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2020-2029 Long-Term Financial PlanOur City, Our Plan, Our Future

Executive Summary

The City of Kitchener is an innovative, caring, and vibrant community located in the heart of southwestern Ontario, Canada. It is home to approximately 257,000 residents and is the largest City in the Region of Waterloo. It prides itself on having a diverse and robust economy, attracting talent and industries from around the world, and providing its residents the opportunity to embrace a greater sense of community though the valued programs and services that the City delivers.

The 2020-2029 Long-Term Financial Plan entitled Our City, Our Plan, Our Future highlights the City’s strong financial position, but also identifies emerging challenges and trends that will be important to address, to ensure the City can maintain this position over time. The plan provides insight into the City’s financial governance framework, bringing together and highlighting the City’s financial policies and practices, identifying 9 strategic areas of focus and 24 recommended actions that will help guide the City moving forward.

With a strong reputation for financial stability, Kitchener will strive to be financially Responsible,Flexible and Sustainable. Guided by these principles, the Long-Term Financial Plan will continue to build on the City’s current financial strength and ensure that the City is well positioned both now and in the future to meet the needs of a growing community.

2020-2029 Long-Term Financial Plan

Kitchener, ON

Our City, Our Plan, Our Future

2

Table of Contents


Sections Page Number Sections Page Number

Introduction 4 Our Plan

Our City Guiding Principles 15

Population 5 Strategic Areas of Focus 16-21

Age 6 Recommended Actions 22-24

Affordability 7 Our Future

Building Activity 8 2020-2029 Operating Forecast 25-30

Assessment Base 9 2020-2029 Capital Forecast 31

Financial Condition 10 2020-2024 Reserve Forecast 32-34

Key Challenges 2020-2024 Enterprise Forecast 35-38

Infrastructure Funding 11 Appendices

Impacts of Climate Change 12 Appendix 1 – Summary of Specific Issues 39-42

Increasing Service Expectations 13 Appendix 2 - Financial Forecast Detail 43-49

Mitigating Risk and Uncertainty 14 Appendix 3 – Financial Indicators 50-55

Appendix 4 – Summary of Financial Policies 56-58

Appendix 5 – References 59


3

Introduction

Every year, Kitchener City Council approves an annual operating and a 10-year capital budget. The budget process has traditionally been considered adequate to address the City’s priorities and operational needs. However, as municipalities continue to face mounting financial challenges such as infrastructure deficits, impacts from climate change, economic uncertainty, legislative pressures, and increased expectations from residents related to the delivery of service, there is a need for a long-term financial planning approach that goes beyond the annual budget process.

The Government Finance Officers Association (GFOA) recommends that “all governments regularly engage in long-term financial planning” and that this planning should “combine financial forecasting with strategizing.”

As a best practice, the GFOA recommends that a long-term financial plan should include “an analysis of the financial environment, revenue and expense forecasts, debt position and affordability analysis, strategies for achieving and maintaining financial balance, and plan monitoring mechanisms such as scorecard of key indicators of financial health.”

The overall goal of a long-term financial plan is to strengthen the City’s financial position. To that end, Our City, Our Plan, Our Future has been developed based on a review of the City’s existing financial policies, research of other municipalities, consideration of industry best practices, and the use of benchmarking data in order to compare to other communities.

The recommended actions included in this plan are intended to be implemented over the term of Council. It is expected that this plan will be updated every term of Council to identify new actions that may be needed to continue to move the City forward in a financially Responsible, Flexible, and Sustainable way.


The City’s 2020-2029 Long-Term Financial Plan touches on all of these elements and recommends areas where additional action is needed.


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227,200

241,800

254,300

269,800

2011 Actual 2016 Actual 2021 Projected 2026 Projected

Population

Our City

Population

The City of Kitchener is one of the 25 largest municipalities in Canada and has seen significant growth as a community over the last 70 years. A growing community is a positive indication that people see Kitchener as an attractive place to work, live, and play.

Kitchener’s population has doubled since the 1950s to an estimated 257,000 residents in 2019 which already exceeds recent projections as shown below. Based on growth forecasts the population is expected to further grow to approximately 315,000 residents by 2041.

Similar to the experience of many Canadian municipalities, the ballooning of the population since the 1950s has led to the need for expanded subdivisions, additional infrastructure, and greater municipal services. Delivering services for a growing community means ongoing financial pressures and challenges to meet the needs of all of the community.


West Kitchener - 1955

West Kitchener - 2019


5

Our City

Age

Kitchener is a diverse and welcoming City, celebrating individual and cultural differences while endeavoring to create a sense of community where everyone feels they belong.

The City has a healthy mix of youth, adults, and seniors. This mix is desirable for a city focused on building community. The City’s age demographics are expected to stay relatively consistent over the long-term with the biggest shift expected in the 70+ age category.

Offering programs and services that cater to all age groups can be tough from a financial perspective. Whether it’s the design of sidewalks and trails, or the programming offered at City facilities, citizens in different stages of life have different perspectives, priorities, and needs that they wish to see addressed.

The City strives to balance the needs of all stakeholders when determining projects and priorities within the community and it will be important to continue with this approach moving forward.


12%

11%

11%

11%

23%

21%

28%

26%

17%

16%

9%

16%

2016

2041

Age Distribution

Age 70+ Age 55-69 Age 35-54 Age 20-34 Age 10-19 Age 0-9


6

Our City

Affordability

Kitchener’s average household income was estimated to be approximately $91K in 2018, which is considered in the mid-range compared to other Ontario Municipalities.

Household income is one measure that can be used when assessing residents’ ability to pay for the programs and services offered in their community. The City has been mindful of this when setting tax rate increases, using CPI inflation as a benchmark for this purpose.

This historical approach has kept property taxes at affordable levels and below the overall provincial average. Kitchener still has one of the lowest residential tax bills when comparing relative taxes to other cities of comparable size.

In addition to keeping property taxes at lower levels, water and sewage rates have also been kept in line with municipal counterparts, making the City an attractive destination for those looking to relocate to make Kitchener home.

2020-2029 Long-Term Financial Plan Our City, Our Plan, Our Future

7

$0$1,000$2,000$3,000$4,000$5,000$6,000

$3,858$3,447

2017 Relative Property Taxes (Bungalow)

Our City

Building Activity

Kitchener has seen strong growth in recent years due to the expansion of subdivisions as well as increased intensification in the City’s urban core. This increase is reflected in part by the number of building permits issued over the past few years and the total value that these permits represent.

Building activity can be one indicator to help measure the strength of the local economy. Recent positive trends are expected to continue in the foreseeable future, increasing demand for services that will be required to support additional growth.

Intensification in particular will put pressure on how the City plans and funds the upsizing of underground infrastructure, addresses changing transportation needs in order to move people across the City, and how it provides cultural and recreation spaces that citizens can enjoy to stay connected as a community.


0

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# of Building Permits Issued

Building Permits Issued

Avg 2011-2015 2016 2017 2018

Average 2011-2015 2016 2017 2018

Building Permit Values $ 510,777,587 $ 739,739,191 $ 498,219,908 $ 566,134,881


8

Our City

Assessment Base

The main source of revenue for municipalities is through the billing and collection of property taxes.

The Municipal Property Assessment Corporation is responsible for assessing and classifying properties. The City is responsible for setting tax rates and collecting property taxes based on the assessed value and class of the property.

Property classes are assigned based on their intended use and a different tax rate is applied based on class.

The majority of the City’s assessment base is made up of residential properties, which is in line with the overall assessment mix of other communities.

Although commercial and industrial properties represent a smaller portion of the overall assessment mix, they often have higher property values associated with them, representing a risk for municipalities when these values decline either as a result of the reassessment process or when a business ceases to be viable.

It is important for the City to maintain a diversified assessment base by being proactive in its economic development efforts and by ensuring that properties across the City are fairly and equitably assessed.


76% 82%

4%2%11%

11%4% 0.1%5% 5%

0%

10%

20%

30%

40%

50%

60%

70%

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100%

Ontario Average Kitchener 2018

Assessment Mix

Residential Industrial Commercial Farm Other


9

Our City

Financial Condition

In order to develop a long-term financial plan, it is important for a municipality to assess its current financial condition. This process can help identify areas of future challenge and may be used to derive action items for inclusion in the long-term financial plan.

