Water, wastewater and stormwater infrastructure, which are supported by the Water Resources Off-site Levy Program, are typically the first pieces of infrastructure built in a new community, often referred to as ‘leading infrastructure’. They need to be ready to service any new homes, commercial buildings, or industrial facilities. They help us provide fire protection and improve public safety, provide access to clean drinking water for household and commercial use, and the proper collection and movement of wastewater and stormwater to protect the environment.

Consultation for the Water Resources Off-site Levy Program will focus on the shift from the existing methodology to the new land capacity-based methodology within the following infrastructure types:

• Linear water and wastewater extensions and upgrades
• Drainage systems

There are currently no plans to change the methodology for water and wastewater treatment plants. This methodology was established in 2016 and has yet to run for a full 10-year cycle. Adjusting it now will prevent us from determining the effectiveness of the current methodology. In addition, the current methodology is a cost of capacity methodology, and thus aligns with the proposed Off-site Levy strategy. While the methodology is not being reviewed, a review and update of the inputs to the water and wastewater treatment plant methodology will be completed later in the off-site levy review process.

The Water Resources Off-site Levy Program includes the following infrastructure types:

• Linear water and wastewater extension and upgrades
• Water and wastewater treatment plants
• Drainage Systems

Through this review, we are not changing how we determine benefit allocation for the Water Resources Off-site Levy Program. The information provided below is an explanation of benefit allocation for the Water Resources Off-site Levy Program.

Different infrastructure types provide benefit to different areas, and in most cases a single piece of infrastructure will provide benefit to multiple areas. These areas are classified as greenfield, established, and regional based on their location and the users within those locations. The methodology needs to consider what areas will benefit from different infrastructure and allocate costs accordingly, typically as a percentage.

City engineers calculate how much of a project is attributable to growth drivers versus other drivers such as regulatory and environmental protection requirements. From this growth percentage, population distribution data is used to determine where the growth will occur between greenfield, established, and regional areas. The portion of the cost not attributed to growth in these areas is distributed amongst existing users. For the linear water and wastewater extensions and upgrades infrastructure type, only the allocation related to greenfield growth is included in the Off-site Levy program.

Projects are selected based on two criteria:

• New projects required to open an approved growth area.
  • Examples include the Rangeview Ogden Feedermain, and the North Calgary Water Servicing Strategy projects
• New and existing projects required to support growth in the approved growth area that may physically exist downstream in existing communities.
  • Examples include the Inglewood Sanitary project.

For the linear water and wastewater extensions and upgrades infrastructure type, the projects selected can fall under three types:

• Extensions – Any pipe length increase needed to extend the system. This includes extensions installed in existing communities required to maintain or improve redundancy required for new community expansion.
  • Extension projects are typically identified through council approved new growth areas.
• Upgrades – Any change to the existing system in the form of upgrading (diameter) an existing pipe, increasing a pump size, installing new pumps in an existing station, etc.
  • Note: Adding demand in the greenfield area reduces available capacity in other areas of the city. To maintain or increase this, upgrades are required.
  • Upgrade projects can be identified through approved new growth areas but are more typically identified through technical long-range plan studies undertaken by The City.
• Completed projects – Outstanding debt that is being paid for which supports growth in greenfield areas. Water Resources typically takes out debt to pay for their growth infrastructure projects.

The new methodology for the linear water and wastewater extensions and upgrades, and drainage systems components of the Water Resources Off-site Levy Program differs from the current methodology in three key areas:

• The denominator
• The numerator
• The debt term

The table below outlines the key difference between the current and proposed methodologies within these areas of focus.

