TAMRMS#: B06
5.2
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Northeast Servicing Update
Presented by: Dawny George, Director, Engineering Services, Kristina Peter, Director, Planning and Development, Anne Victoor, Director, Financial and Strategic Services
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SUMMARY
This report provides an update on Phase 1 of the Northeast Servicing Project and outlines upcoming decision gates within certain strategic parameters for Council’s consideration.
ALIGNMENT TO COUNCIL DIRECTION OR MANDATORY STATUTORY PROVISION
On May 16, 2022, Council passed the following motion:
CB-22-047
That Capital Project Charter WASWT-021-Northeast Servicing Projects be added to the 10 year municipal growth plan in 2023 for future funding consideration.
That funding in the amount of $2,000,000 be approved from the Off-Site Levy Recovery Funds in 2022 to advance the design component of the project described as phase 1 in the attached project charter.
On May 16, 2022, Council passed Bylaw 1/2022 Municipal Development Plan 1st Redesignation.
This was the first amendment to Flourish, the City of St. Albert’s Municipal Development Plan. This amendment reflected the addition of the newly annexed lands (previously under the jurisdiction of Sturgeon County), and to provide additional context to demonstrate the prioritization of growth in the west of St. Albert.
BACKGROUND AND DISCUSSION
Project Status
The Northeast Servicing (NES) Project is a capital project to bring sanitary (Project 2), water (Project 10), and stormwater (Project 5) services to the northeast part of the City, including lands within the latest annexed area. Phase 1 includes completing the detailed project design and securing tendering services, and possibly some construction administration services for the construction phase of the project. Council approved $2,000,000 to advance Phase 1.
At the time of writing this report, Phase 1 progressed through detailed design with the coordination of associated permits and easements, along with collaborative consultation with affected developers. Phase 1 has progressed to form two work packages; that is at 90% design for the utility package and at 60% design for the lift station package amidst schedule setbacks. This report is considered an interim update to keep abreast of upcoming decision points within certain strategic parameters.
The current cost estimate of ~$69.7M includes a 15% contingency for the utilities package and 50% contingency for the Lift Station package, which will undergo further confirmation with the planned project scope before proceeding to phase 2 and this includes:
a) Offsite Levy (OSL) portion of ~$67.1M
b) Non-OSL portion of ~$2.6M
The offsite leviable portion now includes the installation of a trail (<1% of the estimated total cost) along Old Bellerose Drive along with the utility lines and sanitary lift station scope. Access along Old Bellerose Drive is needed by the City’s Utilities Branch for maintenance of the infrastructure that will be built, such as storm manholes and outfall towards the river. Therefore, the trail scope with a cross section as shown in Attachment 1 is included as part of the OSL scope within the Utility package. This trail scope does not include any additional amenities such as benches, garbage bins, or additional landscaping. As detailed design has progressed, the use of trenchless methods (micro tunnelling and directional drilling) is recommended along Old Bellerose Drive due to soil stability issues. This results in a reduced impact to the existing gravel walkway than originally thought. Administration is looking at the use of a gravel trail for utility access which could provide cost savings while keeping the access needs of the Utilities Branch.
The non-offsite leviable portion includes two scopes:
1) the installation of a fiber optic conduit only, along the same alignment as the utility line for a future installation of a fiber line pull through a separate project charter yet to be approved and is expected to be a municipal cost and,
2) the installation of a water service line along Bellerose Drive and a sanitary service stub for future developable land who will benefit from economies of scale cost savings and cost avoidance from unnecessary future disruption of City’s already installed infrastructure by having these constructed as part of the NES project. The design cost incurred to date on these scopes are negligible, <0.1% of the total estimated cost. The part two scope cost is expected to be recovered from the benefitting developer through a separate cost recovery agreement yet to be finalized.
Once Phase 1 is completed, administration will update the project charter to reflect new construction estimates based on a finalized design and the realized costs from Phase 1. It is anticipated that the updated project charter for Phase 2 will include construction completion phase for presentation to Council in Q4 2024 following the first reading of the Northeast St. Albert Area Structure Plan on November 5, 2024. Should Council approve proceeding with construction through debt financing, a borrowing bylaw will be developed and presented in Q4 2024. The following strategic parameters are presented for Council’s perusal and consideration prior to making an investment decision towards NES project.
