- What is a Municipal Capital Budget?
- Budget Development & Adoption
- Subsequent Reporting
- Legislative Requirements
- Funding Sources
- Historical Capital Budgets
What is a Municipal Capital Budget?
Municipal budgets consist of an operating and capital component. These components are interdependent, meaning that any any decisions made on the capital budget will have an operating budget implication and, in some cases, vice versa.
The capital budget plans for the acquisition and replacement of Tangible Capital Assets, which can be summarized as significant expenditures to provide municipal services with a benefit beyond one year. In accordance with the City’s Tangible Capital Asset Policy, the capital budget excludes repair and maintenance costs, which form part of the operating budget.
Budget Development & Adoption
The capital budget is presented as an annual capital project listing with accompanied funding strategy for consideration and approval. The City’s capital budget is guided by its Asset Management Plan, which considers several plans and studies including but not limited to:
- Strategic Plan
- Transportation Master Plan
- Roads Needs Study
- Wet Weather Master Plan
- Parks and Recreation Master Plan
- Infrastructure Phasing Strategy
- Development Charges Background Study
The City’s proposed capital projects must be evaluated on the following criteria:
- Public safety & Legislation
- Service levels
- Strategic initiatives
- Financial implications
- Economic & Growth implications
- Community support
- Other (e.g., timing, project readiness)
The City must also consider other key budget drivers in the proposed capital budget. These may result in deferrals of low-priority capital projects:
- Non-discretionary pressures and inflation
- Debt levels
- Availability of reserves & reserve funds
- Personnel/project management workload
- Infrastructure gap and future capital need
- Third party or community partner obligations
The City typically develops and approves the capital budget in the preceding year. The process is dictated by its Budget & Financial Controls Policy.
Subsequent Reporting
Once the capital budget is approved, spending is initiated by departments in accordance with the City’s Purchasing Policy.
Tangible capital assets are reported on the statement of financial position of the City’s publicly available audited financial statements. Among other schedules, the City must report on its tangible capital assets within its annual Financial Information Return required by the Ministry of Municipal Affairs and Housing.
While not included in the capital budget, the City’s tangible capital assets also include contributed assets. The most common contributed assets relate to new subdivisions, whereby the city accepts infrastructure (e.g., local roads, streetlights, water pipes) that must be incorporated into the Asset Management Plan for future maintenance, rehabilitation and/or replacement.
Legislative Requirements
Municipal Act
In accordance with the Municipal Act, 2001, the City is required by provincial law to balance its budget each year. Simply put, the money raised must equal the money spent. In balancing the capital budget, the City can do one or more of the following:
- Increase its contribution to capital reserve funds via property taxes and/or user rates.
- Leverage the use of application-based grant programs, where applicable.
- Defer projects to future years.
- Reduce capital investment through the alteration of programs and/or services.
- Issue debt.
Asset Management
Capital planning at the City is constantly improving to better serve its stakeholders and ensure compliance with Ontario Regulation 588/17 – Asset Management Planning for Municipal Infrastructure. In 2024, Council approved the City’s most recent Asset Management Plan (AMP), which focuses on the City’s overall state of core infrastructure, levels of service, and various mandated strategies. The plan includes a financial strategy to close the City’s infrastructure funding gap, which is experienced by all Ontario municipalities. An updated AMP is scheduled to be completed in July 2025.
Below is a short video that further explains the importance of municipal asset management:
Funding Sources
Capital revenue will vary each year depending on the make-up of approved capital projects. Projects are primarily funded by:
- Discretionary Reserves/Reserve Funds
- Funds set aside for specific use as approved by Council and in accordance with the City’s established policies. Contributions to these reserve funds are typically funded by an allocation from the operating budget, which may include property taxes, user rates, and other targeted revenues.
- Development Charges
- Held in an obligatory reserve fund, these fees are collected primarily by developers upon permit issuance to construct a new building.
- Used to fund/recover capital (and operating) expenses deemed necessary to service growth in the City.
- Other obligatory reserve funds
- An annual allocation (grant) under the Canada Community Building Fund (CCBF) program (formerly Federal Gas Tax)
- An annual allocation (grant) under the Provincial Gas Tax program (restricted to Transit services)
- Grants/subsidies
- An annual provincial allocation from the Ontario Community Infrastructure Fund (OCIF)
- Application-based grants that are project specific.
- Debt
- Subsequently issued to cover any infrastructure gap as approved by Council.
- Debt repayments are legislatively capped at the Annual Repayment Limit and the City’s internal policy.
Historical Capital Budgets
Detailed capital budgets can be found on the City’s Budget & Financial Reports webpage.
| Definitions |
|
The following definitions may be referenced when reviewing the capital budget: Annual Repayment Limit or “ARL” is legislated by the Ministry of Municipal Affairs and Housing reported on schedule 81 of the City’s Financial Information Return. This limit permits Ontario municipalities to issue debt to the extent that debt repayments do not exceed 25% of own-sourced revenue, however, the City has adopted an internal policy that limits repayments to 12% of own-sourced revenue. Asset Management Plan is a strategic document that states how a group of assets are to be managed over a period. The plan describes the characteristics and condition of infrastructure assets, the levels of service expected from them, planned actions to ensure the assets are providing the expected level of service, and financing strategies to implement the planned actions. Contributed Assets are capital assets such as developer constructed services in new subdivisions (i.e. water, sewer, roads infrastructure) acquired without cash outlay and will be valued at fair market value when the asset is placed into productive use/service (i.e. upon initial acceptance). Development Charge is a charge legislated under the Development Charges Act, 1997 that allows a municipality to impose a charge to fund capital projects or studies that are deemed necessary to service new growth under the notion that growth pays for growth. Charges must accompany a by-law and development charges study that forecasts growth and relevant growth-related projects. Financial Information Return or “FIR” is the main data collection tool used by the Ministry of Municipal Affairs and Housing to collect financial and statistical information for all municipalities. The Municipal Act, 2001 requires that each municipality will annually report on its financial affairs, accounts, and transactions in the form of the FIR. This data is available for public review online. Infrastructure Gap is the value of current infrastructure relative to the value of infrastructure that is needed. Often this is quantitatively measured as the gap in funds between what is needed and what is available. When the need exceeds available resources, it may be referred to as an Infrastructure Deficit. Purchasing Policy is the internal policy approved by Council that regulates purchasing by the City to ensure a fair and equitable acquisition of goods and/or services. Public Sector Accounting Board or “PSAB” is a regulatory board that sets public sector accounting standards. These standards represent the accounting framework that Canadian municipalities must adopt to ensure consistent treatment of accounting transactions. The City’s annual audited financial statements are in accordance with these standards. Reserve is an allocation of funds that is not restricted by by-law or legislation but can be specific to projects that are of a nature prescribed and managed by approval of Council. A reserve is typically held in the general bank account and does not receive an annual interest allocation unless invested in accordance with the City’s Investment Policy. Reserves are administered and managed under the City’s Reserve & Reserve Fund Policy. Reserve Fund is a fund set aside for a specific purpose as required by legislation, by-law, or agreement and can be obligatory (externally restricted) or discretionary (internally restricted). Reserve funds are held in separately grouped bank accounts and receive an interest allocation. Reserve funds are administered and managed under the City’s Reserve & Reserve Fund Policy. Tangible Capital Asset (also known as infrastructure) is a non-financial asset having physical substance that is acquired, constructed, or developed and:
User Rates are fees charged for user-pay services, such as recreation programs/facilities, parking, water, and wastewater. |