Table of Contents Water and Wastewater Long Range Financial Plan 1 Introduction 2 Principles of Financial Sustainability 3 The LRFP is Dynamic Regular Updates Will Be Undertaken 4 Financial Metrics and Benchmarking 5 Asset Consumption Ratio 6 Reserves as a % of Accumulated Amortization 7 Debt Interest Ratio 8 Forecast Development 9 10 Year Capital Budget Key Assumptions 10 10 Year Capital Budget 11 10 Year Capital Budget Sources of Financing 12 10 Year Capital Budget Debt Summary 13 Water and Wastewater Operating Budget Forecast 14 Operating Budget Forecast Water and Wastewater 15 10 Year Capital Reserve Summary 16 Reporting Requirements O.Reg. 453/07 17 Long Range Financial Plan 28
Water and Wastewater Long Range Financial Plan Forecast Water and Wastewater Long Range Financial Plan Forecast Long Range Financial Plan 1
Introduc on to Long Range Financial Planning Introduc on The Region of Niagara, along with other Ontario municipalities that are responsible for the provision of drinking water, are required to meet the requirements set out in the Financial Plans Regulations O.Reg.453/07. While the regulations are directed at water systems, the approach, as encouraged by the Province and being undertaken by the Region, was to undertake a similar process for the Region s wastewater systems. The Region recognizes the need for a long term financial planning process to assess the financial implica ons of current and proposed policies as well as Council approved decisions in its water and wastewater opera ons. To this end, the Region has undertaken numerous Master Plans, condi on assessments, asset inventories and capital forecas ng to reflect the needs today and in the future. The purpose of this report is to provide the Region with an informed view of opera ng and capital expenditures needed over me to maintain the integrity and health of its physical infrastructure and to accommodate growth and new environmental standards. This forecast is built using the Region s most current information on capital and operating requirements, as incorporated in the 2014 approved Budget and Forecast. The O.Reg. 453/07 has specific financial repor ng requirements. The components of the financial plans indicated by the regula on are consistent with the requirements for financial statement presenta on as set out in sec on PS1200 of the Canadian Ins tute of Chartered Accountants (CICA) Public Sector Accoun ng Handbook. The categories can be found in three statements: Operations Financial Position Cash Flow The Statement of Opera ons summarizes the revenues and opera ng expenses associated with the water and wastewater opera ons. These are typically outlays that need to be made to keep opera ons running on a day to day basis. The Statement of Financial Posi on reports on whether enough revenue was generated to cover the expenses in the period and whether sufficient resources were generated to support current and future ac vi es. The Statement of Cash Flow reports on how ac vi es were financed for a given period which provides a measure of the changes in cash for that period. Long Range Financial Plan 2
Introduc on to Long Range Financial Planning Principles of Financial Sustainability The Ministry of the Environment released a guideline ( Towards Financially Sustainable Drinking Water and Wastewater Systems ) that provides possible approaches to achieving sustainability. The Province s Principles of Financially Sustainable Water and Wastewater Services are provided below: Principle #1: Ongoing public engagement and transparency can build support for, and confidence in, financial plans and the system(s) to which they relate. Principle #2: An integrated approach to planning among water, wastewater, and storm water systems is desirable given the inherent rela onship among these services. Principle #6: A sustainable level of revenue allows for reliable service that meets or exceeds environmental protec on standards, while providing sufficient resources for future rehabilita on and replacement needs. Principle #7: Ensuring users pay for the services they are provided leads to equitable outcomes and can improve conserva on. In general, metering and the use of rates can help ensure users pay for services received. Principle #8: Financial Plans are living documents that require con nuous improvement. Comparing the accuracy of financial projec ons with actual results can lead to improved planning in the future. Principle #3: Revenues collected for the provision of water and wastewater services should ul mately be used to meet the needs of those services. Principle #4: Life cycle planning with mid course correc ons is preferable to planning over the short term, or not planning at all. Principle #5: An asset management plan is a key input to the development of a financial plan. Principle #9: Financial plans benefit from the close collabora on of various groups, including engineers, accountants, auditors, u lity staff, and municipal council. The Long Range Financial Plan (LRFP) will be instrumental in the Region s ability to meet the Provincial repor ng requirements included in O.Reg. 453/07 for water and wastewater opera ons and has been developed in recogni on of the above noted principles. Long Range Financial Plan 3