Many factors should be considered when analyzing a municipality’s financial condition. The City of Kitchener will continue to do a thorough assessment of its financial condition, but will summarize the findings on an ongoing basis by presenting the following four indicators:

• Taxes receivable as a % of taxes levied

• Reserves and reserve funds as a % of operating expenses

• Debt servicing costs as a % of operating revenues

• Capital asset consumption ratio

The Ontario Provincial Government through the Ministry of Municipal Affairs provides an annual Financial Indicator Review to each Ontario municipality based on its previous year’s Financial

Information Return. They provide a number of indicators and assign a rating of low, moderate or high based on the municipality’s ratio in comparison to other similar municipalities in the same region.

All four of the chosen ratios are presented as part of the Financial Indicator Review provided by the Ministry of Municipal Affairs. The City has Low Challenge ratings for all ratios presented with the exception of the Moderate rating in Total Reserves to Operating Expenses. See Appendix 3 for analysis of indicators.

Overall, a current review of these indicators would suggest that the City is in good financial condition. Debt levels are fairly low, assets are moderately new, and reserve levels have been increasing over the last number of years. Additional effort will be needed to ensure that the City can maintain this position of financial strength.


Financial Indicators Rating

Taxes receivable as a % of taxes levied Low

Reserve as a % of operating expenses Moderate

Debt servicing as a % of operating revenues Low

Capital asset consumption ratio Low


10

Our City

The City owns and is responsible for maintaining approximately $7.5 billion worth of assets. These assets include hard infrastructure such as roads and bridges; underground infrastructure related to gas, water, wastewater, and stormwater; and community-based infrastructure such as facilities, parks and open spaces, and forestry.

Having sufficient funding for asset replacement is not a new issue facing municipalities, but is one that has built up over time. Most of the City’s infrastructure was built after the 1950’s as the City experienced extensive population growth. This growth put more demands on the need for infrastructure and associated City services.

Canada’s municipal infrastructure deficit (actual replacement needs vs available funding) is estimated to be approximately $123 billion. In recent years, through the development of asset management plans, municipalities have started to gain a better understanding of the assets that they own, their overall condition, and the funding that will be required to address replacement needs.

In 2019 the City undertook work to quantify the 10-year infrastructure gap (required investment vs. current investment) for its major asset categories. The City’s total Infrastructure Gap is estimated to be approximately $341million with the largest portion of the Gap being attributed to the facilities ($227 million). See Appendix 1.

Addressing the City’s aging infrastructure replacement needs will require comprehensive funding strategies that go beyond the current capital budget funding allocations to ensure that City assets remain in a good state of repair and can effectively support the needs of the community.

Key Challenges – Infrastructure Funding

Our City, Our Plan, Our Future2020-2029 Long-Term Financial Plan

11

Our City

One of the challenges facing municipalities is the impact that climate change is having on weather and weather patterns. In recent years, extreme weather events have been increasing in frequency and severity. Local weather patterns are becoming more unpredictable, with seasonal events often occurring outside traditional timeframes.

These weather trends are expected to continue with the City experiencing more high wind, extreme heat, extreme cold, torrential rain, ice storms, and significant snow events in the future.

The unpredictability and extreme nature of these events can make it challenging for municipalities to respond effectively without deploying additional resources at increased costs.

It is expected that Cities will need to put more funding toward not only the response efforts needed as part of these events, but also into the design, construction and maintenance of infrastructure in order to create more resilient communities.

Municipalities must do their part to address climate change directly, reducing overall emissions, being environmentally responsible, and demonstrating leadership in the area of sustainability. This comes with an additional cost, but is necessary to ensure that future generations can continue to thrive in our Cities.

Key Challenges – Impacts of Climate Change


12

Our City

The City of Kitchener has been able to keep annual tax rate increases at or below the rate of inflation for the past 10 years through the efficient and effective delivery of services. As citizen expectations continue to increase related to the level of service that the City provides, it will become more challenging for the City to continue this trend.

Generational shifts in the community are putting more demands on services. In the area of customer service, expectations related to online services are high, but traditional methods of interacting, communicating, and doing business with the City are still expected by many. Ensuring services are accessible for all is an important consideration but one that also presents challenges related to additional costs associated with delivering on these expectations.

The built environment in the City is in a stage of transition, with a greater emphasis on intensification, changing the landscape of the City particularly in the downtown core. This urbanization is attracting new businesses and residents but also brings with it new demands for services such as cycling infrastructure, community parks and trails, and arts and culture amenities.

Neighbourhoods are also changing, with a greater desire of citizens to create closer and connected communities. Citizens are raising the bar in terms of how they would like to see budget dollars spent. Through the LoveMyHood initiative, or through participatory budgeting, engagement with citizens will be a key aspect to ensuring that the City services continue to be aligned with citizen expectations but will require additional investment to provide this increased level of engagement.


Key Challenges – Increasing Service Expectations


13

Our City

There are a number of external factors outside of the City’s control that can have an impact on the municipality from a financial perspective. Changes to legislation, reduction in Provincial or Federal grant funding, or increases to fuel and energy prices are some examples of these factors.

Interest rate fluctuations due to changing market conditions is one area that can significantly influence investment income and the cost of debt. It represents one of the greater areas of risk and uncertainty for municipalities.

In 2009, the City experienced a significant reduction in its investment income due to changing interest rates at the time. This represented a significant financial challenge that put pressure on other City services to make up the shortfall. See Appendix 1.

It is important for municipalities to assess areas where they may be vulnerable to fluctuations, particularly within their operating budgets, and to put strategies in place that address these risks.

Having sufficient rate stabilization reserves in place is one way to help mitigate these risks and to smooth any potential financial impacts.

Ensuring that expense and revenue variability is minimized is a key consideration when setting budgets and is something that the City will need to continue to do moving forward.

Key Challenges – Mitigating Risk and Uncertainty

0.00%

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$-

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$4,500,000

Investment Income

Budget Actual Average Bank of Canada Interest Rate


14

Our Plan

Guiding Principles

The financial framework that will direct the City moving forward is built on 3 specific guiding principles.

Financially we will be…

These guiding principles will provide the proper financial lens for evaluating priorities, supporting the decision-making process, and balancing the City’s financial needs with the goal of strengthening the City’s overall financial condition.


15

Our Plan

Strategic Areas of Focus

Being Responsible…

The City of Kitchener has always shown a strong commitment to financial responsibility which has been demonstrated in recent years through:

• The City’s annual budget process; where annual tax rate increases have remained at or below the rate of inflation, balancing the City’s financial needs, with a requirement of providing reasonable rate increases for citizens

• The reporting of annual financial results; where the City has seen positive trends related to its overall debt levels, increasing balances in reserves, and four consecutive years of operating surpluses

• The current financial governance structure; where an audit committee and internal audit function provides oversight to ensure value for money related to the use of public funds in the delivery of programs and services for the community

• Alignment with best practices; being recognized and receiving an award for the City’s 2015 annual financial report from the Government Financial Officer’s Association

Under the guiding principle of Responsible, 3 strategic areas of focus have been identified to help the City continue to move forward in this regard:

• Governance and accountability

• Budget planning and process

• Transparency and reporting


16

Our Plan


Being Flexible…

Financial flexibility is essential for the City to be able to respond to opportunities and challenges over time and to maintain a position of financial strength. The City has been building financial flexibility in recent years by:

• Making a concerted effort to reduce overall debt levels; achieving a debt to reserve ratio of 1:1 at the end of 2018

• Setting minimum and maximum reserve fund targets; measuring against those targets and increasing contributions to reserves where possible

• Implementing new revenue generation models such as; stormwater management fee, sponsorship revenue, and municipal accommodation tax

• Taking advantage of grant opportunities that become available at both the Provincial and Federal level; most recently evidenced by securing $50 million in federal funding at the start of 2019

Under the guiding principle of Flexible, 3 strategic areas of focus have been identified to help the City continue to move forward in this regard:

• Effective Debt Management

• Revenue Diversification

• Sufficient Reserves


$20 $18 $17 $18 $18

$22 $21 $19 $17 $16

$61 $55

$49 $43 $37

$103 $94

$85 $78

$71

$0

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$50

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2014 2015 2016 2017 2018

Millions

Tax Enterprise EDIF

Debt Levels

17


Our Plan


Being Sustainable…

Financial sustainability is achieved when the City can effectively address both current and future financial needs. This requires a balanced approach in addressing both current year operating and capital requests, with future year pressures associated with aging infrastructure and expansion of programs and services due to growth. The City has attempted to balance these priorities by:

