REQUEST FOR DECISION
DATE: December 15, 2021 Report No. 2021-21-030
TO: Laurie Hurst, Chief Administrative Officer
FROM: Jeff Miller, Director of Engineering and Public Works
SUBJECT:
Title
Funding Mechanism for Inflow and Infiltration Master Plan Program
End
RECOMMENDATION:
Recommendation
That Council direct staff to implement the Capital Funding Scenario for the Inflow and Infiltration Master Plan starting in 2022 and ending in 2030.
Body
RELEVANT POLICY:
Watercourse and Drainage Protection Regulation Bylaw, 2019, No. 2971
Sewer Connection Bylaw, 2013, No. 2801
Liquid Waste Management Plan
STRATEGIC RELEVANCE:
Local Services and Infrastructure
• Identify infrastructure repair and proactively plan for replacement needs
• Identify long term financial requirements for local services and infrastructure
BACKGROUND:
At the November 8, 2021, Committee of the Whole meeting, report EPW-21-026 on potential funding scenarios for inflow and infiltration (II) activities for both the public and private portions of mains and laterals was received. The Committee requested that additional information be brought forward on the parcel tax option and a potential hybrid option of parcel tax/capital funding and long-term borrowing. During the discussion of the potential funding options, the methodology for utilizing capital requests to fund the work was presented but not discussed. This option has been included in this report to allow this option to be explored.
As discussed at the October 18, 2021 Committee of the Whole meeting, report EPW-21-022 discussed the cost for the Inflow and Infiltration Master Plan (IIMP). Depending on the condition of the laterals, the cost of the program would range from $12 million to $13 million. See Attachment 1 for Inflow and Infiltration Masterplan (IIMP) breakdown of activities and costs.
The purpose of the IIMP is to meet the objectives of the Liquid Waste Master Plan (LWMP). These objectives are:
1. Reduce the maximum average daily wet weather flow (ADWF) to less than 4 times the ADWF by 2030.
2. Eliminate overflows of less than a 5-year return period.
The Township could face fines or other actions from the Ministry if targets are not met. The penalty(s) of noncompliance have not been defined yet by the Ministry.
These activities will include works on both the private and public portions of the laterals along with work on the main line pipe. Activities would include:
• Cameraing
• Smoke and dye testing
• Installation of inspection chambers
• Root cutting
• Repair with no-dig technology
• Removal and replacement by open cut.
The costs of the work carried out on private laterals will be shared equally between the homeowner and the Township.
All properties within the Township are required to be connected to the sanitary sewer collection system (Sewage Connection Bylaw, 2013, No. 2801). There are no properties utilizing alternative methods of management of sanitary flows (i.e., septic fields).
Further information on the three funding scenarios is provided below.
Parcel Tax Scenario
A parcel tax is a separate charge from property tax, but still results in an overall increase in taxation if implemented. This tax increase would be in the range of 4% to 5% (based on 2021 budget) per year of the IIMP. The parcel tax is levied to provide funds based on a form of measurement for the property such as units, area, or frontage. Property tax is levied based on the assessed value of the property. The parcel tax can be levied on all properties that receive or have a reasonable opportunity to receive benefit from a specific service.
The parcel tax has several requirements that must be met:
• Identification of a particular service or system (i.e., sanitary collection system)
• State the basis of the tax (unit, area, frontage)
• Number of years the tax will be in place
A parcel tax is generally levied in conjunction with a user fee. For example, a local government will often recover the fixed capital costs for the infrastructure system through a parcel tax and the operating costs through a user fee or through property taxes as is the case with the Township.
The basis of the tax can be established by three methodologies:
• Unit
o This methodology would establish a rate based on the zoning of the property. A standard rate would be established for single family homes with different rate being multi-family homes. Commercial properties would also have a different rate.
• Area
o This methodology would look at the overall area of the lot and use this as a base for establishing a rate. This rate would be slightly different for each lot due to their area, with some residential properties paying more than others. Multi-family residences will generally pay more than single family residences based on their parcel size rather than their flows produced and use of the system. Commercial areas generally include large areas but lower flows due to the type of businesses that operate over a set time with small population (except industries like breweries).
