Asset Replacement Funding Plan Presentation by YourCity

Summary For Todays Conversation

1. Introduction
2. Asset Replacement Funding Plan
3. Summary

Introduction

National Context

Why is Asset Management Important?

1. Supports delivery of municipal services in a socially, environmentally, and economically responsible way.
2. Helps prevent the need for large, one-off tax increases and encourages consistent tax increases.
3. Is required for most grant funding applications.

Local Context

Strategic Priorities

Town of View Royal's 2019 – 2022 Strategic Plan

Strategic priority D: Financial Sustainability & Service Excellence identified that the Town's citizens want:

• Good value for tax dollars
• Funding for continuation of current service levels through taxation (52% of survey respondents said "increase taxes to maintain services at current levels" was a priority)
• Funding for future large projects through putting aside funds annually (68% of survey respondents indicated that "Putting aside funds each year to fund future large projects" was a priority)

Background

• Challenge 1: Unrealistic budgets
• Challenge 2: Asset Management Plans remained unfunded
• Challenge 3: Difficult to show trade-offs between risk and level of service
• Challenge 4: Difficult to make funding decisions

After repeatedly confronting these challenges, we were inspired to explore potential solutions. From these efforts, we discovered a method to successfully eliminate these common challenges -- our Asset HealthScore Framework.

Important Assumptions

1. Like for Like Replacement Only: This plan was developed only considering like for like replacements and does not consider level of service increases, regulatory requirements, or technology changes.
2. Constant Dollar Analysis: The model was developed using constant dollar analysis. This means that inflation is not accounted for in future costs.
3. Assets: The assets that are included in this study include; sewer, transportation, land improvements (i.e parks), buildings, drainage

Asset Replacement Funding Plan

Step 1: Compile Asset Data

Step 2: Funding Demand

Step 3: Risk & Level of Service

Risk and Level of Service Performance Measures

Asset VitalSigns consist of:

• Asset HealthScore
• Past Life Assets
• Consumption

"let's keep taxes low" to "let's keep assets healthy" (While considering affordability)

Example

Bucket Metaphor:

• Rate of Investment: Water filling the bucket
• HealthScore: The current water level
• Rate of Deterioration: Water leaking from the bottom
• Consumption: Water used from the bucket
• Past Life Asset: Water remaining at the very bottom

Correlation Between Asset VitalSigns and Risk and Level of Service

Example Comparison

Example

Asset Value

$139M Asset Replacement Value

Risk and Level of Service Performance Measures

• Asset HealthScore: 96%
• Past Life Assets: 4%
• Consumption: 33%

Step 4: Forecasted Asset Replacement Budget

Asset Replacement Budget Scenario Summary

Scenario 1

• Scenario Name: Current Average Annual Reserve Contribution
• Scenario Description: Reserve contributions from 2020 to 2025 financial plan (annual reserve contribution)
• Forecasted Budget: $456,800
• Impact Over Time: Asset HealthScore drops from 96% to 37%. Past Life increases from 4% to 35%, and Consumption increases from 33% to 90%.
• Asset Replacement Funding Gap:
  • Current Budget: $456,800
  • Forecasted Budget: $456,800
  • Funding Gap: $0

Scenario 2

• Scenario Name: Risk & Level of Service Remains Similar
• Scenario Description: The goal of this scenario is to keep the risk & level of service in the future similar to the current level. To achieve this the Asset HealthScore today should be similar to the Asset HealthScore in the future.
• Forecasted Budget: $1.89M
• Impact Over Time: Asset HealthScore remains stable at 96% to 97%. Past Life drops to 0%, and Consumption increases to 56%.
• Asset Replacement Funding Gap:
  • Current Budget: $456,800
  • Forecasted Budget: $1.89M
  • Funding Gap: ($1.43M)

Scenario 3

• Scenario Name: Asset HealthScore Target 80%
• Scenario Description: Reduce Asset HealthScore from 94% to 80% (Allow 15% of Assets To Past their Estimated Life)
• Forecasted Budget: $1.25M
• Impact Over Time: Asset HealthScore drops from 96% to 79%. Past Life increases to 13%, and Consumption increases to 69%.
• Asset Replacement Funding Gap:
  • Current Budget: $456,800
  • Forecasted Budget: $1.25M
  • Funding Gap: ($794,414)

Scenario 4

• Scenario Name: Asset HealthScore Target 55%
• Scenario Description: Reduce Asset HealthScore from 94% to 55% (Allow 25% of the Assets to Go Past Their Estimated Life)
• Forecasted Budget: $726,800
• Impact Over Time: Asset HealthScore drops from 96% to 55%. Past Life increases to 25%, and Consumption increases to 81%.
• Asset Replacement Funding Gap:
  • Current Budget: $456,800
  • Forecasted Budget: $726,800
  • Funding Gap: ($270,000)

Summary

Forecasted Budget Scenario Comparison

• Scenario 01: Status Quo
  • Asset HealthScore: 37%
  • Past Life: 35%
  • Consumption: 90%
• Scenario 02: Similar Risk & Level of Service
  • Asset HealthScore: 96%
  • Past Life: 0%
  • Consumption: 56%
• Scenario 03: Asset HealthScore Target 80%
  • Asset HealthScore: 79%
  • Past Life: 13%
  • Consumption: 69%
• Scenario 04: Asset HealthScore Target 55%
  • Asset HealthScore: 55%
  • Past Life: 25%
  • Consumption: 81%

Forecasted Asset Replacement Budget Scenario Comparison

• Scenario 1: $456,800
• Scenario 2: $1.89M
• Scenario 3: $1.25M
• Scenario 4: $726,800

Asset Funding Gap Scenario Comparison

• Scenario 1: $0
• Scenario 2: $1.43M
• Scenario 3: $794,414
• Scenario 4: $270,000

Key Takeaways

• O&M vs. Capital Planning
• Great job at maintaining infrastructure to date & increasing reserve contributions
• Great job at planning (master plans, AM plans etc...)
• Opportunity to plan into the future to sustain assets & promote stable & consistent rate / tax increase.
• Asset VitalSigns
• The Ask: Time to reflect & think about:
  • Desired Future Risk & Levels of Service?
• Integrate forecasted asset replacement budget into a long-term financial strategy.

Next Steps For Consideration:

1. Asset Condition Assessments
2. Asset Replacement Financial Strategy (2021 / 2022)
3. Asset Management / Financial Policy (2021 / 2022)
4. Annual Reporting Template
5. Improve Data

Questions