• Delivering operational programs and services expected by the public as efficiently and effectively as possible

• Implementing innovative service delivery models such as; LoveMyHood, Fire Consolidated Dispatch, and Digital Kitchener, with the goal of offering better service for citizens

• Addressing the City’s underground infrastructure replacement needs by implementing a predictable rate model under the Water Infrastructure Program

• Ensuring that Development Charges are maximized to provide much needed infrastructure to support a growing City

Under the guiding principle of Sustainable, 3 strategic areas of focus have been identified to help the City continue to move forward in this regard:

• Maintaining Services Levels

• Investing in Infrastructure

• Growing with Our Community


18

Our Plan


Being Responsible supports…

1. Governance and Accountability

• Adopting, reviewing, and consistently adhering to financial policies

• Ensuring roles and responsibilities are clearly defined

• Considering both the immediate and future impacts of financial decisions

• Aligning financial decisions with strategic, corporate and community priorities

2. Budget Planning and Process

• Ensuring that budget and financial policies reflect industry best practices

• Enabling the sharing of information through integrated processes

• Allowing for the proper level of financial control, oversight, and engagement

3. Transparency and Reporting

• Ensuring financial information is readily available to decision-makers

• Making sure results are relevant, timely, and accessible to the public

• Communicating financial information in a clear, concise, and easily understood manner


19

Our Plan


Being Flexible promotes…

1. Effective Debt Management

• Using debt responsibly to move ahead with strategic and corporate priorities

• Considering how new debt may impact current and future tax rate increases

• Ensuring that total debt outstanding remains within acceptable levels

2. Revenue Diversification

• Intentionally considering new revenue and funding opportunities

• Ensuring that User Fees are implemented on a full cost recovery basis

• Aligning revenue sources with the users of specific programs or services

3. Sufficient Reserves

• Maintaining reserves to help mitigate current and future funding challenges

• Putting in place funding strategies to achieve reserve targets

• Aligning reserve funding to support corporate and capital priorities


20

Our Plan


Being Sustainable addresses…

1. Maintaining Service Levels

• Identifying the full costs of delivering programs and services for citizens

• Aligning resources to continue to meet service level expectations

• Ensuring services are delivered as efficiently as possible to minimize the impact of annual rate increases

2. Investing in Infrastructure

• Ensuring asset management plans clearly identify asset replacement needs

• Providing sufficient funding for the replacement of infrastructure

• Establishing preventative maintenance programs to extend an asset’s life

• Prioritizing capital requests to address the most critical replacement needs

3. Growing with our Community

• Identifying development and growth related operating budget impacts

• Ensuring resources/funding are available to support the expansion of services

• Maintaining the concept of “growth pays for growth” to minimize financial impacts for existing ratepayers


21

Our Plan

Recommended Actions

The following recommended actions will continue to move the City forward under the identified Strategic Areas of Focus. The year indicated after each action is the expected target date for completion.

Being Responsible in practice…


StrategicAreas of Focus Recommended Actions

Governance & Accountability

1.1

1.2

1.3

Incorporate Strategic Plan goals and actions into the budget process (2020)

Adopt a budget control policy, identifying key financial accountabilities for General Managers, Directors, Managers, and Project Managers (2020)

Update financial policies to include a responsibilities section (2020-2022)

Budget Planning& Process

2.1

2.2

2.3

Move to detailed capital planning, migrating general provision, maintenance, and operating related accounts out of Capital into the Operating Budget (2021)

Introduce a budget summary report as part of the annual budget process (2021)

Investigate the merits of moving to a multi-year budget, providing a formal report on the findings (2022)

Transparency &Reporting

3.1

3.2

3.3

Develop a capital reporting framework to report on the status of approved capital projects (2020)

Continue the development of financial indicators to measure the City’s financial performance aligned with the new financial framework and strategic areas of focus (2021)

Consolidate & communicate financial results in an easily understood format on the City’s website (2022)


22

Our Plan

Recommended Actions

Being Flexible in practice…



Effective Debt Management

4.1

4.2

Adopt a Capital Financing and Debt Policy to clarify when debt, short-term financing, or internal borrowing should be considered to finance capital works (2020)

Allocate 50% of “operating budget room” related to EDIF to address Strategic items and 50% to Facility Infrastructure; including considering debt where appropriate to advance particular priorities (2020-2022)

RevenueDiversification

5.1

5.2

5.3

Use a 3 year historical average for determining the level of investment income to include in the operating budget; establish an Investment Rate Stabilization Reserve to help mitigate rate fluctuations (2020)

Adopt a User Fee and Revenue Diversification Policy to document the City’s philosophy related to user fees, grants, sponsorships, and alternative revenue (2021)

Develop a Dividend Policy for the Gas Utility, Golf, and Parking Enterprise (2021)

SufficientReserves

6.1

6.2

6.3

Rename the “Winter Control Reserve” to “Weather Events Reserve”; expanding the purpose to help mitigate potential impacts and fluctuations in the operating budget due to weather events (2020)

Reconfirm min/max targets for all reserves funds and develop a strategy to achieve mid-level balances in rate stabilization reserves, and minimum balances in all other reserves, over a 10 year horizon (2021-2022)

Allocate returns from energy saving initiatives to the “Energy Retrofit Reserve” to be reinvested in other efficiency related projects (2020)


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Our Plan

Recommended Actions

Being Sustainable in practice…



MaintainingService Levels

7.1

7.2

Provide a breakdown of the property tax increases showing the increase related to base service, corporate allocations, and impacts due to growth (2020)

Use a 3 year CPI rolling average (past, current, future) as a benchmark for assessing annual property tax increases related to base service increases (2020)

Investing in Infrastructure

8.1

8.2

8.3

Introduce a Special Facilities Infrastructure Levy to help address the Facilities Infrastructure Gap (2020)

Reallocate 25% of gas tax funding from road resurfacing to support community infrastructure needs; arenas, community centres, trails, etc. (2020)

Introduce a capital prioritization process to evaluate requests received from departments annually as part of the budget process (2022)

Growing with Our Community

9.1

9.2

Clearly identify through the budget process when additional resources are required to support growth in the community and increased levels of service (2020)

Undertake a comprehensive review of financial incentives/programs to support economic growth in our community, aimed at strengthening the City’s overall assessment base(2022)


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The financial picture for the City of Kitchener over the next 10 years is a positive one, representing a great opportunity for the City to see significant progress on a number of fronts.

The increased financial flexibility provided by operating budget room created from EDIF debt coming off the books will allow the City to deliver on its strategic priorities and commitments. See Appendix 1. At the same time strong assessment growth should allow the City to be able to maintain existing services within reasonable rate increases.

Total forecasted operating expenses are expected to increase from $201M in 2020 to $264M by 2029 and is broken down into three main areas; Base Services, Corporate Allocations, and Impacts Due to Growth.

• Base Services are the core programs and services that the City provides for citizens on an annual basis

• Corporate Allocations are general expenses like debt charges and contributions to capital

• Impacts Due to Growth are additional operating costs required to support the expansion of service areas as the City continues to grow.


Our Future

2020-2029 Operating Forecast


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Forecasted Operating Expenses

Base Services Corporate Allocations Impacts Due to Growth(in 000s)

On average, Base Services are expected to increase annually at a rate of 2.6% and reflect the costs required to deliver programs and services to the community. This includes incorporating the previous year’s growth related service impacts.


Our Future



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Forecasted Operating Expenses - Base ServicesSalaries & Wages Materials Contracted Services Utilities Boards & Grants Other Total Base Services

(in 000s)

Corporate Allocations will see an increase of $10M annually by 2029, largely due to providing additional funding to Capital to address the City’s facility infrastructure needs. EDIF debt coming off the books has been allocated to address both strategic items and facility infrastructure, providing $900K in capacity in 2020 and building to $8.1M in total by 2029.