Strategic parameter 1 - Northeast St. Albert Area Structure Plan (ASP) and Municipal Development Plan (MDP)
The finalization and approval of the Northeast St. Albert ASP is a key milestone before proceeding with the approval of the Northeast Servicing construction phase. The discussion to be generated during debate of the ASP is important, as approval would signal a shift from the strategic direction prioritized by Council within the Municipal Development Plan (MDP). The MDP prioritizes growth west of Ray Gibbon Drive, where significant City investment in infrastructure (roads and utilities), priority development areas, and community amenities land has occurred. This prioritization is because the first version of the MDP was developed and approved prior to the annexation, and the undeveloped lands in the west were within the pre-existing boundary and majority of the northeast lands were outside. The Growth Management Study conducted during the annexation found that the City’s land supply prior to annexation contained 1,100.3 hectares available to accommodate future growth. Based on this land supply and a higher-than-historical growth rate, the City had 709.4 gross hectares of residential land supply, 111.4 gross hectares of commercial land supply, and 279.6 gross hectares of industrial land supply, estimated to be fully absorbed within the next 26, 30, and 19 years, respectively.
The majority of the lands in the proposed Northeast ASP and many of the benefitting lands from NES project were annexed in the 2022 boundary adjustment as shown in Attachment 2. This annexation added approximately 1,600 hectares to the City’s land supply. The majority of the lands within the Northeast ASP/NES area was not fully contemplated or studied in the MDP. This means that development in this area will exceed population growth and job projections beyond 100,000 people and 13,000 jobs, along with the timelines associated with that expansion as shown in Attachment 3- Annexation Development Staging Map. It should also be noted that the servicing project will bring on additional lands west of St. Albert Trail that have not been planned or studied and would require a significant amendment to the ASP (if adopted) to incorporate those lands - increasing the population, employment, and the associated development time horizon.
A key consideration of the approved annexation was determining the financial implications for the City. The 2020 Financial Impact Assessment (FIA) for the annexation submission to the Province of Alberta concluded that the annexation and further development of the lands would be financially sustainable over the next 35 years. The FIA concluded that the financial implications of adding these lands (growth and life cycle requirements, and operating costs) would remain below the 3% annual tax increases, averaging 1.8% per annum. However, it must be stressed that this assumption relies on the projects being initiated within the described timelines and development staging, see Annexation Development Staging Map Attachment 3; changes to those timelines or expansions of the projects will increase the tax and financial implications for ratepayers. It is also important to note that the projects are limited to the items contained within the FIA. It is important to understand that the annual increases related to growth would be in addition to the inflationary increases required to maintain services levels. It is critical to balance financial investment in infrastructure relative to the City’s growth needs. Financial risk increases when infrastructure investment occurs prior to overall City need, bringing on costs prematurely and thus impacting future tax rates.
In both Council-approved versions of the MDP (April 2021 and the amended version to include annexation in November 2022), the lands within northeast St. Albert are identified as “Other Areas for Growth.” Other lands within the City are identified as “Priority Areas for Outward Growth” or “Priority Areas for Intensification,” and these priority areas are supported by MDP policies in Sections 13.1 and 13.2. The MDP has growth principles to expand employment and economic growth so that an assessment split of 70% residential assessment and 30% non-residential assessment occurs. Comparing the growth areas, the St. Albert West ASP dedicates approximately 50% of the net developable area to Employment Lands vs approximately 19% within the Northeast. The Northeast ASP’s land pattern focuses on Neighbourhood development, as over 40% of the developable area is for residential uses. This difference in the land use/tax split between the two areas supports the rationale for the west to be identified as a “Priority Area for Outward Growth.” On November 5, 2024, Council will be asked to consider the first reading of the developer-led Northeast St. Albert Area Structure Plan and to determine if the development of these lands is in the overall best interest of the City. Council will need to weigh their priority projects, the financial implications of adding development areas beyond current and historical growth needs, and the upfront financial requirements for infrastructure in the “Other Areas for Growth.”
