Development Charges December 31, 2009 Reserve Balances and Annual Activity of the Accounts

Report to: General Committee Report Date: June 3, 2010

SUBJECT: Development Charges December 31, 2009 Reserve Balances and Annual Activity of the Accounts

PREPARED BY: Raymond Law, Ext. 3585

Kevin Ross, Ext. 2126

RECOMMENDATION:

That the report titled “Development Charges December 31, 2009 Reserve Balances and Annual Activity of the Accounts” be received for information purposes.

Section 43(1) of the Development Charges Act, 1997 requires the Treasurer to submit annually to Council a financial statement relating to Development Charge by-laws and reserve funds established under section 33 of the Development Charges Act, 1997.

BACKGROUND:

As part of the Development Charges Act, 1997 the Treasurer is to report annually on the funds received and dispersed as shown in the attached schedules.

Once received by Council a copy of this report will be forwarded to the Ministry of Municipal Affairs and Housing as required by the Development Charges Act, 1997.

Enclosed are the statistics for the twelve (12) months ended December 31, 2009.

FINANCIAL CONSIDERATIONS:

The December 31, 2009 closing balance of the Development Charge Reserve Accounts, before capital commitments, was $75,006,930 (Schedule A). This balance represents the cash, letter of credit and receivable balances in the reserves, and does not take into account commitments for approved capital projects. Approved capital commitments against the reserves as at December 31, 2009 totaled $101,927,444 (of which $57.1M is earmarked for the East Markham Community Centre [EMCC]). Although $101,927,444 is committed to existing capital projects, the cash-flow associated with this commitment spans the next 3 years.

The net reduction in the reserve fund, before capital commitments, from January 1, 2009 [$101,667,798] to December 31, 2009 [$75,006,930] was $26,660,867 as seen in Schedule B.

The net amount transferred to capital projects in 2009 was $37,567,289 which is broken down into two components – transfer to capital and transfer from capital – as seen in Schedule B. These two components of the transfer include $38,374,363 of growth-related projects (Schedule C) funded from development charges as well as net transfers to development charges of $807,074 resulting mainly from the closure of capital projects.

A summary of the Development Charges (DC) activity for the year is detailed as follows:

January 1, 2009 opening balance	$ 101,667,798
Development Charges received	$ 9,996,541
Interest earned (Schedule E)	$ 909,881
Net amount transferred to capital projects	$ (37,567,289)
Balance as at December 31, 2009	$ 75,006,930

Schedule D provides information on the service-in-lieu agreements and indicates that the Town has an obligation in the amount of $4,241,203 to be offset from development charges payable when the respective developers execute their agreements.

COMPONENT CATEGORIES

The balance of the Reserve Fund is made up of the following major categories:

Town-Wide Soft	$ 64,997,407
Town-Wide Hard	$ 12,229,472
Area-Specific	$ (2,219,948)
Total	$ 75,006,930

Schedule F (attached) provides the year-end balance of each reserve for 2007 through 2009 along with the percentage change over the three year period.

The chart below summarizes the year-end DC reserve balances by component category:

	YEAR-END BALANCES				% CHANGE
	2007	2008	2009		2007 - 2009

TOWN-WIDE SOFT SERVICES	$74,036,946	$74,044,789	$64,997,407		-12%
TOWN-WIDE HARD SERVICES	$15,088,868	$14,476,544	$12,229,472		-19%
AREA-SPECIFIC CHARGES	$14,132,464	$13,146,465	($2,219,949)		-116%

TOTAL DEVELOPMENT CHARGE RESERVE	$103,258,278	$101,667,798	$75,006,930		-27%

CAPITAL COMMITMENTS
PROJECTED CASH OUTFLOW
2010			$31,855,080
2011			$51,162,526
2012			$18,909,837
CAPITAL COMMITMENTS AT YEAR-END	($61,874,331)	($94,421,937)	($101,927,444)		65%

ADJUSTED DC RESERVE BALANCES	$41,383,947	$7,245,861	($26,920,514)	*	-165%

* Does not take into account DC revenues in years subsequent to 2009 and future growth-related capital projects.

The reduction of the Area Specific reserves is due to the transfer of projects from the Area-Specific to the Town-Wide Hard as per the updated Development Charges Background Study and related by-laws. In addition, the deficit reduction in the Area Specific reserves is attributable mainly to the acquisition of property and the construction of infrastructure (e.g. roads and stormwater management ponds) projects; both in advance of development to facilitate the strategic priorities of the Town; and in some instances these were achieved at a greater cost than initially identified in the DC Background Study. Capital commitments from 2007 to 2009 have increased by 65% primarily due to the addition of funding for the EMCC and funding of the Rodick Road extension between 14^th Avenue and Esna Park Drive. A significant amount of these capital commitments are expected to be expended in the next two years (e.g. EMCC where the major costs are expected in 2011) and will therefore impact the cash available for growth-related capital projects in the medium term. A preliminary cash flow projection (based on past trends and current expectations) to establish a timeline in which the committed ($101.9M) DC funding may be required indicates that the funds may be utilized as follows: 31% in 2010, 50% in 2011 and 19% in 2012 as indicated in the previous chart.

A preliminary DC cash-flow forecast was done taking into consideration (1) reduced building activity and (2) increased funding requirements and initial indications are that the reserves will be sufficient to fund capital commitments through to mid-2011.

DEVELOPMENT CHARGES COMMITTED TO APPROVED PROJECTS

Growth-related projects that are approved as part of the annual budgets generally denote development charges as the major funding source, but the actual cash funding for large capital expenditures is not transferred to the project until required. This process retains cash within the Development Charge Reserve Fund to earn as much interest as possible for the reserve. Upon the approval of the budget, the reserve balances in the Development Charge Reserve Fund are considered to be committed to projects underway, or about to start.

The reserve balance for the year ended December 2009 is significantly lower when capital commitments of $101,927,444 are taken into account, leaving the adjusted (uncommitted) reserve balance at negative $26,920,514. The total capital commitment for 2009 represents an increase of $7.5M [$101.9M less $94.4M] compared to the prior year. The largest share of the capital commitments are related to the EMCC [$57.1M], Rodick Road Extension Phase III [$11.6M], and other engineering projects [$18.8M]. The remainder of the total capital commitments is related to various projects for Recreation Services, Fire Services and Parks. The adjusted (uncommitted) reserve balance of negative $26.9M represents a $34.2M change from the prior year closing balance of $7.2M. The combination of the following factors has negatively impacted the adjusted (uncommitted) reserve balance:

· A slow-down in new development, which reduced the level of DC revenues and collections;

· Transfers of $37.6M from the reserve to fund capital projects, as compared to $15.1M in the prior year; and

· Additional commitments of DC funds towards major capital engineering infrastructure planned for the near future.

The reduction in the reserve balances is consistent with projections presented as part of the Integrated Leisure Master Plan, which also indicated a need to consider borrowing options in the near future.

The timing of capital projects along with other variables (i.e. future collections and 2010 capital commitments) will be assessed to determine when the Town will be required to borrow to finance its growth-related projects. A development charges cash-flow forecast and borrowing policy will be brought forward by Q4 2010.

The chart below summarizes the 2009 year-end reserve balances and capital commitments:

Further details on the specific Town-Wide Soft reserves with commitments are shown in Schedule A.

RECOMMENDED

BY:

ATTACHMENTS:

Schedule A – Balances in the individual components of the reserve fund

Schedule B – Funds received and dispersed by category

Schedule C – Capital projects funded in 2009

Schedule D – Statement of service-in-lieu credits

Schedule E – Investment details as required under Reg. 74/97 Section 8 of the Municipal Act

Schedule F – Statement of change in year-end balances

development%20charges.pdf