Introduc on to Long Range Financial Planning The LRFP is Dynamic Regular Updates Will Be Undertaken Although great effort has been made to present accurate financial projec ons, based upon the data available at this me, a LRFP is a dynamic document and should be updated and re evaluated, on an ongoing basis. As such, the 2014 Water and Wastewater LRFP should be considered a work in progress. It is not an exercise in precision; rather it is intended for use as a forecas ng tool to ensure that the Region is on the right course to meet its financial obliga ons and future challenges. Assump ons used in the LRFP should con nue to be refined, its projec ons should build on more customized data and scenarios, and its strategies should con nue to be tested by changing circumstances. The intent is to provide Council with regular updates to this document, so it will be useful in the ongoing cycle of business planning and budge ng. It is an cipated that updates to the LRFP will: Amend the assump ons, projec ons and strategies, as required, based on changes in the municipal environment Con nue building awareness of future changes in current opera ng and capital spending and funding levels Assist the Region in determining the extent of its financial challenges Reconfirm the key financial goals and strategies that should guide future planning Spur the development of ac ons in future business plans that would respond to the long term strategies There are many poten al circumstances that could occur within the short to medium term that would affect the assump ons in the projec ons for opera ng and capital. Council priori es, planning policies, changes to service levels, consump on projec ons and infrastructure requirements, will certainly lead to changes when future LRFP updates are prepared. Long Range Financial Plan 4
Financial Metrics and Benchmarking Financial Metrics and Benchmarking Prior to presen ng the 10 year forecast, it is important to understand the current financial environment and to iden fy any risks or challenges that the Region is experiencing. The next sec on of the report provides an overview of trends in the Niagara Region in Water and Wastewater opera ons. To help provide context, benchmarking informa on has also been included for several peer municipali es. The next several pages provides an overview of the following key financial indicators: Asset Consump on Ra o The asset consump on ra o shows the wri en down value of tangible capital assets rela ve to their historical costs. This ra o seeks to highlight the age of the assets and the poten al asset replacement needs. Reserves as a % of Accumulated Amor za on A Reserve and Reserve Fund is a financial provision or amount that is designated for a future purpose that extends beyond the current fiscal year. While its balance may vary over the course of a year, the Reserve/Reserve Fund is carried forward from one fiscal year to the next to facilitate mul year financial planning. Reserves/Reserve Funds can be established to meet specific liabili es such as the replacement/acquisi on of capital assets or to protect against known risks or unforeseen circumstances that may create financial difficul es. They are a cri cal component of a municipality s long term financing plan. One way to measure a municipality s reserve posi on is to compare the reserve balance to the accumulated amor za on. Debt Interest as a % of Own Source Revenues Debt Interest as a % of Own Source Revenues provides an indica on of the cost of debt in rela on to total revenues. This is measured to ensure that there is an acceptable degree of flexibility available, to meet unan cipated expenditures; outstanding debt obliga ons will not threaten long term financial stability of the municipality; and the amount of outstanding debt will not place undue burden on residents and businesses. Long Range Financial Plan 5