Our Future



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Forecasted Operating Expenses - Corporate AllocationsContributions - Capital & Reserves Debt Charges - Capital PoolDebt Charges - EDIF Specific Issue - 001 - Facilities InfrastructureSpecific Issue - 002 - 50% Strategic: 50% Facilities Total Corporate Allocations

(in 000s)

Impacts Due to Growth fluctuates between 2020 and 2029 largely due to operating costs associated with capital projects included in the Capital Forecast. Operations to Service Growth provides funding on an annual basis to expand operational support, recognizing the impact that expansion of service areas has on operations. Supporting core services is the recognition that internal services are also required to be added over time to service a growing City, with an allocation provided every year.


Our Future



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Forecasted Operating Expenses - Impacts Due To GrowthOperations to Service Growth Operating Impacts from Capital Supporting Core Service Total Impacts Due to Growth

(in 000s)

The City’s revenue streams remain stable with projected property tax increases related to base services expected to remain below the projected rate of inflation. A facilities infrastructure levy, which would be over and above this amount, would provide $38M in additional revenue over the 10 year timeframe.


Our Future



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2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Forecasted Operating Revenue Property Taxes Other Taxes User Fees

Specific Issue 001 - Facilities Infrastructure Levy Specific Issue 003 - Investment Income Dividends - Enterprises

Dividend - Hydro Other Income

(in 000s)

Property tax increases related to base services are anticipated to be in line with CPI inflation projections over the 10 year timeframe. With a special levy of up to 0.5% added for facility infrastructure, the overall annual increase would still remain within an acceptable range of 1% to 3%.


Our Future


*CPI rolling average used for 2020, 2021, and 2022


30

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2020 2021 2022 2023 2024 2025 2026 2027 2028 2029

Projected Property Tax IncreaseBase Services Corporate AllocationsImpacts Due to Growth Property Tax Increase (Including Special Levy)Average Property Tax Increase (Before Special Levy) CPI Projected*

Capital priorities are determined through the annual budget process and shift year to year based on asset replacement needs and timing of specific projects. The focus of the 10-year capital forecast is on the capital funding available to support these priorities. The biggest changes starting in 2020 are additional funding related to the introduction of a facilities infrastructure levy and additional grant funding being received related to the Disaster Mitigation and Adaptation Fund.


Our Future

2020-2029 Capital Forecast

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Capital FundingCapital From Current Development Charges Enterprises Grant Gas Tax Reserve Facilities Infrastructure Other Reserves

(in 000s)


31


Our Future

2020-2024 Reserve ForecastThe City has five categories of reserve funds; Corporate Reserves, Capital Reserves, Development Reserves, Program Specific Reserves, and Stabilization Reserves. Minimum and maximum balances have been established for individual reserve funds based on best practices and benchmarks. These minimum/maximum targets have been consolidated for each category to show how the City is doing in achieving these targets. One of the recommended actions as part of the Long-Term Financial Plan is to see all reserve funds reach their minimum target balances by 2029 which will require a comprehensive review of reserves and reserve funds to take place in 2020 along with the development of an overall funding strategy to achieve this goal.

$0$5,000

$10,000$15,000$20,000$25,000$30,000$35,000

2020 2021 2022 2023 2024

Corporate ReservesTotal Corporate Reserves

Minimum Corporate Reserves

Maximum Corporate Reserves(in 000s)

$0

$50,000

$100,000

$150,000

$200,000

2020 2021 2022 2023 2024

Capital ReservesTotal Capital Reserves

Minimum Capital Reserves

Maximum Capital Reserves(in 000s)


32


Our Future

2020-2024 Reserve ForecastThe 2019 Development Charges Study projects that the negative balances in the Development Charges Reserve Fund starting in 2021 will be addressed over the growth forecast window eventually bringing the Reserve Fund back in balance. Program Specific Reserves include the Economic Development Reserve that is expected to be depleted by 2022.

-$20,000

-$15,000

-$10,000

-$5,000

$0

$5,000

$10,000

2020 2021 2022 2023 2024

Development ReservesDevelopment Reserves

Minimum Development Reserves

Maximum Development Reserves(in 000s)

$0

$2,000

$4,000

$6,000

$8,000

$10,000

$12,000

2020 2021 2022 2023 2024

Program Specific ReservesTotal Program Specific Reserves

Minimum Program Specific Reserves

Maximum Program Specific Reserves(in 000s)


33


Our Future

2020-2024 Reserve ForecastRate Stabilization Reserves are intended to mitigate the financial impacts of fluctuations within the operating and enterprise budgets. The tax-supported stabilization reserves include the Rate Stabilization Reserve and the Winter Control Reserve. A new Investment Stabilization Reserve is proposed to be established in 2020 to address potential fluctuations in investment income due to changes in interest rates. Funding is proposed to be transferred from the Rate Stabilization Reserve to establish this new reserve. The Winter Control Reserve is also proposed to be renamed the Weather Events Reserve and expanded to address all season weather related impacts due to climate change. A transfer of $1M from the Rate Stabilization is proposed to top up this Reserve in order to be used for this expanded purpose.

$0$10,000$20,000$30,000$40,000$50,000$60,000$70,000$80,000

2020 2021 2022 2023 2024

Stabilization ReservesTotal Stabilization Reserves

Minimum Stabilization Reserves

Maximum Stabilization Reserves(in 000s)

$0

$10,000

$20,000

$30,000

2020 2021 2022 2023 2024

Tax Stabilization ReservesWeather Events StabilizationInvestment StabilizationTax StabilizationMinimum Tax Supported StabilizationMaximum Tax Supported Stabilization(in 000s)

34



Our Future

2020-2024 Enterprise Forecast

$(4,000)

$(3,000)

$(2,000)

$(1,000)

$-

$1,000

$2,000

$3,000

$4,000

2020 2021 2022 2023 2024

GolfOperations - Revenue Operations - Expense

Other Expenses Dividend Transfer to City

Net Revenue (Expense)

The City has seven distinct business units called Enterprises that are considered self-sustaining operations. These include Golf, Parking, and Building where user fees and building permit revenue cover operational expenses. It also includes the four utilities; stormwater, water, sanitary, and gas. Some enterprises provide a dividend to the City, representing the City’s investment in these distinct lines of business, while others are restricted under legislation from doing so. The City’s dividend policy will be reviewed as a future recommended action to reconfirm that the approach to dividends is still aligned with best practices.

(in 000s) (in 000s)


35

$(10,000)

$(8,000)

$(6,000)

$(4,000)

$(2,000)

$-

$2,000

$4,000

$6,000

$8,000

$10,000

2020 2021 2022 2023 2024

ParkingOperations - Revenue Operations - Expense

Other Expenses Contribution to Capital

Dividend Transfer to City Net Revenue (Expense)


Our Future

2020-2024 Enterprise ForecastThe Building Enterprise is expected to have slight deficits in the near term. Building has been holding fees flat based on the balance in its building permit rate stabilization reserve. The reserve will be used to cover the shortfall in revenue. The Stormwater Utility is moving forward with the rate model that was approved as part of the Water Infrastructure Program with major capital improvements expected over the next 5 years.

$(8,000)

$(6,000)

$(4,000)

$(2,000)

$-

$2,000

$4,000

$6,000

$8,000

2020 2021 2022 2023 2024

BuildingBuilding Permit - Revenue Direct Expenses

Indirect Expenses Net Revenue (Expense)(in 000s)

$(30,000)

$(20,000)

$(10,000)

$-

$10,000

$20,000

$30,000

2020 2021 2022 2023 2024

StormwaterStormwater Charge Operations - Expense

Other Expenses Contribution to Capital

Net Revenue (Expense)(in 000s)


36


Our Future

2020-2024 Enterprise ForecastFor the Water and Sanitary utilities the largest cost drivers are the purchase of water and the processing of sewage by the Region. These costs are outside of the City’s control and can significantly influence the need for annual rate increases. In addition to these costs, the City is also moving forward with implementation of the Water Infrastructure Program to address the City’s underground capital replacement and maintenance needs, which is reflected in the increasing contributions to capital over the 5 year horizon.

$(80,000)

$(60,000)

$(40,000)

$(20,000)

$-

$20,000

$40,000

$60,000

$80,000

2020 2021 2022 2023 2024

WaterSale of Water Water Supply

Operations - Expenses Contribution to Capital


$(80,000)

$(60,000)

$(40,000)

$(20,000)

$-

$20,000

$40,000

$60,000

$80,000

2020 2021 2022 2023 2024

SanitarySewer Surcharge Sewage Processing

Operation - Expenses Other Revenue

Contribution to Capital Net Revenue (Expense)(in 000s)


37


Our Future

2020-2024 Enterprise ForecastThe Gas Utility is split into two distinct components; Gas Delivery and Gas Supply. Gas Delivery is the operations component of the utility and provides an annual dividend to the City. Gas Supply reflects the actual cost of securing natural gas for our customers. Fluctuations between net revenue or expenses are addressed through the Gas Delivery and Gas Supply Rate Stabilization Reserves.

$(80,000)

$(60,000)

$(40,000)

$(20,000)

$-

$20,000

$40,000

$60,000

$80,000

2020 2021 2022 2023 2024

Gas DeliveryOperations - Revenue Operations - Expense

Other Expenses Other Revenue

Contribution to Capital Dividend Transfer to City


$(40,000)

$(30,000)

$(20,000)

$(10,000)

$-

$10,000

$20,000

$30,000

$40,000

2020 2021 2022 2023 2024

Gas SupplyOperations - Revenue Operations - Expense



38

Appendix 1: Summary of Specific Issues

Overall Background

Part of the work in developing the 2020-2029 Long-Term Financial Plan included looking at three specific issues that required additional discussion and analysis due to their relative complexity and importance.

These issues included providing different options for Council to consider related to infrastructure funding for facilities, the strategic use of operating budget room created as a result of expiring debt, and the level of investment income to include in the Operating Budget. Strategic sessions were held with Council on May 27, 2019 and August 26, 2019 related to these issues and the feedback from those sessions have been incorporated into the final recommended actions and financial forecasts that are included in the Long-Term Financial Plan.

The following is a brief summary of each of these issues highlighting the recommended option that has been incorporated into the Long-Term Financial Plan.


39



Specific Issue 001 – Infrastructure Funding (Facilities)

Background

A 10 year infrastructure gap was presented to Council that identified facilities as the most underfunded asset category, with a $227 million funding gap. More than a quarter of the City’s facilities are greater than 50 years old and will require significant investments to keep them operational and in a state of good repair.

As a tax-supported asset category, this issue requires the City to consider various funding approaches. Council was presented with four different options to consider. Council favored a combination of the various options.

Conclusion

Included as one of the recommended actions (Action 8.1) in the Long-Term Financial Plan is the introduction of a Facilities Infrastructure Levy in 2020. For the purpose of modelling, a 0.5% special levy has been used.

In review of Specific Issue 002 – Operating Budget Room, 50% of the available budget room would also be allocated to fund the facilities infrastructure as noted in Recommended Action 4.2.

The combination of these two recommendations will

The combination of these two recommendations would see the total Facilities Infrastructure Gap reduced from $227 million to $165 million over the ten-year timeframe.

In addition, recommended action (Action 8.2) proposes the reallocation of 25% of Federal Gas Tax Funding from road resurfacing to support community infrastructure needs such as arenas, community centres, and trails. This reprioritization of funding is considered reasonable based on a recent review of the City’s pavement quality index.


40



Specific Issue 002 – Operating Budget Room

Background

In 2004, the City established a $110 million Economic Development Investment Fund (EDIF), the majority of which came from debt issuances. It was used as a catalyst for key strategic projects and initiatives that have helped strengthen the local economy and revitalize the City’s downtown.

Over the past 15 years there has been an operating budget contribution to capital in order to service the debt (to cover principal and interest payments). This level of contribution had been built into the base operating budget over time. In 2020, overall debt charges related to EDIF will start to decrease, which will create “Operating Budget Room”.

This freed-up operating budget capacity would now be available to be repurposed for other uses, therefore Council was presented with five options including the possibility of using it to help fund the infrastructure deficit noted in Specific Issue 001.

Conclusion

50% of the operating budget room related to EDIF would be allocated to address strategic initiatives and

50% to Facility infrastructure. This has been included as one of the recommended actions (Action 4.2) in the Long-Term Financial Plan. This is the recommendation chosen as it would offer an additional means of addressing the infrastructure funding issue and this option also provides flexibility in addressing a variety of initiatives that are important to the residents of the City of Kitchener.


41



Specific Issue 003 – Investment Income Strategy

Background

In 2019, the City raised budgeted investment income to its highest levels and highlighted the need to determine a consistent and accepted approach moving forward. Any approach considered should attempt to balance the amount of investment income to be included, with the ability to mitigate risk and uncertainty related to potential changes in interest rates and market conditions.

Five differing options were presented to council that provided for varying levels of risk.

Conclusion

A recommended action (Action 5.2) has been included in the Long-Term Financial Plan to budget investment income each year based on a 3 year historical average. Within the recommended action, it is noted that excess funds over budget would be transferred to an investment stabilization reserve.

This option is considered preferable since it would balance some of the interest rate risk but still be responsive enough to current market trends.

The dotted red line in the graph represents the proposed amount that would have been budgeted in 2019 using this approach. This option would represent an initial decrease to the amount that the City budgets for. A draw from the rate stabilization reserve fund would likely be needed to smooth the impact of moving to this method.


42


Appendix 2: Financial Forecast Detail

2020-2029 Operating Forecast Detail

(in 000’s)


43


ExpensesCategories 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Base ServicesSalaries & Wages 119,469$ 122,858$ 126,452$ 130,545$ 134,863$ 139,046$ 142,891$ 147,080$ 151,366$ 156,007$ Materials 24,066$ 24,547$ 25,038$ 25,539$ 26,050$ 26,571$ 27,102$ 27,644$ 28,197$ 28,761$ Contracted Services 6,621$ 6,753$ 6,888$ 7,026$ 7,167$ 7,310$ 7,456$ 7,605$ 7,757$ 7,912$ Utilities 9,012$ 9,418$ 9,842$ 10,285$ 10,748$ 11,232$ 11,737$ 12,265$ 12,817$ 13,394$ Boards & Grants 16,725$ 17,060$ 17,401$ 17,749$ 18,104$ 18,466$ 18,835$ 19,212$ 19,596$ 19,988$ Other 8,488$ 8,908$ 9,081$ 9,258$ 9,438$ 9,622$ 9,809$ 10,000$ 10,195$ 10,394$ Total 184,381$ 189,544$ 194,702$ 200,402$ 206,370$ 212,247$ 217,830$ 223,806$ 229,928$ 236,456$ Corporate AllocationsContributions - Capital & Reserves 3,592$ 3,826$ 4,065$ 4,308$ 4,556$ 4,809$ 5,067$ 5,330$ 5,599$ 5,873$ Debt Charges - Capital Pool 4,052$ 4,133$ 4,216$ 4,300$ 4,386$ 4,474$ 4,563$ 4,654$ 4,747$ 4,842$ Debt Charges - EDIF 7,200$ 6,380$ 5,555$ 4,697$ 3,835$ 3,007$ 2,220$ 1,450$ 703$ -$ Specific Issue - 001 - Facilities Infrastructure 621$ 1,267$ 1,935$ 2,630$ 3,352$ 4,102$ 4,878$ 5,682$ 6,514$ 7,377$ Specific Issue - 002 - Strategic Items & Facilities 900$ 1,720$ 2,545$ 3,403$ 4,265$ 5,093$ 5,880$ 6,650$ 7,397$ 8,100$ Total 16,365$ 17,326$ 18,316$ 19,338$ 20,394$ 21,485$ 22,608$ 23,766$ 24,960$ 26,192$ Impacts Due To GrowthOperations to Service Growth 366$ 371$ 376$ 381$ 386$ 391$ 396$ 401$ 406$ 411$ Operating Impacts from Capital 614$ 619$ 1,026$ 1,155$ 926$ 500$ 750$ 750$ 1,000$ 1,000$ Supporting Core Service 125$ 131$ 138$ 145$ 152$ 160$ 168$ 176$ 185$ Total 980$ 1,115$ 1,533$ 1,674$ 1,457$ 1,043$ 1,306$ 1,319$ 1,582$ 1,596$

Total Expenses 201,726$ 207,985$ 214,551$ 221,414$ 228,221$ 234,775$ 241,744$ 248,891$ 256,470$ 264,244$

Forecast


2020-2029 Operating Forecast Detail

(in 000’s)


44


Expenses and Revenue ForecastCategories 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029ExpensesBase Services 184,381$ 189,544$ 194,702$ 200,402$ 206,370$ 212,247$ 217,830$ 223,806$ 229,928$ 236,456$ Corporate Allocations 16,365$ 17,326$ 18,316$ 19,338$ 20,394$ 21,485$ 22,608$ 23,766$ 24,960$ 26,192$ Impacts Due To Growth 980$ 1,115$ 1,533$ 1,674$ 1,457$ 1,043$ 1,306$ 1,319$ 1,582$ 1,596$ Total Expenses 201,726$ 207,985$ 214,551$ 221,414$ 228,221$ 234,775$ 241,744$ 248,891$ 256,470$ 264,244$ RevenueProperty Taxes 128,460$ 132,415$ 137,004$ 141,838$ 146,562$ 151,075$ 155,888$ 160,761$ 166,107$ 171,494$ Other Taxes 6,288$ 6,789$ 6,917$ 7,048$ 7,181$ 7,317$ 7,378$ 7,506$ 7,637$ 7,770$ User Fees 28,474$ 29,043$ 29,624$ 30,216$ 30,820$ 31,139$ 31,709$ 32,288$ 32,882$ 33,484$ Specific Issue 001 - Facilities Infrastructure Levy 621$ 1,267$ 1,935$ 2,630$ 3,352$ 4,102$ 4,878$ 5,682$ 6,514$ 7,377$ Specific Issue 003 - Investment Income 3,900$ 3,900$ 3,900$ 3,900$ 3,900$ 4,100$ 4,200$ 4,300$ 4,300$ 4,400$ Dividends - Enterprises 10,888$ 11,066$ 11,248$ 11,433$ 11,622$ 11,815$ 12,012$ 12,213$ 12,418$ 12,627$ Dividend - Hydro 1,350$ 1,350$ 1,350$ 1,350$ 1,350$ 1,350$ 1,350$ 1,350$ 1,350$ 1,350$ Other Income 21,745$ 22,155$ 22,573$ 22,999$ 23,434$ 23,877$ 24,329$ 24,791$ 25,262$ 25,742$ Total Revenue 201,726$ 207,985$ 214,551$ 221,414$ 228,221$ 234,775$ 241,744$ 248,891$ 256,470$ 264,244$ Projected Property Tax Rate IncreaseProjected Property Tax Rate Increase - Special Levy 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50% 0.50%Projected Property Tax Rate Increase - Regular 2.10% 1.80% 2.20% 2.20% 2.00% 1.80% 1.90% 1.80% 2.00% 1.90%Projected Property Tax Rate Increase - Total 2.60% 2.30% 2.70% 2.70% 2.50% 2.30% 2.40% 2.30% 2.50% 2.40%


2020-2029 Operating Forecast Detail – Assumptions


45


Categories Assumptions

Salaries and Wages, Materials, Contract Services, Other Increased 2% annually based on Ontario CPI projections

Utilities Increased 4.5% annually based on hydro and other utility related projections

Boards & Grants Increased 2% annually based on Ontario CPI projections aligned with current practice

Contributions to Capital & Reserves Indexed 2% based on current budget practice

Debt Charges – Capital Pool Reflects the current expected debt issuance requirements based on the 2019 Capital Forecast

Debt Charges - EDIF Reflects the reduction in debt related to EDIF over the 10 year timeframe

Specific Issue 001 – Facility Infrastructure Reflects capital contribution and revenue expected if a 0.5% special levy for facility infrastructure was introduced

Specific Issue 002 – Strategic Items & Facilities Assumes 50% of “Operating Budget Room” created from decreasing EDIF debt to be allocated to strategic items and 50% to be allocated to facility infrastructure

Operations to Service Growth Increased 2% annually based on Ontario CPI projections

Operating Impacts from Capital 2020 to 2024 reflects known operating impacts based on capital projects identified in the capital forecast; 2025-2029 reflects a general allocation as specific impacts have not yet been fully identified

Supporting Core Service General allocation provided to recognize the impact that growth has on support services across the organization

Property Taxes Reflects the regular projected property tax levy with 1.25% of assessment growth assumed across the forecast

Other Taxes Includes payment in lieu of taxes and supplementary taxes; estimated revenue from the municipal accommodation tax has been assumed starting in 2021

User Fees Increased 2% annually based on Ontario CPI projections

Specific Issue 003 – Investment Income Investment income held flat between 2020-2024 with investment stabilization reserve expected to mitigate fluctuations; modest increases have been provided between 2025-2029

Dividends Hydro Dividend held flat in the operating forecast based on current practice, with any additional revenue experienced expected to be applied to the Capital Forecast; Dividends from Enterprises held flat with the exception of the Gas Utility which has been indexed by 2% annually based on current practice


2020-2029 Capital Forecast Detail

(in 000’s)

2020-2029 Capital Forecast Detail - Assumptions


46



Capital From Current Reflects current capital funding levels with contributions from operating indexed annually by 2%

Development Charges Reflects allocation of funding based on the 2019 Development Charge Background Study

Enterprises Funding allocation reflects capital contribution from individual enterprises

Grant This line reflects the $49.9 million in funding received from the Federal Government under the Disaster Mitigation and Adaptation Fund

Gas Tax Reserve Reflects the anticipated allocation of funding from the Gas Tax Reserve to fund specific projects across the 10 year capital forecast

Facilities Infrastructure Expected funding to be transferred from operating assuming a 0.5% Special Infrastructure Levy is introduced and allocating 50% of available “operating budget room” to facilities infrastructure

Capital FundingCategories 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029Capital Funding SourcesCapital from Current 16,423$ 19,131$ 18,597$ 20,412$ 17,873$ 17,016$ 18,181$ 20,699$ 19,891$ 18,645$ Development Charges 11,975$ 20,456$ 20,062$ 21,091$ 35,304$ 35,136$ 44,236$ 48,118$ 45,390$ 7,836$ Enterprises 58,103$ 61,001$ 58,968$ 62,358$ 64,867$ 64,590$ 69,637$ 72,749$ 79,503$ 99,683$ Grant 2,321$ 3,868$ 6,078$ 6,264$ 5,860$ 5,962$ 6,905$ 5,836$ 6,566$ -$ Gas Tax Reserve 12,405$ 6,184$ 6,666$ 11,732$ 6,358$ 6,458$ 5,479$ 6,094$ 5,704$ 5,689$ Facilities Infrastructure 1,071$ 2,127$ 3,211$ 4,339$ 5,498$ 6,662$ 7,830$ 9,014$ 10,216$ 11,423$ Other 105$ 195$ 900$ 1,800$ -$ -$ -$ -$ -$ -$ Reserves 10,724$ 9,394$ 7,784$ 4,892$ 6,121$ 5,386$ 5,927$ 5,623$ 5,335$ 5,440$ Total Capital Funding 113,127$ 122,356$ 122,266$ 132,888$ 141,881$ 141,210$ 158,195$ 168,133$ 172,605$ 148,716$

Forecast


2020-2024 Reserves Forecast Detail

(in 000’s)


47


2020-2029 Reserves Forecast Detail - Assumptions


Total Reserves Reflects current reserve funding levels based on operating and enterprise budget forecasts

ReservesCategories 2020 2021 2022 2023 2024Corporate ReservesTotal Corporate Reserves 10,006$ 10,368$ 10,453$ 10,345$ 10,250$ Minimum Corporate Reserves Target 21,923$ 21,933$ 21,954$ 21,985$ 22,016$ Maximum Corporate Reserves Target 32,971$ 32,986$ 33,018$ 33,065$ 33,112$ Capital ReservesTotal Capital Reserves 30,015$ 27,463$ 22,960$ 22,911$ 19,881$ Minimum Capital Reserves Target 49,372$ 50,231$ 50,780$ 51,905$ 50,825$ Maximum Capital Reserves Target 171,752$ 174,491$ 176,139$ 179,673$ 176,434$ Development ReservesTotal Development Reserves 2,205$ (1,061)$ (3,429)$ (4,140)$ (16,713)$ Minimum Development Reserves Target - - - - - Maximum Development Reserves Target 5,000$ 5,000$ 5,000$ 5,000$ 5,000$ Program Specific ReservesTotal Program Specific Reserves 7,214$ 3,595$ 216$ 181$ 451$ Minimum Program Specific Reserves Target 15$ 15$ 15$ 15$ 15$ Maximum Program Specific Reserves Target 11,085$ 11,085$ 11,085$ 10,620$ 10,620$ Stabilization ReservesTotal Stabilization Reserves 34,521$ 33,340$ 33,664$ 35,222$ 37,566$ Minimum Stabilization Reserves Target 33,937$ 35,146$ 36,411$ 37,765$ 39,201$ Maximum Stabilization Reserves Target 61,382$ 63,671$ 66,073$ 68,630$ 71,336$ Total Reserves 83,961$ 73,705$ 63,864$ 64,519$ 51,435$