• Frontage
o This methodology looks at the entire length of the frontage of a property and would use this to establish a rate. This rate would be slightly different for each lot due to their varying frontages. For residential corner lots, frontage would be identified as the section of land labelled as the front portion of the lot. Multi-family will most likely pay a higher rate due to their frontage. Like the area methodology, the tax would not be established on flows and use of the system. Commercial properties would have the largest tax due to most of them having long frontages.
A parcel tax also will require a parcel tax roll to be created. This tax roll will include the parcels to be taxed, names, and addresses of owners (or holder of a registered charge) of each parcel. This list must be available for public inspection. If requested by an owner, the list must omit or obscure the address or other information about the owner to protect their privacy or security.
The parcel tax roll would be separate from the assessed property tax roll but will be an exact duplicate. Staff would have to establish this tax roll and continue to maintain it separately throughout the life of the program. In addition, Council must establish a Review Panel to consider complaints about the roll and authenticate it on an annual basis. All preparation for the Review Panel would also be performed by staff. This additional work would primarily impact the finance department’s personnel capacity as it would be a new activity being added to their work plans. See the Cons section below for additional information on the capacity impact.
Pros
• Parcel tax methodology was created to supply funds for a systems approach for improvement through a significant portion or the entire system
• For the life of the tax, the funds that are taxed will be available for the program so that the commitment to the 2030 deadline can be met
• Shares the cost burden with entire Township who utilize the sanitary collection system in some form or another
Cons
• Development of the parcel tax roll involves the creation of new tax roll that is a duplicate of the assessed property tax roll and must be maintained separately for the life of the program
• Administrative burden to update, authenticate and address complaints on an annual basis
• The parcel tax roll will require additional resources within Finance to develop, maintain and manage this tax roll. These additional resources would require a minimum of 1 FTE at approximately $90,000 per year to be added to the operational budget for the duration of the tax. This would result in a potential tax increase for the Township’s taxpayers
• While the parcel tax was created for a systems approach for infrastructure improvement, the methodology for determining the tax sometimes creates inequality in what rate payers pay for the size/length/zone of their parcel and how they utilize the system
Hybrid Scenario
In this scenario, either a parcel tax or capital project funding and long-term borrowing would be used to fund the program. The first stage of funding would be achieved through a parcel tax or the capital program. The parcel tax would be in place from 2022 to 2025 (four years) and would be responsible for raising approximately $4,740,000 of funding for the IIMP.
The second stage of funding would see funding achieved through long term borrowing. Based on the remaining years in the IIMP, the loan amount would range from $7,000,000 to $8,000,000. The cost of $8,000,000 loan with an interest rate of 2.75% would translate into repayment costs that would range from $410,000 to $674,000 per year depending on the loan duration. The $674,000 per year represents a 15-year repayment term and the $410,000 per year represents a 30-year repayment term.
During the parcel tax funding period several long-term debts will be repaid. These are:
• Recreation Centre Revitalization
o Loan 1
§ Last year - 2022
§ Payment - $210,970
o Loan 2
§ Last year - 2023
§ Payment - $164,480
• Admirals Road Corridor
o Last year - 2024
o Payment - $135,950
• Sewer I & I Program
o Last year - 2024
o Payment - $66,245
During the IIMP program’s existence, debt repayment for the Public Safety Building will continue at a cost of approximately $1,700,000 per year.
These debt repayments are allocated from the Capital Project Reserve Fund (CPRF). As these debts are retired, their allotments within the CPRF would be freed up for either capital projects or other debt repayments. It is anticipated that with the debt retirements, the funds allocated would be utilized to assist with the repayment of debt for the Public Safety Building.
While the retirement of these loans does reduce the total debt payments, the Township will remain above its threshold limit for obtaining long term debt without taxpayer assent even after the repayment of the debts listed above. With this being the case, the Alternative Approval Process (AAP) would still be required to obtain any long-term debt funding required for the IIMP program.
Pros
• Funding will be provided to meet the 2030 deadline and requirements
Cons
• A parcel tax roll will still need to be created and managed with similar concerns raised in the previous section, including additional annual costs for administration
• To obtain funds through borrowing, an AAP process will still be necessary; asking taxpayers through this process may seem disingenuous as this work is not discretional and if not funded through borrowing it will still need to be funded through taxation
• The Township has a commitment in the LWMP to lower the ADWF flows, and by carrying out the AAP process taxpayers would be asked to give permission for something that must occur
Capital Project Funding Scenario
This scenario would establish an annual list of projects that would meet the IIMP objectives requiring funding for each year. This project list and estimated costs would be submitted during the budget process for discussion. Based on the costs the IIMP has identified, this would translate to a 4% to 5% (based on 2021 budget) tax revenue increase per year of the program. This increase in taxation would see additional funds being allocated to the CPRF to fund the project list.