Financial Metrics and Benchmarking Asset Consump on Ra o The asset consump on ra o shows the wri en down value of tangible capital assets rela ve to their historical costs. This ra o seeks to highlight the age of the assets and the poten al asset replacement needs. A higher ra o may indicate significant replacement needs. However, if assets are renewed and replaced in accordance with an asset management plan a high ra o should not be a cause for concern. Niagara Region s asset consump on ra o is significantly higher than the survey average and median. This reflects a rela vely older asset base in comparison to the survey. As such, there is a greater need in the Region to ensure that sufficient funds are set aside for the replacement of future water and wastewater assets. In 2012, the Region s Water closing amor za on was $164.6 million with a historical asset cost of $352.9. This means that on a historical cost basis, 46.6% of the Region s water assets have been amor zed. In 2012, the Region s Wastewater closing amor za on was $246.5 million with a historical asset cost of $512.9. This means that on a historical cost basis, 48.1% of the Region s water assets have been amor zed. Asset Consumption Ratio 2009 Water 2010 Water 2011 Water 2012 Water Hamilton 33.7% 33.3% 31.4% 29.6% London 29.6% 29.5% 29.8% 30.1% Region Durham 22.4% 23.2% 24.1% 24.9% Region Halton 18.4% 18.2% 18.8% 20.9% Region Peel 23.1% 23.6% 21.3% 22.1% Region Waterloo 42.5% 44.4% 46.2% 46.0% Region York 22.6% 23.0% 24.1% 23.1% Average 27.5% 27.9% 28.0% 28.1% Median 23.1% 23.6% 24.1% 24.9% Region Niagara 44.5% 43.3% 45.4% 46.6% Asset Consumption Ratio 2009 WW 2010 WW 2011 WW 2012 WW Hamilton 33.5% 34.1% 34.1% 32.4% London 36.0% 36.9% 36.0% 37.6% Region Durham 25.8% 27.1% 28.0% 29.2% Region Halton 27.6% 27.7% 27.6% 27.3% Region Peel 23.5% 23.5% 23.0% 24.0% Region Waterloo 63.6% 65.3% 57.3% 55.2% Region York 17.8% 16.1% 17.8% 18.9% Average 32.6% 33.0% 32.0% 32.1% Median 27.6% 27.7% 28.0% 29.2% Region Niagara 49.9% 50.1% 42.9% 48.1% Long Range Financial Plan 6
Financial Metrics and Benchmarking Reserves as a % of Accumulated Amor za on Niagara Region has Capital and Operating Reserves to support its Water and Wastewater programs. The ideal target balance for reserves is dependent on a combination of several factors, including financing strategy, debt levels, operating contributions, and the forecasted capital spend. As discussed previously, one way to measure the Region s reserves is as a percentage of accumulated amortization. Niagara Region s Water Reserves have been keeping pace with accumulated amor za on. For example, in 2012 the Water Asset Consump on ra o was 46.6% compared with the Reserves as a % of Accumulated Amor za on of 44.5%. Niagara Region s water reserves in rela on to accumulated amor za on are the highest in the survey of comparator municipali es, reflec ng a rela vely strong financial posi on. Niagara Region s wastewater reserve posi on is low in rela on to accumulated amor za on and the asset consump on ra o but exceeds the survey average of peer municipali es. For example, in 2012 the Wastewater Asset Consump on ra o was 48.1% compared with the Reserves as a % of Accumulated Amor za on of 22.9%. Reserves as a % of Accumulated Amortization 2009 Water 2010 Water 2011 Water 2012 Water Hamilton 5.0% 3.4% 5.3% 8.1% London 21.0% 20.8% 20.8% 19.1% Region Durham 13.8% 19.8% 15.3% 16.8% Region Halton 16.9% 20.8% 20.4% 17.8% Region Peel 20.7% 13.6% 14.7% 16.7% Region Waterloo 5.4% 4.0% 3.7% 6.2% Region York 20.4% 11.5% 10.1% 13.6% Average 14.7% 13.4% 12.9% 14.0% Median 16.9% 13.6% 14.7% 16.7% Region Niagara 36.9% 44.1% 41.2% 44.5% Reserves as a % of Accumulated Amortization 2009 WW 2010 WW 2011 WW 2012 WW Hamilton 15.9% 43.0% 39.7% 43.4% London 14.1% 17.9% 19.9% 19.8% Region Durham 22.7% 24.2% 24.4% 26.0% Region Halton 8.8% 9.1% 13.0% 16.6% Region Peel 23.3% 23.1% 25.5% 28.5% Region Waterloo 27.4% 20.5% 11.7% 8.7% Region York 18.4% 20.9% 18.9% 19.7% Average 13.4% 16.7% 16.5% 17.6% Median 15.9% 20.5% 19.9% 19.8% Region Niagara 19.0% 24.1% 17.7% 22.9% Long Range Financial Plan 7
Financial Metrics and Benchmarking Debt Interest Ra o The tables reflect the debt service ra o (the interest payment as a percentage of revenues) in the Region in comparison to other municipali es surveyed as well as trends over me. Niagara Region s debt interest ra o is well below the survey average for both water and wastewater. In 2012, for every dollar of revenue generated, 1.4 cents is used to pay for debt interest in water and 5.5 cents in wastewater. Debt interest increased due to issuances in 2010 for both water and wastewater capital projects, but is well within acceptable limits Debt Interest as a % of Own Source Revenues 2009 Water 2010 Water 2011 Water 2012 Water Hamilton 0.1% 0.1% 0.1% 1.0% London 1.0% 0.3% 0.4% 0.5% Region Durham 1.7% 1.2% 0.8% 0.4% Region Halton 6.0% 5.2% 4.8% 5.9% Region Peel 0.0% 2.3% 9.8% 11.5% Region Waterloo 1.9% 1.6% 1.4% 1.4% Region York 24.8% 23.5% 24.8% 33.3% Average 5.1% 4.9% 6.0% 7.7% Median 1.7% 1.6% 1.4% 1.4% Region Niagara 0.0% 0.7% 1.4% 1.4% Debt Interest as a % of Own Source Revenues 2009 WW 2010 WW 2011 WW 2012 WW Hamilton 0.3% 0.2% 0.1% 0.8% London 4.8% 2.3% 3.2% 3.8% Region Durham 3.2% 2.8% 3.0% 2.7% Region Halton 3.8% 3.6% 4.1% 6.0% Region Peel 0.0% 3.6% 10.2% 13.7% Region Waterloo 0.0% 0.0% 0.0% 0.0% Region York 39.4% 39.1% 37.5% 38.2% Average 7.4% 7.4% 8.3% 9.3% Median 3.2% 2.8% 3.2% 3.8% Region Niagara 0.0% 3.4% 5.9% 5.5% Long Range Financial Plan 8
Forecast 10 Year Capital Budget Key Assump ons The following provides the key assump ons in the 10 year Capital Forecast: Capital Projects The 10 year Water and Wastewater Capital Forecast is based on the approved 2014 Capital Budget and Forecast. This includes $249 million for the 10 year Water Capital program and $341 million for the 10 year Wastewater Capital program. Water & Wastewater Capital Reserves The opening balance for Water and Wastewater Capital Reserves and Reserve Funds are based on the projected year end balances for 2013 with adjustments made per unfinanced capital. Sources of Financing The 10 year capital forecast reflects the financing incorporated in the Region s Capital Budget as presented as part of the 2014 Budget process. The majority of the capital is financed through the Region s Capital Reserves. No debt is planned for water capital programs. Over the next 10 years, $30 million in debt is anticipated to be issued to support wastewater operations. Development Charge Reserves are used to support growth related projects. Approximately $15.9 million in water and $55.3 million in wastewater development charge revenues are anticipated to be used to support the capital plan. Finally, $28 million in Federal and Provincial funding towards the Niagara on the Lake wastewater treatment plant has also been reflected in the year 2014. Long Range Financial Plan 9
Forecast Forecast Development The LRFP is developed based on an analysis of all factors impac ng the capital and opera ng budget. This forecast also includes assump ons with respect to growth and development charge revenues, interest rates impac ng reserves and debt issuance. As shown below, due to the inter rela onship between all components of the plan, changes in any of the assump ons will poten ally have an impact throughout the LRFP. Developers Grants & Subsidies Indexes CPI Salary Negotiations Operating Budget Expenditures/ Revenues Reserves Capital Reserves Dev Charges CAPITAL FINANCE DECISIONS Capital CAPITAL REQUIREMENTS Benefit Negotiations Utilities Debt Chemicals Old Debt Rates Consumption Etc. New Debt WW flows Long Range Financial Plan 10
Forecast 10 Year Capital Budget Water and Wastewater opera ons are very capital intensive. The 10 year Water Capital Budget is $249 million and the 10 Year Wastewater Capital Budget is $341 million. The graphs below reflect the 2014 2023 dra Water and Wastewater Capital Budgets. As shown in the table below, approximately 76% of the Water and 47% of the Wastewater Capital program is to support sustainability work required. Growth projects account for approximately 7% in Water and 33% of the Wastewater capital work that is being undertaken. (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 23 % of Total WATER Compliance $ 1,100 $ 2,313 $ 188 $ 63 $ 6,438 $ $ 188 $ 63 $ 188 $ 1,188 $ 11,725 4.7% Risk $ 7,805 $ 663 $ 1,700 $ 4,150 $ 500 $ 6,000 $ 4,250 $ 500 $ $ 450 $ 26,018 10.5% Sustainability $ 24,635 $ 17,538 $ 20,763 $ 15,913 $ 12,563 $ 26,000 $ 11,113 $ 22,738 $ 19,878 $ 20,138 $ 191,276 76.9% Enhancements $ $ 750 $ 750 $ 750 $ 250 $ $ 250 $ 250 $ 250 $ 250 $ 3,500 1.4% Growth $ 2,365 $ 563 $ $ 4,300 $ 4,300 $ $ 4,250 $ $ 140 $ 450 $ 16,367 6.6% Total (excluding inflation) $ 35,905 $ 21,825 $ 23,400 $ 25,175 $ 24,050 $ 32,000 $ 20,050 $ 23,550 $ 20,455 $ 22,475 $ 248,885 100.0% (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 23 % of Total WASTEWATER Compliance $ 7,475 $ 6,350 $ 7,094 $ 2,250 $ 7,200 $ 5,975 $ 2,250 $ 6,875 $ 12,875 $ 4,750 $ 63,094 18.5% Risk $ 225 $ 500 $ 2,000 $ 225 $ 500 $ 500 $ 250 $ 500 $ 500 $ 500 $ 5,700 1.7% Sustainability $ 14,408 $ 26,703 $ 18,466 $ 20,025 $ 20,120 $ 22,583 $ 4,650 $ 8,175 $ 7,475 $ 16,600 $ 159,204 46.7% Enhancements $ $ $ $ $ $ $ $ $ $ $ 0.0% Growth $ 44,963 $ 2,948 $ 5,625 $ 10,550 $ 7,180 $ 4,298 $ 26,400 $ 6,050 $ 1,375 $ 3,250 $ 112,638 33.1% Total (excluding inflation) $ 67,070 $ 36,500 $ 33,185 $ 33,050 $ 35,000 $ 33,355 $ 33,550 $ 21,600 $ 22,225 $ 25,100 $ 340,635 100.0% Note: infla on is accounted for separately as part of the financing plan through the reserve and debt forecas ng. Long Range Financial Plan 11
Forecast 10 Year Capital Budget Sources of Financing The following summarizes the sources of financing for the 10 year Water and Wastewater Capital Budget. As shown below, Capital Reserves are the main source of financing, comprising approximately 94% of the Water and 67% of the Wastewater funding over the 10 year period. Approximately $30 million in debt financing is required for wastewater opera ons. (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 2023 % of Total WATER Water Cap. Reserve $ 34,013 $ 21,263 $ 23,400 $ 20,875 $ 19,750 $ 32,000 $ 15,800 $ 23,550 $ 20,331 $ 22,025 $ 233,007 93.6% Dev. Charge Reserve $ 1,892 $ 563 $ $ 4,300 $ 4,300 $ $ 4,250 $ $ 124 $ 450 $ 15,879 6.4% Debt $ $ $ $ $ $ $ $ $ $ $ 0.0% Other $ $ $ $ $ $ $ $ $ $ $ 0.0% Total $ 35,905 $ 21,825 $ 23,400 $ 25,175 $ 24,050 $ 32,000 $ 20,050 $ 23,550 $ 20,455 $ 22,475 $ 248,885 100.0% (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014 2023 % of Total WASTEWATER WW Cap. Reserves $ 30,628 $ 23,553 $ 22,560 $ 24,123 $ 19,260 $ 24,058 $ 23,435 $ 16,450 $ 20,850 $ 21,850 $ 226,766 66.6% Dev. Charge Reserve $ 7,775 $ 2,948 $ 5,625 $ 8,927 $ 5,740 $ 4,298 $ 10,115 $ 5,150 $ 1,375 $ 3,250 $ 55,202 16.2% Debt $ $ 10,000 $ 5,000 $ $ 10,000 $ 5,000 $ $ $ $ $ 30,000 8.8% Other * $ 28,667 $ $ $ $ $ $ $ $ $ $ 28,667 8.4% $ 67,070 $ 36,500 $ 33,185 $ 33,050 $ 35,000 $ 33,355 $ 33,550 $ 21,600 $ 22,225 $ 25,100 $ 340,635 100.0% * Represents Federal and Provincial funding for the Niagara on the Lake WWTP. Long Range Financial Plan 12