Forecast


2020-2024 Enterprise Forecast Detail

(in 000’s)


48


EnterprisesCategories 2020 2021 2022 2023 2024Golf EnterpriseOperations - Revenue 2,953$ 3,012$ 3,072$ 3,134$ 3,196$ Operations - Expense (2,461)$ (2,510)$ (2,560)$ (2,612)$ (2,664)$ Other Expenses (402)$ (424)$ (434)$ (422)$ (433)$ Dividend Transfer to City (75)$ (75)$ (75)$ (75)$ (75)$ Net Revenue (Expense) 15$ 4$ 4$ 25$ 25$ Parking EnterpriseOperations - Revenue 8,516$ 8,665$ 8,748$ 8,806$ 8,956$ Operations - Expense (4,645)$ (4,688)$ (4,707)$ (4,764)$ (4,858)$ Other Expenses (665)$ (674)$ (674)$ (674)$ (674)$ Other RevenueContribution to Capital (1,220)$ (1,214)$ (728)$ (743)$ (781)$ Dividend Transfer to City (1,900)$ (1,900)$ (1,900)$ (1,900)$ (1,900)$ Net Revenue (Expense) 86$ 189$ 739$ 726$ 743$ Building EnterpriseBuilding Permit - Revenue 3,528$ 3,459$ 4,445$ 5,503$ 5,612$ Direct Expenses (4,117)$ (4,191)$ (4,266)$ (4,343)$ (4,430)$ Indirect Expenses (1,086)$ (1,105)$ (1,125)$ (1,146)$ (1,169)$ Net Revenue (Expense) (1,832)$ (818)$ 24$ 29$ 152$ Stormwater UtilityStormwater Charge 20,471$ 21,779$ 23,167$ 24,643$ 25,596$ Operations - Expense (6,413)$ (7,047)$ (7,709)$ (8,000)$ (8,304)$ Other Expenses (1,038)$ (1,100)$ (1,166)$ (1,236)$ (1,280)$ Other Revenue 715$ 752$ 790$ 831$ 859$ Contribution to Capital (13,636)$ (14,325)$ (14,960)$ (16,106)$ (16,831)$ Net Revenue (Expense) 99$ 59$ 122$ 132$ 40$

Forecast


2020-2024 Enterprise Forecast Detail

(in 000’s)


49


2020-2024 Enterprise Forecast Detail - Assumptions


Enterprise Expenses Enterprises use similar drivers to the Operating Forecast; Ontario CPI , capital contributions based on specific needs

Enterprise Revenue Based on the individual rate models adopted for each applicable enterprise

EnterprisesCategories 2020 2021 2022 2023 2024Water UtilitySale of Water 47,783$ 49,695$ 51,682$ 54,483$ 57,714$ Water Supply (23,748)$ (24,437)$ (25,146)$ (25,876)$ (26,970)$ Operations - Expenses (10,489)$ (11,405)$ (12,078)$ (12,519)$ (12,974)$ Other Revenue 468$ 477$ 487$ 497$ 507$ Contribution to Capital (13,980)$ (14,230)$ (14,922)$ (16,536)$ (17,941)$ Net Revenue (Expense) 34$ 100$ 23$ 49$ 336$ Sanitary UtilitySewer Surcharge 59,624$ 62,306$ 65,111$ 68,312$ 71,466$ Sewage Processing (33,188)$ (35,053)$ (37,019)$ (38,720)$ (40,496)$ Operation - Expenses (8,413)$ (8,703)$ (9,006)$ (9,315)$ (9,643)$ Other Revenue 1,017$ 1,056$ 1,102$ 1,150$ 1,200$ Contribution to Capital (19,008)$ (19,712)$ (20,280)$ (21,066)$ (22,244)$ Net Revenue (Expense) 32$ (106)$ (92)$ 361$ 283$ Gas DeliveryOperations - Revenue 38,184$ 39,768$ 41,329$ 42,030$ 42,953$ Operations - Expense (17,392)$ (17,669)$ (18,007)$ (18,348)$ (18,683)$ Other Expenses (7,757)$ (7,899)$ (8,043)$ (8,191)$ (8,342)$ Other Revenue 11,465$ 11,789$ 12,011$ 12,239$ 12,470$ Contribution to Capital (11,070)$ (10,930)$ (11,662)$ (11,866)$ (12,070)$ Dividend Transfer to City (14,933)$ (15,232)$ (15,536)$ (15,847)$ (16,164)$ Net Revenue (Expense) (1,503)$ (173)$ 92$ 17$ 164$ Gas SupplyOperations - Revenue 28,690$ 28,785$ 29,130$ 29,820$ 30,937$ Operations - Expense (29,069)$ (29,068)$ (29,119)$ (29,611)$ (31,154)$ Net Revenue (Expense) (379)$ (283)$ 11$ 209$ (217)$

Forecast

Appendix 3: Financial Indicators


50


TAXES RECEIVABLE TO TAXES LEVIEDThis ratio is a st rong indicator of the st rength of a local economy and the ability of residents to pay their annual taxes. Credit Rat ing agencies consider over 8% a negative factor.

CALCULATION Calculated as taxes receivable (FIR Sch 72 line 0290 column 9) divided by total taxes levied (FIR Sch 22 line 9990 column 15) for the municipality.

CONSIDERATIONSI f this percentage increases over t ime, it may indicate a decline in the municipality’s economic health.

TREND ANALYSIS COMPARISON WITH PEERS

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2016 2017 2018

TAXES RECEIVABLE TO TAXES LEVIED

Brampton

Burlington

Cambridge

Kitchener

St Catherines

Vaughan

Waterloo

Whitby

Average - comparator group

Recommended Max

0.0%

1.0%

2.0%

3.0%

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

TAXES RECEIVABLE TO TAXES LEVIED

COK Ratio Recommended Max



51


RESERVES TO EXPENSESUnder the authority of the Municipal Act, the City and certain of its consolidated entit ies have established reserve funds to ensure future liabilit ies can be met, capital assets are properly maintained and sufficient financial flexibility exists to respond to economic cycles or unant icipated financial requirements. This financial indicator provides an indication of how much money is set aside for future needs/cont ingencies. The Minist ry of Municipal Affairs and Housing has recommended that municipalit ies in Ontario maintain a minimum of 20% of municipal expenses in reserves and reserve funds.

CONSIDERATIONSEach reserve and reserve fund was set up to fund specific act ivit ies. Reserves would not be combined and used to fund general expenditures. The Financial Indicator Review provided by the Minist ry of Municipal Affairs and Housing has rated the City's risk as Moderate in this area.

COMPARISON WITH PEERSTREND ANALYSIS

CALCULATION Calculated as total reserves and reserve funds (FIR Sch 60 line 9930 columns 2 & 3) divided by total expenses (FIR Sch 40 line 9910 column 11) for the municipality.

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

60.0%

70.0%

80.0%

2016 2017 2018

RESERVES TO EXPENSES

Brampton

Burlington

Cambridge

Kitchener

St Catherines

Vaughan

Waterloo

Whitby

Average - comparators

Recommended Minimum

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

RESERVES TO EXPENSES

COK Ratio Recommended Minimum



52


COMPARISON WITH PEERS

CONSIDERATIONSEvery municipality and Council will have a different appetite for debt.

TREND ANALYSIS

CALCULATION Calculated in accordance with annual debt repayment limit as found in FIR Schedule 81.

