Chapter 7: 2023 Five-Year Capital Plan Capital Planning Process

The 2023 Five-Year Capital Plan includes preparing for the ongoing community growth and development and funding for the capital investment required to provide a variety of infrastructure, amenities, programs and services for new and existing residents The Capital Plan supports the City’s Strategic and Business Plans in delivering on the City’s strategic goals and supporting overarching themes that include: Equity, Diversity and Inclusion, Reconciliation, Balanced Growth and Livability and Resiliency The Plan is informed by Council endorsed strategies and budget principles including the Capital Funding Framework, Longterm Tax Strategy and Sustainable Infrastructure Renewal Funding Strategy In addition, the Capital Plan is prepared in the context of citizen input through the annual online budget survey, Development Cost Charges Bylaw, asset management plans and the City’s financial policies

The City is continuing to work towards sustaining existing services in an environment of significant cost increases while also planning for ongoing community growth and the capital investment required to service new residents Despite the pandemic, Coquitlam has seen significant levels of growth and development over the last several years, which have fueled the City’s capital investment plans and included significant work on a number of financial strategies in support of major capital project delivery to support a growing City

The primary capital projects included in the capital plan are challenged by recent extreme cost escalations experienced in the construction markets with many input material costs increasing by double digits from original quotes or projections Given the City’s plans for significant capital investment over the next few years, the plan incorporates a measured and flexible approach to advancing these projects in the near term The primary focus is being placed on the projects that are currently in progress, with a careful assessment of proceeding with the other capital projects as outlined in the first year of the Five-Year Capital Plan

In line with the City’s principles established under the Capital Funding Framework, the plan is based on a measured approach to balance the City’s capital investment requirements with the risks associated with the currently prevalent cost increases The plan includes the replacement and renewal of existing infrastructure and assets while also planning for community growth and development resulting in capital investment that provides a variety of infrastructure, amenities, programs and services for new and existing residents

In line with the City’s Sustainable Infrastructure Renewal Funding Strategy, the Plan includes priority asset and infrastructure replacement for the first five years of a 10year plan The strategy provides a two-pronged approach to ensuring the sustainability of the City’s infrastructure and assets over the long term while balancing the impact on current and future taxpayers The first is to address the funding required for a 10-Year Asset Replacement Capital Plan, which includes required asset replacement projects in the next 10 years The second component is addressing the long-term infrastructure funding gap through gradual, reasonable tax and utility rate increases

Community enhancement projects are also considered in the Capital Plan given their importance to the community in terms of meeting demand for increased service levels and amenities, as well as support Council’s strategic priorities

Preparation of the Capital Plan is a challenging process since there are many competing priorities with limited funding

One of the City’s key principles is that capital projects are not included in the Capital Plan until the related funding is secured Although the 2023 – 2027 Capital Plan is fully funded through a variety of funding sources including borrowing, current forecasts of future receipts used to fund the desired projects in years outside of the current plan indicate that funding is not sufficient to fully fund all of the significant projects that are being contemplated over the next 10 years Therefore, future capital investments as outlined in the various City strategic plans, including the Major Facilities Roadmap will be accompanied by a long-term funding strategy

The City has recently completed an updated of the DCC Program which generates funding for growth-related infrastructure and the Capital Plan includes related projects identified in the updated program Available DCC funding has been estimated based on development applications in process and adjusted to reflect the risk in the potential delay of receipts The revenue forecasted from the Sewer and Drainage DCCs is insufficient to support the associated DCC programs and projects identified in the 2023 – 2027 Capital Plan The related Sewer and Drainage DCC projects are primarily related to the servicing requirements in the Northeast required to facilitate development Given the unique circumstance where this project is required in order to facilitate development that will ultimately result in future DCC collections, to bridge this timing challenge and the resulting cash flow gap, internal borrowing from the Sewer and Drainage Operating Reserve Fund will be used to deliver the project, with repayment from future DCC receipts The balance of the Sewer and Drainage Operating Reserve Fund is sufficient to cover the borrowing

As a top priority project, the Northeast Community Centre (NECC) and adjacent park and plaza is funded fully by development revenues, but will require debt financing in order to bridge cash flow gaps Similar to the Sewer and Drainage projects in the DCC program, the forecasted development revenues are insufficient to fully fund the NECC at the time of planned construction A debt management strategy has been developed to support the delivery of the project in the near term with debt repayment from future development revenues This includes an initiation of a Loan Authorization Bylaw to authorize the City to seek external borrowing through the Municipal Finance Authority (MFA), should it be determined that future external debt is prudent Within the context outlined above, over the next five years, the City will invest $631 million in capital infrastructure to replace and improve transportation assets, enhance recreational opportunities and replace and expand water, sewer and drainage infrastructure within Coquitlam In addition to the expansion of the City’s infrastructure to service a growing community, the 2023 – 2027 Capital Plan addresses a variety of replacement and rehabilitation needs of existing infrastructure, ensuring the maintenance of existing service levels

Definition of Capital Assets

Capital assets provide a benefit to the community beyond one year Such items typically require operating and maintenance expenditures, and may need to be replaced in the future Examples include infrastructure such as buildings, roads, bridges, water and sewer facilities, as well as vehicles, computer equipment and furniture The City’s policy is to plan for major capital expenditures on a minimum five-year cycle with annual reviews and updates The 2023 – 2027 Capital Plan includes projects that are consistent with corporate objectives and long-range plans such as the DCC program, and incorporates long-term funding strategies such as the Capital Funding Framework and the Sustainable Infrastructure Renewal Strategy

Operating Cost Impact of Capital Projects

According to Council-adopted policy, the annual budget process requires that reasonable and adequate provisions be made for the incremental increases to the operating expenses for changes in the capital base This is a key policy that is in line with GFOA best practices as it contributes to the long-term financial sustainability of City services and infrastructure

Every year capital assets are developed by City departments or added to the City’s inventory during the course of development The operating budget impacts of this new capital are typically added to the operating budget upon completion Each capital project in the Plan is reviewed to assess the impact it will have on the operating budget Projects providing new infrastructure will typically require additional expenditures each year for operations and maintenance Projects that replace or rehabilitate existing infrastructure will typically reduce operating costs in the short term; however, this does not generally result in an overall reduction of operating costs as other aging City infrastructure not replaced is progressively more expensive to operate and maintain An additional $873,000 is required for the operations and maintenance of new infrastructure, which was included in the 2023 – 2027 Financial Plan

Operating Costs for New Capital Projects

Over the past 5 years, the average operating costs for new capital in the General Fund for new buildings, roads, traffic and technology infrastructure has been $732,000 and in the Utility Fund for water, sewer and drainage infrastructure the added operating cost has been an average of $91,000

In addition to the Operating Costs for New Capital Policy and to support the City’s ongoing efforts to sustain City infrastructure and service delivery, the City’s Asset Replacement Funding Policy recognizes an increase in the contribution to asset replacement in the annual budget each year for newly added assets, as well as incrementally addressing inflationary pressures on asset replacement funding An additional $1 4 million was included in the 2023-2027 Financial Plan for newly added infrastructure and inflationary ($1 0 million for the General Fund and $0 4 million for the Utilities Funds) In line with the Sustainable Infrastructure Renewal Strategy to help close the asset replacement funding gap, Council approved a further $1 7 million ($1 0 million for the General Fund and $0 7 million for the Utilities Funds), resulting in a total increase in contribution for asset replacement of $3 1 million in 2023 This further enhances the City’s Asset Replacement Funding Framework ensuring City services are provided in the long-term, and its infrastructure is funded in a sustainable manner

2023 – 2027 Capital Plan

The 2023 – 2027 capital expenditure program adopted by Council includes approximately $631 million to be expended on a number of projects Please visit coquitlam.openbook.questica.com to explore the City’s Capital Plan using a financial information visualization tool