Forecast 10 Year Capital Budget Debt Summary Debt outstanding in 2014 is es mated to be approximately $11 million in water and $68 million in wastewater. By the end of the forecast, debt outstanding is $7 million and $55 million respec vely for water and wastewater opera ons. Debt interest ra os decline over the 10 year forecast period for both water and wastewater. Long Range Financial Plan 13
Forecast Water and Wastewater Opera ng Budget Forecast The Region s objec ve in establishing the Water and Wastewater rates is to avoid large fluctua ons from year to year and is set at a level to adequately cover current opera ng costs, maintain and repair the Region s exis ng asset base and replace assets where appropriate. The following summarizes the key assump ons used to develop the Opera ng Budget Forecast: Water and wastewater programs are maintained at their current service levels The years 2014 through 2016 coincide with the mul year opera ng budget incorporated in the approved 2014 Budget and Forecast For 2017 and beyond, expenditure increases for many municipal services to maintain existing level of services are based on estimated Consumers Price Index increases (2%). The only exception were the costs of hydro, natural gas, chemicals, fuel and water, which were assumed to increase annually at a rate of 3%. Reserve contributions and debt charges throughout the tenyear period coincide with the 10 year capital financing plan presented as part of the 2014 Budget and Forecast. Long Range Financial Plan 14
Forecast Opera ng Budget Forecast Water and Wastewater (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Water $ 42,294 $ 42,849 $ 43,414 $ 43,907 $ 44,411 $ 44,925 $ 45,451 $ 46,484 $ 47,542 $ 48,624 % Change 1.3% 1.3% 1.1% 1.1% 1.2% 1.2% 2.3% 2.3% 2.3% Wastewater $ 64,928 $ 66,884 $ 69,349 $ 71,446 $ 73,592 $ 75,790 $ 78,041 $ 79,849 $ 81,700 $ 83,595 % Change 3.0% 3.7% 3.0% 3.0% 3.0% 3.0% 2.3% 2.3% 2.3% Total $ 107,222 $ 109,732 $ 112,763 $ 115,353 $ 118,003 $ 120,716 $ 123,492 $ 126,333 $ 129,242 $ 132,219 % Change 2.3% 2.8% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% 2.3% As shown above, the combined water and wastewater revenue requirements are forecast to increase 2.3% 2.8% annually from 2015 2024. Long Range Financial Plan 15
Forecast $70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $ Water Capital Reserve Balance (000 s) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 10 Year Capital Reserve Summary As previously noted, Niagara Region maintains separate reserves for operating and capital purposes. The graph above illustrates that the Water Capital Reserve balance is projected to decline over the forecast period with a beginning balance of $64.4 million in 2014 and an ending balance of $31.1 million in 2023. No debt has been utilized through the duration of the plan. These reserve balances form part of a financing plan that considers the declining debt position, increased operating contribution, and forecasted capital needs, as will continue to be assessed as updated information becomes available. Long Range Financial Plan 16
Repor ng Requirements Reporting Requirements O.Reg. 453/07 Long Range Financial Plan 17
Repor ng Requirements Water and Wastewater Financial Plan O.Reg. 453/07 Introduc on The Financial Plan has been prepared in accordance with the Financial Plan regula on (O.Reg. 453/07) made under the Safe Drinking Water Act. While the O. Reg. 453/07 only applies to Water, the Region has prepared statements for both water and wastewater opera ons. Paragraph 4 of subsec on 3(1) of the regula on requires that financial plans include three statements including the Statement of Opera ons, the Gross Cash Receipts and the Financial Posi on. The financial statements have been included at the end of the report for water and wastewater. The Financial Plan regula on requires that the plans be updated every five years along with the request for the renewal of the drinking water license. This ongoing update will assist in revisi ng the assump ons made to develop the opera ng and funding plans as well as reassessing the needs for capital renewal and major maintenance expenses. The following sec on provides a summary of the principle features concerning the current and future state of the water and wastewater systems contained in the projected financial statements (2014 