■ Reserves as a long-term planning tool: It is not generally clear how innovative financing links up with the use of capital reserves. However, the experience of the City of Saskatoon does provide at least one example of a unique way of employing reserves, particularly with regards to future debt. When the City anticipates that debentures may have to be issued to finance a large infrastructure project in the future, Saskatoon tries to build a "debt charge base" well in advance of issuing the debt. Funds are accumulated over time, and when the debenture is issued, those funds are either used as a cash down payment to reduce the total borrowing requirement or used to help finance the debentures over the long-term.
| BEST PRACTICES AND ALTERNATIVE FUNDING: The National Guide to Sustainable Municipal Infrastructure The National Guide to Sustainable Municipal Infrastructure is an initiative of Infrastructure Canada being carried out by the National Research Council (NRC) and the Federation of Canadian Municipalities (FCM). In 2002, the partners jointly produced a report entitled Alternative Funding Mechanisms: A Best Practice by the National Guide to Sustainable Municipal Infrastructure. The guide, which aims to simplify technical material into easier decision-making concepts and principles, presents a number of alternative funding methods: ■ Special Levies: The guide uses the term "special levies" to refer to funding tied to a specific service or project, with the levies being either time-specific (ending when the service or project ends) or continuing indefinitely. The examples provided include dedicated transit taxes, environmental levies and recapitalization fees on property taxes, and frontage levies for street, sidewalk and other repairs. Clearly, special levies are not a "new" or "alternative" funding mechanism, but they are a mechanism that could be used more fully by many cities. The advantage of special levies is that they are tied to specific programs or services, making them more transparent and therefore more acceptable to the public. For example, public support may not be as high for a levy that pays for a variety of programs (e.g., storm water infrastructure improvements) as for a levy that results in a specific facility installation or upgrade. The disadvantage of special levies is that they cannot be used for general revenue. ■ Development Fees: Development fees refer to charges imposed on private companies building new developments to fund municipal infrastructure, and in some cases, to create a reserve fund for operations and future maintenance for infrastructure in the new developments. As the guide acknowledges, development fees are not a new funding mechanism, but rather are a funding tool that could be used more innovatively by municipal governments. The guide suggests that development fees can be used better to encourage higher density housing and discourage urban sprawl, and states that municipal governments could use development fees more strategically to create incentives for infrastructure-friendly development. ■ Utility Models: A utility model exists when the user fees collected are dedicated to a particular service and that service is either self-financing or managed separately from other services. This cost-recovery approach is appropriate for services such as potable water, sewage, storm water, and solid waste. While the guide notes that utility models are used in a number of Canadian cities, their use is not as broad as it could be. For example, many cities lack full water metering. At the time, it was reported that Regina is the only major city to have fully implemented a storm water utility model (in 2003, Edmonton did as well). In addition to these three options, the guide presents a number of other alternative funding mechanisms. These include sponsorships, innovative transportation revenues and incentives, government service partnerships, funding partnerships, strategic budget allocations, cost allocation to users, and demand management. Again, these alternative mechanisms are not particularly new or innovative. However, as the guide points out, each could be used more broadly. | |
| SOURCE: | National Guide to Sustainable Municipal Infrastructure (NGSMI). 2002. Alternative Funding Mechanisms: A Best Practice by the National Guide to Sustainable Municipal Infrastructure. (An initiative of Infrastructure Canada carried out by the Federation of Canadian Municipalities and the National Research Council). Canada. |
■ Link reserves and asset management: Reserves do play a major role when it comes to matters of proper asset management and issues of life-cycle costing. Infrastructure analysts advise that cities should spend from 2% to 4% of the replacement value of all of their assets on a regular basis for maintenance and rehabilitation (Vanier 2001). Assuming a 50 year lifespan across the full range of asset types, another 2% is needed to ensure the assets can be replaced when they reach the end of their serviceable life (Vanier 2000, BDO Dunwoody and Associates 2001). Building reserves for future replacement of existing assets is a critical part of infrastructure management. Of course, the problem is freeing a certain amount of current revenues now to regularly contribute to replacement reserves. Perhaps all that can be said here is that cities need to ensure that new infrastructure projects have built into the upfront costs at least some consideration of the annual funds that must be invested into reserves for both maintenance and eventual rehabilitation and replacement.