Input	Current	Proposed (future)
Denominator	Growth forecast for anticipated Development Agreements to be signed over a nine-year period.	Leviable land (Ha) in approved growth areas (total capacity).
Numerator	Nine-year principal and interest costs for eligible capital projects. It includes completed projects with outstanding principal and interest.	Total project costs (all principal and interest) for eligible capital projects (includes completed projects with outstanding principal and interest).
Debt Term	25 years	15 years, to better align with community build out

The proposed methodology provides greater stability and predictability to off-site levy rate payers over time by relying on a finite amount of known, approved land area in the calculation of the levy rate, as opposed to a forecast of future hectares associated with development agreements. The 2016 forecasted assumption that Water Resources would receive the funds associated with 401Ha/year of development agreement payments over the 2016-2020 time period was significantly higher than the 267Ha/year Water Resources did receive over the 2016-2020 time period. Water Resources borrows to pay for their capital projects and if development occurs at a slower rate than anticipated it means less levies are being collected to pay the principle and interest payments on the loans.

The new proposed methodology mitigates the magnitude of the shortfalls with a lower hectare estimate per year, but keeps the total costs related to the infrastructure connected to the timeframe of the expected build out. It provides council and levy rate payers a clearer understanding of what growth infrastructure will be required to service a defined land area and therefore what the principle and interest will be on an annual basis to cover these costs.

The current levy rate was established based on the assumption that the total revenue collected over the planning horizon (nine years) is sufficient to cover the total principal and interest for that same period.

This method presents several challenges:

• The calculation relies on forecasted growth for the denominator. When the pace of growth doesn’t match the forecasted growth, shortfalls are created, and can be significant.
• Shortfalls and balances need to be manually adjusted in the rate and cannot be applied retroactively.

Using the current methodology, the levy collection is sensitive to the pace or speed of growth and can lead to a mismatch of timing for funding availability, and principal and interest payments.

For example, as a result of changing economic times and lower than anticipated growth, the levies collected were not sufficient to cover the principal and interest costs since 2016. Adjustments to the levy calculation are necessary to better align the denominator with current growth patterns/projections. Using the current methodology, an adjustment to decrease the denominator would result in a significant increase to the rate. Additionally, the accumulated shortfall to date would need to be added to the numerator, which would be spread over the 9 year developable land forecast, also increasing the rates.

To address these challenges, and to minimize future shortfalls and adjustments to the rate, The City is proposing moving to a land based capacity methodology.

Some key aspects of the methodology are not changing, the citywide approach and keeping the calculation simple and easy to administer. The intent for the model to be fluid and adjustable over time remains the same.

NUMERATOR

There are three components to the numerator in the proposed formula:

1. Principal and interest of completed projects with remaining land capacity (Ha)
2. Principal and interest of new projects for growth areas that add land capacity (Ha)
3. Surplus or Shortfall (infrastructure type dependent) – one time only

The capital investments in this formula are based on identified infrastructure needed to support approved growth areas. This matches the investment to the benefiting hectares that have been approved. The formula above includes the proportional share of projects required to support approved growth in the 14 new and 27 actively developing communities, as well as approved and funded industrial growth lands

The City will determine the projected principal and interest for the known projects each year, with the intent of closing the gap between the principal and interest payments and the amount collected. Because of this, the new formula does not fully eliminate the risk of a shortfall, but that risk will be carried by The City and will not change the levy rate. This means that on an annual basis, the levies collected may not match the principal and interest costs. However, over the time it takes for the full community to build out, The City should collect the full costs, without a need to manually adjust the rate. There is an assumption that the approved lands will be close to full build out at the end of the 15 year period based on future population forecasts.

DEBT TERM

The current methodology used to set the levy rate in 2015 assumed a 25-year debt term for all linear water and wastewater extension and upgrade projects. All completed projects, with outstanding debt obligations included, are based off a 25-year debt term. The debt for these projects is taken out based on the actual costs and not based on estimates.

For the proposed methodology, The City is suggesting a 15-year debt term be used going forward. This debt term better aligns with the expected community build out. By aligning the debt term to expected community build out we are ensuring those that benefit in the new communities are contributing their proportion of the costs.

With the 25-year amortizations used historically; it is expected that completed projects with outstanding debt obligations are a larger component of the new rate compared to the future forecasted debt related to new projects.

DENOMINATOR

Using the approved growth areas as the denominator uses the most reliable data we have, the most refined estimates, and directly associates the cost of the infrastructure to the greenfield areas in the city that require it. The denominator is not sensitive to the pace or speed of growth. It is a finite number based on available approved land.

By using the updated numerator and denominator, the levy rate reflects the cost to service approved growth areas, regardless of the time it takes to consume the serviced land. Since the denominator is citywide and costs are debt financed over 15 years, the areas developing and paying for the infrastructure are most closely linked to the benefit that the infrastructure provides.

As new growth areas are approved by Council, the rate will need to be adjusted to include the new lands and associated growth infrastructure.

To summarize, the change in methodology offers the following:

• Improvements
  • Creates a more direct relationship between infrastructure and approved lands
  • Methodology is not bound to time
  • Model is self-correcting to the pace of growth if the full build out of the approved growth areas occurs in the forecasted 15 year timeline.
• Tradeoffs
  • Fluctuation in rate may occur (both up and down) depending on ratio of infrastructure to land in newly approved growth areas
  • Does not eliminate shortfalls entirely (shortfalls may still occur)

THEORETICAL EXAMPLE

If $100M of infrastructure is amortized over 15 years, the total cost will be $130M. Assuming the budget for this infrastructure is approved with new growth that support 4000 ha of land, the rate will be $32,500/ha. If in the first 5 years, the forecasted land development is 1333 ha (one third of 4000), but if only 500 ha is realized through development agreements being paid there will be a shortfall of $28M; however, when the remaining 3500 hectares of land are developed, the remaining $114M of the total pipe cost will be recovered without needing to adjust the rate calculation ($114M/3500ha = $32,500/ha). These rates will be subject to annual escalation costs.

Note: Any rates currently included are hypothetical and intended for the sole purpose of helping to explain a concept, relationship or trend.

As new growth areas are approved, the rate will be adjusted to reflect the new citywide cost per approved hectares of land. This means any new capital infrastructure approved will be added to the numerator, and the associated approved land will be added to the denominator. The impact on the rate will be dependent on the suite of growth areas approved. This provides a direct relationship between newly approved growth areas and the cost to service these lands.

METHODOLOGY SURVEY

Thank you for your feedback. Online engagement for this phase of the Water Resources Off-site Levy is now closed. Please check back to this page for a What We Heard report of the feedback we received.

INPUTS TO THE DRAFT MODEL

DATA DISCLAIMER AND TERMS OF USE

The data contained within the spreadsheets below are shared under an Open Government Licence - City of Calgary. This open government licence only applies to this data and this data only. Terms of Use can be found at https://data.calgary.ca/stories/s/Open-Calgary-Ter...

We have provided a data set to be used in your review of the draft model. The data provided (estimate projections) is a snapshot of information available now. Some data shared is a placeholder (close approximation) until updated data is available. Projections will be updated to the most recent or relevant data available.

Design and method of construction selected can change costs significantly (e.g. Alignment may change, tunneling vs. open-cut, etc.). The levy rate is set using actual costs for completed projects, and cost estimates for projects underway and forecasted. Class 1 to 5 cost estimates are used depending on the phase the project is in (e.g. Projects under construction use Class 1 –2 cost estimates and conceptual projects use Class 5 cost estimates). Any rates currently included are hypothetical and intended for the sole purpose of helping to explain a concept, relationship or trend.

INFRASTRUCTURE LISTS

Existing off-site levy water and wastewater project lists include the following:

• Updated cost projections, updated actuals, adjustments to project names and in some cases scope (e.g. alignment)
• New projects identified by Water Long Range plan, extensions and upgrades not previously identified due to timing constraint (2024), and any new projects identified to support greenfield growth that align with new Off-site Levy strategy.

DRAFT – Master linear upgrades, water and wastewater

DRAFT – Master sheet – linear extensions with projections

Net new water and wastewater project lists will include the following:

DRAFT – Net new water and wastewater extensions and upgrades