval: