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February 21,2014
F25

Committee of Council

Report

Committee ofthe Council of

The Corporation of the City of Brampton

Date:
File:

COMMITTEE OF COUNril DATB:J^K^SL

Subject:

Capital Project Financial Review - Status Report

Contact:

Bonnie Eskelson, Project Lead, Capital Program Financing (905-874-2253)

Overview:

The City's Capital Fund, representing approved but unspent capital financing,

currently stands at $766 million.

In-depth review of the approximately 670 open capital projects (pre-2014) has to date identified 169 that can be closed or the funding balance reduced, with $62 million returned to source for future re-allocation to other projects.
Review continues with the goal of identifying additional opportunities for re-allocation of funds where priorities may have changed and/or facilitating management decisions on alternative delivery mechanisms.

Related policies and procedures are being revised to improve control of capital funding, and enhanced project and financial reporting is being implemented.

Recommendations:

1. THAT the report from Bonnie Eskelson, Project Lead, Capital Program Financing, Corporate Services Department, dated February 21, 2014, to the Committee of Council Meeting of March 5, 2014, re: Capital Project Financial Review - Status Report, be received.
Background:

In conjunction with the recently completed 2014 budget process, review of the City's financial resources revealed that unspent financing in the Capital Fund had reached

nearly $800 million.

The Executive Leadership Team determined that an in depth

review of this fund was in order, particularly with the potential need for debt financing to ensure that the City's infrastructure priorities can continue to be delivered in a timely
manner.

Financial review of open capital projects is already carried out at least annually to
ensure that projects are closed out and excess funds returned to source for re-allocation to new priorities. However, with inadequate funding available to address all critical needs and in recognition of the continued growth in the capital fund, a more rigourous and targeted financial review has been undertaken. Additionally, related processes and policies are being evaluated to ensure that best practices for control of capital funds are followed. Where appropriate, these will be updated and enhanced to facilitate ongoing monitoring and control.

The unspent balance in approved capital funding currently totals approximately $766 million, excluding the recently approved 2014 capital budget. The amount is qualified as approximate because the 2013 year-end closing process is still underway and recording of outstanding accruals may further reduce the balance.
Schedule 1. attached, shows the distribution of the unspent funds by program and by
source of funds:

60% of the funds are sourced from development charges, 68% from all development related sources combined. Only 17% are from internal, mainly tax based, sources. 15% are from grants, subsidies and/or other external partners.

Only 37% of the unspent funding has been approved and outstanding for more than three years. For purposes of this review, three years was considered to be reasonably normal aging for the capital program given the multi-year nature of many projects. Therefore attention has been given mainly, but not exclusively, to projects approved
prior to 2011.

Finally, 75% of the unspent funds relate to the two major programs that account for most of the City's capital investments, Public Works and Parks & Recreation.
Current Situation:

To date, project-by-project review with departmental staff has identified potential return of excess project funding of approximately $62 million through close out of projects or partial return of funds. Of the 670 currently open projects, 144 will be closed and funding balances reduced for another 25. Several other projects remain under review.
It should be noted that this amount includes the following previously identified items:

Return of $20 million of land acquisition funds approved in 2011 for the Sesquicentennial Park, mainly from Cash-in-Lieu of Parkland, and Return of $1.3 million of Information Technology funds already approved for re
allocation through the 2014 budget.

The returned funds will be distributed approximately as follows:

Development Charges, $26 million

million

Other development related sources (mainly Cash-in-Lieu of Parkland), $20

KM-2,
Grants, subsidies and various external partners, $4 million Internal sources, mainly tax base funds, $12 million

The precise amounts can only be finalized through the close-out process for each project, particularly where individual projects are funded from multiple sources.

The projects to be closed have for the most part been delivered and will therefore be closed by staff through normal accounting processes. A very few cases result from reevaluation of priorities or timing and will therefore require Council approval. This approval will be requested through the Capital Budget reporting process in the second quarter of 2014. The most notable item in this category is the Sesquicentennial Park land acquisition project, closing of which was proposed to Council in a report in early 2013. However, formal approval was not requested at that time. A few projects will need to be re-budgeted at some point in the future but funds will not be required for several years.

While the actions identified to date and the resulting return of funds do not represent a major reduction in the amount of unspent capital funding, the review has produced target dates for delivery of many of the remaining projects for continued monitoring over the course of the year. Additionally, those projects with large funding balances are being categorized to provide senior management a clear picture of the nature of the outstanding programs, facilitate review of priorities and, where appropriate, consideration of alternative delivery mechanisms. Based on the expenditure review, most of the open projects are well underway. The majority of the projects with a significant portion of the total budget unspent are relatively recent. Others are delivered by external parties, notably developers, and invoices are expected in due course or have been received for work that is already done.
Capital Project Control Policies and Procedures

Management recognition of the continued increase in unspent capital funding balances, together with the detailed project review, have highlighted the need for enhanced or modified processes to facilitate program delivery and free up funding for re-allocation. Without such changes, any reduction in the unused balances will be temporary. These
measures, to be finalized no later than second quarter 2014, may include:

Documentation of the procedure for project close-out to clarify responsibilities Consideration of project financial control mechanisms such as automatic lapse of budgets for projects not started or inactive for a prescribed period, and alternative funding sources for outstanding liabilities on completed projects Consideration of budget process and methodology improvements, such as hurdles to be met for approval of construction funding, alternative methods of releasing budgets such as cash flow budgeting, and capital budget limits informed by average annual spending and demonstrated delivery capacity Expanded financial reporting on capital programs, to be reinstated by the
Finance Division

ICMSenior Management Team is currently initiating a formal project status review process to ensure early identification and resolution of impediments to project delivery. Corporate Implications:
Financial Implications:

The financial actions outlined in this report will help to ensure that use of the City's financial resources is optimized so that corporate priorities can be achieved within existing funding sources.
Other Implications:

The process and reporting measures proposed in this report will require increased attention to project management and control. Implementation of improved procurement methods and alternative project delivery programs can potentially shorten turnaround time on approved projects. Reinstatement of the Integrated Project Management Team concept at the Senior Management level will address roadblocks to project delivery earlier, and reinstatement of Capital Project Financial Reporting will serve to maintain focus on program delivery and productive use of available resources.

Strategic Plan: The actions outlined in this report contribute to achievement of the Strategic Plan priorities of Continued Financial Stability and Cost Containment, specifically through implementation of best practices for long-term funding.
Conclusion:

Significant unspent capital fund balances are to be expected given the multi-year nature of capital projects, especially those related to delivery of major infrastructure. However, the continual year-over-year increase resulting from consistent approval every year of more capital funding than is ever expended in a single year is not sustainable. The detailed review of the capital program now underway will free up significant funds for re allocation. Implementation of best practices for capital program budgeting, control and reporting should further reduce unspent balances. Analysis of the remaining active capital programs will facilitate continuous management review of both project delivery models and evolving priorities to ensure maximum return in terms of service for
residents.

He-

7^
Peter Honeyborne Executive Director, Finance & Treasurer
CCSO

Bonnie Eskelson Project Lead, Capital Program Financing

Appendices: Schedule 1, Unspent Capital Budgets by Funding Source

Report authored by: Bonnie Eskelson, Project Lead, Capital Program Financing
4

Date

ra?

<<b
UNSPENT CAPITAL BUDGETS BY FUNDING SOURCE ($000s)
Source of Funding
Dev't
Other Dev't

Schedule 1
Total Unspent
Before Internal Commitments

Grants, Other
External

Charges

Corporate Facilities 2010 and prior

2011-2013

78

642
720

1,226 1,950 3,176

999

6,354

18,703
25,057 1,946 11,295 13,241 3,722 9,204 12,926
559

7,658 21,295 28,953

24,474 14,755

Subtotal Fire

2010 and prior

2011-2013

21,530 3,460

Subtotal

24,989

999

39,229

Information Technology 2010 and prior

2011-2013 Subtotal
103 103

3,722 9,307
13,028
574

Legal Administration & Finance 2010 and prior

2011-2013 Subtotal

15
255 270

1,045
1,604 7,607 1,338 2,335 14,984 22,440

1,300

1,874
60,492

Parks & Recreation

2010 and prior

2011-2013

36,564 81,185

51,404
59,011
97 523
620 491 146

157,364 217,856

Subtotal

117,749 2,388
635

3,673 6,297
544

37,424 1,251 2,139 3,390

10,517 22,244 32,761 1,948 2,619 4,568
41,282

Planning 2010 and prior

2011-2013

10,034 3,841
13,875 141,034 215,562

Subtotal Public Works

3,024
118,534 161,603

6,840 11,493 31,570 43,063 24,279 32,767

57,046
45,631 69,269

2010 and prior

2011-2013

Subtotal Transit

280,136

637

356,597 36,458 58,366 94,825

284,447 481,790

2010 and prior

2011-2013

10,231 22,977
33,209
189,339 270,757

2
2

Subtotal

Total

2010 and prior

2011-2013

8,195 52,075

89,690

Total

460,096

60,270

114,900

130,971

766,237