The project list would be assessed in parallel with other budgetary priorities and projects. Dependent on the nature and urgency of other budgetary priorities/projects, it may be possible that the project list for the IIMP program might not be approved for any given
year which would impact the completion of the program by 2030.
Pros
• No separate parcel tax roll would be required thereby eliminating the duplication of effort
• No annual review panel authentication and complaint handling administrative processes
• No additional staff would be needed to manage a parcel tax roll
• This budget process is established and well understood by Council, Staff and the Public
• The impact of the IIMP on the Township is clear due to requests being presented with other initiatives and programs during the budget process
• Shares the burden of the costs with entire Township who utilize the sanitary collection system in some form or another without adding the cost of administering a separate and duplicate parcel tax roll
• Most likely perceived as a more transparent process
Cons
• To fulfill the LWMP commitment, Council would have to approve the IIMP request each year (similar wage increases)
• This commitment to the IIMP would have to be maintained despite the appearance or introduction of other programs or initiatives.
ISSUES:
1. Rationale for Selected Option
During the preparation of this report, Staff have reviewed the three possible funding scenarios and discussed them in depth with the Director of Financial Services and CAO. The review of the possible scenarios also looked at various factors such as:
• implementation of the IIMP
• length of time of IIMP
• commitment to LWMP
• fairness to the residents
• acceptability of potential funding requests
• past implementation of similar funding methodologies within the Township and the region
• administrative process
• time commitments
• staffing implications
For several reasons, including transparency and ease of administration, it is recommended that the Capital Project Funding Scenario be pursued.
2. Organizational Implications
The Capital Funding Scenario will utilize an existing process that has been incorporated into work plans and staff capacity. This scenario will have the lowest impact on staff capacity and capability.
3. Financial Implications
The main impact of the Capital Funding Scenario will be the need to see a yearly tax revenue increase to fund the scope of each year’s activities. It is anticipated that this increase would be in the 4% to 5% range. This rate increase does not include any other increases due to wages, or new projects/programs that may be requested by other departments during the budget cycle.
4. Sustainability & Environmental Implications
The IIMP has both sustainability and environmental implications. The main sustainability implication is on maintaining funding to complete the IIMP and meet the deadline. This will have a financial impact on residents and implications in the budget process.
With respect to environmental implications, the IIMP will lower sanitary flows. This will decrease the amount of ADWF that will need to be treated by the CRD which should translate to a decrease in the CRD requisition for the treatment of wastewater. By lowering the ADWF, the Township will also free up some of the capacity it purchased in the wastewater treatment plant. The IIMP will also undertake the elimination of cross connections with the storm water collection system. The elimination of cross connections will decrease the outflow of untreated wastewater to the surrounding waterbodies.
5. Communication & Engagement
The Township will have to carry out an extensive education program. The IIMP is requesting funding on an infrastructure system that most residents do not fully understand or have experience with when a failure occurs due to its hidden nature (i.e., underground), built in capacity and long lifespan. With this being the case, the education program would provide information to residents as to:
• why this funding is needed
• what activities will be undertaken
• when activities will be undertaken
• where activities will be undertaken
• how these activities will benefit the system and the residents
• provide information on the consequences of not fulfilling the LWMP commitment
This education process would be initiated in 2022 and be maintained throughout the life of the IIMP as required. The cost of the education process would form part of the whole budget request each year.
ALTERNATIVES:
1. That Council direct staff to implement the Capital Funding Scenario for the Inflow and Infiltration Master Plan starting in 2022 and ending in 2030.
2. That Council direct staff to implement the Parcel Tax Funding Scenario for the Inflow and Infiltration Master Plan starting in 2022 and ending in 2030.
3. That Council direct staff to implement the Hybrid Funding Scenario for the Inflow and Infiltration Master Plan starting in 2022 and ending in 2030.
4. That Council directs staff not to implement any of the funding scenarios or directs that implementation occur over a longer timeframe, understanding that a response will be coming from the Ministry for not meeting the requirements of the Liquid Waste Management Plan by the deadline, which could include fines or other actions.