DEBT CHARGES TO OWN SOURCE REVENUESThis financial indicator provides an indication as to the City's overall indebtedness by calculating the percentage of revenues used to fund long term debt servicing costs. The City's ability to issue addit ional debt may be limited if debt servicing costs on exist ing debt are excessively high. The annual debt and financial obligation limit for municipalit ies is determined under Ontario Regulat ion 403/02: debt and financial obligation limits and is set as 25%. Credit rat ing agencies consider that principal and interest should be below 10% of Own Source Revenues.

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

12.0%

2016 2017 2018

DEBT CHARGES TO OWN SOURCE REVENUES

Brampton (nil for 2016 & 2017)

Burlington

Cambridge

Kitchener

St Catherines

Vaughan

Waterloo

Whitby (nil for 2016 & 2017)


Recommended Max

0.00%

2.00%

4.00%

6.00%

8.00%

10.00%

12.00%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

DEBT CHARGES TO OWN SOURCE REVENUES

COK Ratio Recommended Max



53


CAPITAL ASSET CONSUMPTION RATIOThis ratio shows the value of the tangible capital assets that have been consumed. This rat io seeks to highlight the aged condit ion of the assets and the potential asset replacement needs. The Minist ry of Municipal Affairs and Housing considers a rat io of 25% or under to be relatively new; 26%‐50% to be moderately new; 51%‐75% to be moderately old and over 75% to be old.

CALCULATION Calculated as total accumulated amortizat ion (FIR Sch 51 line 9910 column 10) divided by total cost of capital assets (FIR Sch 51 line 9910 column 6) for the municipality.

CONSIDERATIONSA higher rat io may indicate significant replacement needs. However, if assets are renewed and replaced in accordance with an asset management plan a high rat io should not be a cause for concern.


0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

40.0%

45.0%

2016 2017 2018

ASSET CONSUMPTION RATIOBrampton

Burlington

Cambridge

Kitchener

St Catherines

Vaughan

Waterloo

Whitby

Average - comparators

Moderately new range

0.0%

10.0%

20.0%

30.0%

40.0%

50.0%

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

ASSET CONSUMPTION RATIO

COK Ratio Moderately new range



54


DEBT TO RESERVE RATIOThis indicator provides a measure for financial prudence by comparing total debt to the total reserve balances. Generally, the benchmark suggested by credit rat ing agencies for this rat io is 1:1 or in other words, debt should not exceed total reserve and reserve fund balances. A 1:1 ratio reflects that for every dollar of debt there is a dollar of reserves.

CALCULATION Calculated as all outstanding debt (FIR Sch 74A line 9910 column 1) divided by discretionary reserves (FIR Sch 60 line 9930 column 2). Note Reserves excludes obligatory reserves.

CONSIDERATIONSThis ratio can be improved by either increasing reserve balances or by reducing overall debt levels. Most debt has a fixed repayment term so municipalit ies often would not have the ability to pay down debt even if they held the funds to do so.


-

0.5

1.0

1.5

2.0

2.5

2016 2017 2018

DEBT TO RESERVE RATIO

Brampton

Burlington

Cambridge

Kitchener

St Catherines

Vaughan

Waterloo

Whitby (nil for years shown)


Benchmark

0.00

0.50

1.00

1.50

2.00

2.50

3.00

3.50

4.00

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

DEBT TO RESERVE RATIO

COK Ratio Excl EDIF Benchmark



55


FINANCIAL ASSETS TO LIABILITIESThis financial indicator provides an assessment of the City's solvency. It compares financial assets (things like cash, investments and accounts receivable) to the City's liabilit ies (things like accounts payable, deferred revenue and municipal debt). Low levels for this ratio indicate limited resources available to meet challenges such as increases to costs or decreases in revenue. A rat io of 1 to 1 ensures that there are enough financial assets to cover off all of the municipality's liabilit ies.

CALCULATION Calculated as a municipality's total financial assets (FIR Sch 70 line 9930 column 1) divided by its total liabilit ies (FIR Sch 70 line 9940 column 1).

CONSIDERATIONSFinancial assets may include investments in government business enterprises, which are not likely to be converted to cash in the short term. Liabilit ies may include costs that will not be repaid for a number of years and may not require being paid at once, but rather over a period of many years (eg. post employment benefits).


-

0.50

1.00

1.50

2.00

2.50

2016 2017 2018

FINANCIAL ASSETS TO LIABILITIES

Brampton

Burlington

Cambridge

Kitchener

St Catherines

Vaughan

Waterloo

Whitby


Minimum Target

-

0.50

1.00

1.50

2.00

2.50

2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

FINANCIAL ASSETS TO LIABILITIES

COK Ratio Minimum Target

Appendix 4: Summary of Financial Policies


56


Financial Policy 001 – Budget Control Policy (New)

Purpose Summary of Key Considerations, Additions, Changes

The purpose of this policy is to establish guidelines and provide clarity regarding roles, responsibilities, and key accountabilities, related to the financial management and budget control for operating and capital accounts. This policy documents the process for the reporting of financial performance and results, including the variance reporting process for the annual operating budget, and the reporting of the status of capital projects.

Responsibilities and key accountabilities related to budgeting have been outlined in this policy

Approval authority limits for Directors, General Managers, and CFO are outlined in policy for both Operating and Capital accounts

Reportable operating account variances that require an explanation increased from $50k to $100k

Operating Budget Variances to be reported based on June, September, and December results

New “Capital Status Report” will provide for regular reporting related to open capital projects and will replace existing capital balances process

Background

In developing the Long-Term Financial Plan, 3 specific policies were identified to be developed or updated as part of this work. Two of the polices are new for the City and are reflected in Recommended Actions 1.2 and 4.1. Additional policies are recommended to be updated or created between 2020 and 2022.



57


Financial Policy 002 – Capital Financing and Debt (New)


The purpose of the policy is to establish guidelines and controls related to the issuance of long-term debt, short-term financing, and internal reserve fund borrowing, to ensure the effective use of these financing options to support both the City’s current and future capital and infrastructure needs.

• Definitions are provided for long-term debt, short-term financing, and internal borrowing to differentiate amongst these options

• Policy identifies when debt should be considered as a financing option, outlining possible uses of debt

• Debt limits have been set to support a responsible approach to debt management taking into consideration Provincial regulations, industry standards, and relevant benchmarks

• A “pay-as-you-go” approach will be utilized where possible to support short-term capital financing needs

• Internal borrowing from reserves is outlined as an option for short-term financing with criteria being outlined in the policy



58


Financial Policy 003 – Investment Policy (Existing)


The purpose of the policy is to establish guidelines and controls related to the investment and holding of public funds to ensure funds are available when needed, while maximizing returns. The investment policy applies to all financial assets of the City of Kitchener held within the general fund, capital fund, reserve funds, enterprise funds, and trust funds.

Eligible investments are those permitted under section 418 of Ontario Regulation O.reg 438/97 unless specifically excluded

Additional language has been added to address Prudent Investment Standards under Section 418.1 of O.reg 438/97

Diversification percentages have been adjusted for the top 5 major chartered banks from 35% to 75% per issuer

Schedules have been reduced/consolidated to simplify the policy and provide more clarity to the reader

Letter of Credit (LC) requirements have been revised to allow LCs from Schedule I, II, or III banks that have a “good” credit rating as outlined in Schedule A

Appendix 5: References

Cover Page Image: Victoria Park Clock Tower Sketch by Steph Lee

Page 5: Historic population figures from Statistics Canada, forecasted population figures from Region of Waterloo

Page 6: Age distribution figures from Region of Waterloo

Page 7: Household income and relative property taxes from BMA Management Consultants Inc. comparative study for participating Ontario municipalities

Page 9: Assessment mix data from Municipal Property Assessment Corporation

Page 10: Ratings from Ministry of Municipal Affairs Financial Indicator Review for City of Kitchener based on 2017 Financial Information Return

Page 11: value of City owned assets, City’s overall infrastructure deficit and facilities infrastructure gap data from City of Kitchener 2019 State of the Infrastructure Report; Canada’s municipal infrastructure deficit from report titled Danger Ahead: The Coming Collapse of Canada’s Municipal Infrastructure (A report for the Federation of Canadian Municipalities November 2007)

Page 14: Average interest rates from Bank of Canada’s website

Pages 50 to 55: Data for graphs is pulled from the respective municipality’s Financial Information Return as published on the Ministry of Municipal Affairs and Housing’s website


59


Documents

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