2023). Statement of Financial Opera ons Highlights This statement summarizes the revenues and expenditures. The expenditures include ongoing operating costs plus asset amortization. This statement indicates that the system and its asset base are projected to be maintained with funds being available each year for future capital renewal or major maintenance. As shown in the statements of financial operations, the Region of Niagara is generating excess revenues over expenses including amortization for water and wastewater throughout the forecast period. This is not unexpected given the relatively older age of the Region s infrastructure, as amortization is based on historical cost while revenues consider the replacement values. Long Range Financial Plan 18
Repor ng Requirements Cash Receipts or Gross Cash Payments (Cash Flows) Highlights The cash flow statement summarizes how the water and wastewater system is expected to generate and u lize cash resources. The transac ons that generate and use cash include the projec on of cash to be received from revenues, cash to be used for opera ng expenditures and financing charges, cash projected to be used to acquire capital assets and projected financial transac ons that are the proceeds from debt or debt principal repayment. As illustrated below, cash and cash equivalents for water are declining over the forecast period. In wastewater, the level of cash and cash equivalents will be drawn down from 2014 2020 to acquire tangible capital assets and therea er will build annually to 2023. Long Range Financial Plan 19
Repor ng Requirements Financial Posi on Highlights There are three important indicators to review in the Statement of Financial Posi on described as follows: 1. Net Financial Assets An important feature of a water and wastewater system is its net financial assets. A posi ve number indicates that the system has the resources to deal with future capital and other needs. A nega ve number indicates that past capital and other investments must be financed from future revenues as is the case for wastewater opera ons. As illustrated below, due to the utilization of debentures to finance capital needs, the net financial assets for wastewater will decrease from 2014 2019 and will increase thereafter. 2. Tangible Capital Assets (Net Book Value) Water and wastewater systems have a great deal of resources ed up in tangible capital assets and managing these assets is cri cal to maintaining current and future levels of service. An increase in net book value of tangible capital assets is an indica on that assets have been renewed faster than they were used. As shown below, the net book value is projected to increase for water and wastewater indica ng that assets are being renewed faster than they are being used, as substan ated in the water and wastewater capital renewal plan. Long Range Financial Plan 20
Repor ng Requirements 3. Accumulated Surplus A third financial indicator that is reflected in the financial posi on statement is the accumulated surplus. This indicator represents cash on hand plus the net book value of tangible capital assets less debt. As shown below, the accumulated surplus is forecast to increase from 2014 to 2023 for both water and wastewater. The increasing projected surpluses in water and wastewater opera ons indicate that if the Region adheres to the Financial Plan, it will strengthen its combined cash and asset posi on. Summary The financial statements reveal that the Niagara Region will be in good shape and will be renewed faster than it will be wearing out, provided that the Region implements the projected rate revenue requirements and the long range capital renewal and major maintenance plan as set out in the long range financial plan. In reviewing these statements, it is important to keep in mind that a number of assump ons have been made concerning infla on and interest rates. Actual numbers may deviate from these over me. In addi on, capital and major maintenance cost es mates may vary from current projec ons. There is a need to monitor the progress of this plan and make adjustments as needed. Long Range Financial Plan 21
Repor ng Requirements Statement of Financial Opera ons Water (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Water Total Revenues Rate Revenues $ 42,294 $ 42,849 $ 43,414 $ 43,907 $ 44,411 $ 44,925 $ 45,451 $ 46,484 $ 47,542 $ 48,624 Other Revenues $ 390 $ 398 $ 406 $ 414 $ 422 $ 430 $ 439 $ 448 $ 457 $ 466 Interest Revenues $ 769 $ 853 $ 809 $ 761 $ 754 $ 677 $ 607 $ 588 $ 533 $ 489 Total Revenues $ 43,453 $ 44,100 $ 44,629 $ 45,081 $ 45,587 $ 46,033 $ 46,497 $ 47,520 $ 48,532 $ 49,578 Water Total Expenses Operating Expenses Personnel Costs $ 9,629 $ 9,873 $ 10,109 $ 10,311 $ 10,518 $ 10,728 $ 10,943 $ 11,161 $ 11,385 $ 11,612 Administrative Expenses $ 239 $ 244 $ 249 $ 254 $ 259 $ 264 $ 270 $ 275 $ 280 $ 286 Materials, Supplies & Utilities $ 3,672 $ 3,815 $ 3,965 $ 4,070 $ 4,179 $ 4,291 $ 4,406 $ 4,523 $ 4,645 $ 4,769 Repairs & Maintenance $ 3,933 $ 3,237 $ 3,291 $ 3,357 $ 3,424 $ 3,493 $ 3,563 $ 3,634 $ 3,707 $ 3,781 Purch. Serv. & Other Operating Exp. $ 3,229 $ 3,286 $ 3,345 $ 3,412 $ 3,481 $ 3,550 $ 3,621 $ 3,694 $ 3,768 $ 3,843 Capital Equipment & Renovations $ 74 $ 75 $ 77 $ 78 $ 80 $ 81 $ 83 $ 84 $ 86 $ 88 Allocations Between Departments $ 1,071 $ 1,098 $ 1,123 $ 1,147 $ 1,171 $ 1,196 $ 1,221 $ 1,246 $ 1,272 $ 1,299 Allocations Within Departments $ 406 $ 413 $ 418 $ 427 $ 435 $ 444 $ 453 $ 462 $ 471 $ 480 Allocations to Capital Program $ (270) $ (276) $ (282) $ (288) $ (293) $ (299) $ (305) $ (311) $ (318) $ (324) Indirect Allocation $ 1,310 $ 1,340 $ 1,382 $ 1,409 $ 1,438 $ 1,466 $ 1,496 $ 1,526 $ 1,556 $ 1,587 NPCA $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 $ 300 Total Operating Expenses $ 23,592 $ 23,405 $ 23,978 $ 24,479 $ 24,991 $ 25,514 $ 26,048 $ 26,594 $ 27,152 $ 27,722 Debt Charges Debt Charges Interest Payments $ 586 $ 578 $ 569 $ 559 $ 548 $ 536 $ 523 $ 516 $ 516 $ 516 Amortization Expense Water Assets $ 9,531 $ 10,649 $ 11,272 $ 11,854 $ 12,447 $ 13,091 $ 13,720 $ 14,368 $ 14,796 $ 15,247 Total Expenses $ 33,710 $ 34,632 $ 35,819 $ 36,891 $ 37,986 $ 39,141 $ 40,291 $ 41,479 $ 42,465 $ 43,486 Annual Surplus/(Deficit) $ 9,744 $ 9,468 $ 8,810 $ 8,190 $ 7,601 $ 6,892 $ 6,206 $ 6,041 $ 6,067 $ 6,092 Long Range Financial Plan 22
Repor ng Requirements Statement of Cash Flow/Cash Receipts Water (includes infla on) (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total Revenues $ 43,453 $ 44,100 $ 44,629 $ 45,081 $ 45,587 $ 46,033 $ 46,497 $ 47,520 $ 48,532 $ 49,578 Cash Paid For Operating Costs $ (23,592) $ (23,405) $ (23,978) $ (24,479) $ (24,991) $ (25,514) $ (26,048) $ (26,594) $ (27,152) $ (27,722) Debt Repayment Debt Interest $ (586) $ (578) $ (569) $ (559) $ (548) $ (536) $ (523) $ (516) $ (516) $ (516) Cash Provided From Operating Transactions $ 19,275 $ 20,117 $ 20,082 $ 20,043 $ 20,048 $ 19,983 $ 19,926 $ 20,409 $ 20,863 $ 21,340 Capital Transactions Acquisition of TCA $ (35,905) $ (22,371) $ (24,585) $ (27,111) $ (26,547) $ (36,205) $ (23,252) $ (27,994) $ (24,922) $ (28,068) Finance Transactions Proceeds from Debt Issues Proceeds from Other Sources Proceeds from DCs $ 1,892 $ 577 $ $ 4,631 $ 4,746 $ $ 4,929 $ $ 151 $ 562 Proceeds from Internal Repayment DCs $ $ $ $ $ 4,000 $ 2,500 $ 1,804 $ 1,750 $ 1,400 $ 1,833 Debt Repayment Principal $ (418) $ (427) $ (437) $ (447) $ (458) $ (469) $ (480) $ (192) $ (192) $ (192) Increase/(Decrease) in Cash Equivalents $ (15,156) $ (2,105) $ (4,940) $ (2,884) $ 1,790 $ (14,191) $ 2,926 $ (6,027) $ (2,700) $ (4,526) Cash and Cash Equivalents at Beginning Balance $ 84,876 $ 69,720 $ 67,615 $ 62,675 $ 59,792 $ 61,581 $ 47,390 $ 50,317 $ 44,290 $ 41,589 Cash and Cash Equivalents at Ending Balance $ 69,720 $ 67,615 $ 62,675 $ 59,792 $ 61,581 $ 47,390 $ 50,317 $ 44,290 $ 41,589 $ 37,063 The acquisi on of TCA via capital projects can occur over several periods, however have been reflected in year of projected approval for the purposes of this schedule. Long Range Financial Plan 23
Repor ng Requirements Statement of Financial Posi on Water (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Financial Assets Cash $ 69,720 $ 67,615 $ 62,675 $ 59,792 $ 61,581 $ 47,390 $ 50,317 $ 44,290 $ 41,589 $ 37,063 Liabilities Debt Principal Outstanding $ (10,725) $ (10,298) $ (9,861) $ (9,414) $ (8,956) $ (8,488) $ (8,007) $ (7,815) $ (7,623) $ (7,430) Net Financial Assets $ 58,994 $ 57,317 $ 52,814 $ 50,378 $ 52,625 $ 38,903 $ 42,309 $ 36,475 $ 33,966 $ 29,633 Non Financial Assets Tangible Capital Assets $ 429,187 $ 465,092 $ 487,462 $ 512,047 $ 539,157 $ 565,704 $ 601,909 $ 625,161 $ 653,155 $ 678,077 Additions to Tangible Capital Assets $ 35,905 $ 22,371 $ 24,585 $ 27,111 $ 26,547 $ 36,205 $ 23,252 $ 27,994 $ 24,922 $ 28,068 Accumulated Amortization $ (183,307) $ (193,956) $ (205,228) $ (217,082) $ (229,529) $ (242,619) $ (256,339) $ (270,707) $ (285,503) $ (300,750) Total Non Financial Assets $ 281,785 $ 293,506 $ 306,818 $ 322,076 $ 336,176 $ 359,290 $ 368,822 $ 382,448 $ 392,574 $ 405,395 Accumulated Surplus $ 340,779 $ 350,823 $ 359,633 $ 372,453 $ 388,801 $ 398,193 $ 411,131 $ 418,922 $ 426,541 $ 435,028 Cash as a % of Net Fixed Assets 24.7% 23.0% 20.4% 18.6% 18.3% 13.2% 13.6% 11.6% 10.6% 9.1% Debt as a % of Net Fixed Assets 3.8% 3.5% 3.2% 2.9% 2.7% 2.4% 2.2% 2.0% 1.9% 1.8% Long Range Financial Plan 24
