The end game is to secure $10 million in NCBP funding to
address the ongoing and accumulated water, sewer and road infrastructure
deficit. We should strive to achieve this end with the minimum impact to the
town’s balance sheet while maintaining maximum financial flexibility. Council
should also consider a process that achieves this end with the highest
probability of success.
Borrowing will have a negative impact on the town’s balance
sheet and severely limit the town’s future financial flexibility. Borrowing
will also require a referendum which introduces significant risk of failure.
For these reasons, I would like council to reconsider its decision to proceed
with a borrowing bylaw for $5 million and investigate other alternative sources
to fund the town’s portion of the NBCP.
Alternative sources of funds
The NCBF has a 10-year grant life, which according to Focus
Engineering, would require annual funding from the town of under $500k per year
for 10 years. To secure the NCBP grant, the town must demonstrate, to the
satisfaction of the grantors, that the town can and will dedicate $500k per
annum to the NCBF. Can this be shown?
The 2012 Town of Golden annual report (page 39) shows the
revenue and expenses for water and sewer services on schedule 3. The combined
amortization for water and sewer in 2012 was reported at $580,859. This is the
amount of money that should be either expended on water and sewer capital
projects or, if not spent, transferred into the water and sewer reserve funds.
Dedication of this amount to the NBCF will more than satisfy the grantor’s
requirement of demonstrating the town’s ability and resolve to provide the
matching funds.
The 5-year plan for water and sewer presented to the Mayor’s
Finance Committee on November 22, 2013 shows a projected surplus before
amortization of $754,183; ($312,780 for water; $441,403 for sewer). This is
more than enough to cover the annual amortization ($590,859 in 2012) meaning
that the water and sewer can now be considered to be self financing. The 5%
increase in water and sewer rates anticipated for 2014 will put the water and
sewer in a healthy surplus even after allowance for amortization.
Over the 5-year period 2014-2018, the projected surplus
before amortization is $3,665,602 or an average of $733,120 per year. This is
again more than enough to cover the anticipated maintenance and the town’s
portion of the NCBP.
Effect on Existing Capital Program
Staff have developed an inventory of 19 suggested projects
that should qualify for the NBCP over and above the existing budgeted capital
in the 5-year plan. Would dedicating $500k to the NBCP affect the town’s
ability to complete the existing budgeted capital?
At the Finance Committee meeting on November 22, 2013 I asked
if the major expenses in the water and sewer capital budget would qualify for
the NCBF. The staff responded that, subject to receiving and checking with the
NCBP, the majority of the large capital expenses would qualify for the NCBP.
When the NBCP granting application is made these projects would have to be
included.
Hence there would be no impact on the town’s ability to
complete projects in the existing 5-year capital budget. Combining the major
projects from the existing 5-year capital budget with the 19 suggested projects
would result in a NBCP grant application of more than $10 million. If the town
wanted to stay at the $10 million level for the grant then some of the 19 suggested
projects would have to be delayed or included in another grant application.
Leasing and short-term debt
Under the heading of General Capital, the big ticket items
are the loader and plow truck. Normally buying these items outright is the
cheapest way to proceed. Should it be required, leasing or short-term borrowing facilitates
the preservation of capital allowing the town to take full advantage of the
NBCP without resorting to long-term borrowing.
Conclusion
Quite clearly, it can be demonstrated that the town
generates sufficient funds from the water and sewer utilities to more than
cover the town’s portion of the NCBP.
If the major water and sewer projects from the existing
5-year capital budget are included in the NBCP grant application, the town will
be able to complete these projects in a timely manner.
The town has the financial flexibility to use leasing and/or
short term borrowing to address general capital requirements should that be
required to preserve capital for the NBCP.
Obtaining the NBCP grant without borrowing will maintain
maximum financial flexibility should the town need to borrow funds in the
future. This process also carries an almost 100% probability of success as it
will not require the approval of the electorate.
Recommendation
I recommend that the town not proceed with the borrowing
bylaw at this time. Instead I propose
that council request that the town staff determine if the dedication of $500k
per year for the next 10 years from the water and sewer utility revenues, to
fund the town’s portion of the NBCP, is feasible.
The opinions expressed in this Blog are my personal
opinions and may not represent the opinions of other councillors nor the opinions
of council.