Repor ng Requirements Statement of Financial Opera ons Wastewater (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Wastewater Total Revenues Rate Revenues $ 64,928 $ 66,884 $ 69,349 $ 71,446 $ 73,592 $ 75,790 $ 78,041 $ 79,849 $ 81,700 $ 83,595 Other Revenues $ 1,265 $ 1,290 $ 1,316 $ 1,342 $ 1,369 $ 1,397 $ 1,425 $ 1,453 $ 1,482 $ 1,512 Interest Revenues $ 470 $ 512 $ 478 $ 442 $ 427 $ 406 $ 359 $ 379 $ 464 $ 531 Total Revenues $ 66,664 $ 68,686 $ 71,144 $ 73,230 $ 75,388 $ 77,593 $ 79,825 $ 81,681 $ 83,646 $ 85,638 Wastewater Total Expenses Operating Expenses Personnel Costs $ 11,817 $ 12,115 $ 12,655 $ 12,908 $ 13,166 $ 13,430 $ 13,698 $ 13,972 $ 14,252 $ 14,537 Administrative Expenses $ 274 $ 279 $ 284 $ 290 $ 296 $ 302 $ 308 $ 314 $ 320 $ 326 Materials, Supplies & Utilities $ 9,846 $ 10,125 $ 10,539 $ 10,817 $ 11,102 $ 11,395 $ 11,696 $ 12,005 $ 12,323 $ 12,649 Repairs & Maintenance $ 4,605 $ 4,697 $ 4,791 $ 4,887 $ 4,984 $ 5,084 $ 5,186 $ 5,289 $ 5,395 $ 5,503 Purch. Serv. & Other Operating Exp. $ 9,488 $ 9,783 $ 10,187 $ 10,391 $ 10,598 $ 10,810 $ 11,027 $ 11,247 $ 11,472 $ 11,702 Capital Equipment & Renovations $ 95 $ 97 $ 99 $ 101 $ 103 $ 105 $ 107 $ 110 $ 112 $ 114 Allocations Between Departments $ 941 $ 971 $ 993 $ 1,016 $ 1,039 $ 1,062 $ 1,086 $ 1,110 $ 1,136 $ 1,161 Allocations Within Departments $ 566 $ 576 $ 585 $ 597 $ 609 $ 621 $ 634 $ 646 $ 659 $ 672 Allocations to Capital Program $ (297) $ (304) $ (310) $ (316) $ (323) $ (329) $ (336) $ (342) $ (349) $ (356) Indirect Allocation $ 1,915 $ 1,957 $ 2,009 $ 2,049 $ 2,090 $ 2,132 $ 2,175 $ 2,218 $ 2,263 $ 2,308 Total Operating Expenses $ 39,251 $ 40,296 $ 41,833 $ 42,739 $ 43,665 $ 44,612 $ 45,580 $ 46,570 $ 47,582 $ 48,616 Debt Charges Debt Charges Interest Payments $ 3,433 $ 3,880 $ 4,032 $ 3,920 $ 4,320 $ 4,398 $ 4,160 $ 3,931 $ 3,711 $ 3,480 Amortization Expense Wastewater Assets $ 16,460 $ 17,578 $ 18,201 $ 18,782 $ 19,376 $ 20,019 $ 20,648 $ 21,297 $ 21,725 $ 22,176 Total Expenses $ 59,144 $ 61,754 $ 64,067 $ 65,442 $ 67,361 $ 69,029 $ 70,389 $ 71,797 $ 73,017 $ 74,272 Annual Surplus/(Deficit) $ 7,519 $ 6,931 $ 7,076 $ 7,788 $ 8,027 $ 8,563 $ 9,436 $ 9,884 $ 10,629 $ 11,365 Long Range Financial Plan 25
Repor ng Requirements Statement of Cash Flow/Cash Receipts Wastewater (includes infla on) (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Total Revenues $ 66,664 $ 68,686 $ 71,144 $ 73,230 $ 75,388 $ 77,593 $ 79,825 $ 81,681 $ 83,646 $ 85,638 Cash Paid For Operating Costs $ (39,251) $ (40,296) $ (41,833) $ (42,739) $ (43,665) $ (44,612) $ (45,580) $ (46,570) $ (47,582) $ (48,616) Debt Repayment Debt Interest $ (3,433) $ (3,880) $ (4,032) $ (3,920) $ (4,320) $ (4,398) $ (4,160) $ (3,931) $ (3,711) $ (3,480) Cash Provided From Operating Transactions $ 23,979 $ 24,509 $ 25,278 $ 26,571 $ 27,403 $ 28,583 $ 30,084 $ 31,181 $ 32,354 $ 33,542 Capital Transactions Acquisition of TCA $ (67,070) $ (37,413) $ (34,865) $ (35,591) $ (38,633) $ (37,738) $ (38,908) $ (25,676) $ (27,079) $ (31,346) Finance Transactions Proceeds from Debt Issues $ $ 10,250 $ 5,253 $ $ 11,038 $ 5,657 $ $ $ $ Proceeds from Other Sources $ $ $ $ $ $ $ $ $ 6,000 $ 3,000 Proceeds from DCs $ 7,775 $ 3,021 $ 5,910 $ 9,614 $ 6,336 $ 4,862 $ 11,730 $ 6,122 $ 1,675 $ 4,059 Proceeds from External Recoveries/Subsidies $ 28,667 $ $ $ $ $ $ $ $ $ Debt Repayment Principal $ (2,496) $ (3,396) $ (3,936) $ (4,080) $ (5,108) $ (5,757) $ (5,990) $ (5,363) $ (5,583) $ (5,814) Increase/(Decrease) in Cash Equivalents $ (9,145) $ (3,028) $ (2,360) $ (3,487) $ 1,035 $ (4,393) $ (3,084) $ 6,264 $ 7,367 $ 3,440 Cash and Cash Equivalents at Beginning Balance $ 51,855 $ 42,710 $ 39,682 $ 37,322 $ 33,836 $ 34,871 $ 30,478 $ 27,394 $ 33,658 $ 41,025 Cash and Cash Equivalents at Ending Balance $ 42,710 $ 39,682 $ 37,322 $ 33,836 $ 34,871 $ 30,478 $ 27,394 $ 33,658 $ 41,025 $ 44,465 The acquisi on of TCA via capital projects can occur over several periods, however have been reflected in year of projected approval for the purposes of this schedule. Long Range Financial Plan 26
Repor ng Requirements Statement of Financial Posi on Wastewater (000's) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 Financial Assets Cash $ 42,710 $ 39,682 $ 37,322 $ 33,836 $ 34,871 $ 30,478 $ 27,394 $ 33,658 $ 41,025 $ 44,465 Liabilities Debt Principal Outstanding $ (67,714) $ (74,722) $ (76,093) $ (72,013) $ (77,946) $ (77,820) $ (71,829) $ (66,466) $ (60,883) $ (55,069) Net Financial Assets $ (25,004) $ (35,040) $ (38,770) $ (38,177) $ (43,075) $ (47,342) $ (44,435) $ (32,808) $ (19,858) $ (10,604) Non Financial Assets Tangible Capital Assets $ 738,503 $ 805,573 $ 842,986 $ 877,851 $ 913,442 $ 952,075 $ 989,813 $ 1,028,721 $ 1,054,397 $ 1,081,476 Additions to Tangible Capital Assets $ 67,070 $ 37,413 $ 34,865 $ 35,591 $ 38,633 $ 37,738 $ 38,908 $ 25,676 $ 27,079 $ 31,346 Accumulated Amortization $ (318,864) $ (336,442) $ (354,643) $ (373,426) $ (392,801) $ (412,821) $ (433,469) $ (454,766) $ (476,491) $ (498,667) Total Non Financial Assets $ 486,709 $ 506,544 $ 523,208 $ 540,016 $ 559,274 $ 576,993 $ 595,252 $ 599,631 $ 604,985 $ 614,155 Accumulated Surplus $ 461,705 $ 471,504 $ 484,437 $ 501,839 $ 516,199 $ 529,651 $ 550,817 $ 566,823 $ 585,127 $ 603,551 Cash as a % of Net Fixed Assets 8.8% 7.8% 7.1% 6.3% 6.2% 5.3% 4.6% 5.6% 6.8% 7.2% Debt as a % of Net Fixed Assets 13.9% 14.8% 14.5% 13.3% 13.9% 13.5% 12.1% 11.1% 10.1% 9.0% Long Range Financial Plan 27