Strategic parameter 2 - Future Debt Strategy and Growth
In addition to the growth strategy presented earlier, there are several financial considerations when evaluating if NES project is to be funded through debt. There is capacity to fund this project within the City’s current debt borrowing and debt servicing limits. This will impact the timing and ability to fund future major capital projects (such as Community Amenities, RR260 Road Construction and the Police Building) and future investments needed to enable growth in the MDP’s “Priority Areas for Intensification” and mature neighborhoods. The current capital plan is not an exhaustive list of growth capital projects and will increase as long-term plans mature. A decision to fund this project may trigger additional capital projects not yet on the current capital plan. This will put additional pressure on the number of projects competing for funding within the borrowing limits, resulting in projects in the current plan to be postponed or cancelled. In addition, capital investment for new infrastructure in the growth area requires ongoing operating costs such as snow clearing, emergency support and future asset replacements to support the infrastructure and service levels which impacts future tax requirements.
As approximately 96% of this project cost is off-site leviable, the servicing of the debt payment is funded from the OSL recovery fund and thus has minimal tax impacts. There is a risk of investing in two outward growth areas (St. Albert West and Northeast) at the same time which could negatively impact the pace of development and thus the rate of return. If growth does not match the investment, there is a risk that the off-site levies collected would be insufficient to cover the debt servicing which would inadvertently be required to be funded through taxes. Based on the City’s and the region’s forecasted population/employment growth rate, the proposed NES investment has high probability of impacting tax rates in the future, as it exceeds the needed projected population and employment growth rate.
With the advancement of NES, development of the Northeast quadrant of the City would be triggered in non-alignment with the approved MDP as discussed earlier. This could also insert undue additional pressure for more infrastructure investments in the Northeast quadrant in the order of $232M in the next 16 years as shown in Attachment 4. For example, investing in this servicing to the northeast will spur development in the northeast which may trigger other project investments such as North St. Albert Trail improvements and potentially a portion of 127th Street investment, which is yet to be analyzed. Other considerations include storm drainage capacity for Fowler Way is dependent on NES storm system unless temporary options are sought. On the flip side, if NES does not progress, then it may be worth revisiting the decision made to progress with Fire Hall 4 before it proceeds to construction with temporary servicing option.
Advancing the NES project should coincide with amendments to the Municipal Development Plan and the development of (or the amendment of) Northeast St. Albert Area Structure Plan (ASP). As the lands west of St. Albert Trail have not been studied or included within the ASP, a significant update to the previous work is needed. While costing has not been contemplated, major amendments to statutory plans are costly, and it is anticipated that the updates would require re-prioritization of Council approved projects (due to staffing resources) and at a high-level estimated cost of $800 thousand.
The City has a policy to assist in determining which OSL projects the City should consider front ending. Council Policy- C-P&E-09 was established to provide a set of principles that will be used to prioritize and assess which new off-site levy municipal infrastructure may be eligible for City front-ending to support sustainable growth and development of undeveloped lands within the City. Key elements of the prioritization process are to provide a staged review for all OSL projects being considered for front-ending by the City, manage risk, and create a financial plan and identify funding sources for these projects.
There are many facets that City will evaluate before an OSL project gets added to the 10-year capital plan. One of the contributing elements to this decision is the result of the Off-Site Levy City Front-ending Prioritization criteria (known as OSL Prioritization Matrix) applied to only unbuilt OSL projects, but these projects are evaluated against other projects as well to balance priorities, ensure funding availability, and optimize investment timing.
The OSL Prioritization Matrix is relatively new and is considered to still be in its development stage. It is important to note that the Matrix is forward facing and only considers projects that have not been built. It does not factor any weighting for projects that have already been upfronted by the City or areas where the City has already invested. Excluding investments to the west of Ray Gibbon Drive, the latest iteration of the current OSL Prioritization Matrix was based on 2024 Council Priorities and Project Costs. The three projects (Storm 5, Sanitary 2, and Water 10) within the NES project were among the top five ranked utility projects using the matrix.
Strategic parameter 3 - Other sources of funding: Grant Opportunities and Developer contribution to front ending
To date, no grant opportunities have been identified to assist in offsetting project costs.
Recent intergovernmental advocacy efforts have focused on Ray Gibbon Drive Corridor and Downtown St. Albert; multiple basins in service have not been contemplated.
Discussions have occurred with the benefitting developers in the area for possible significant contribution to front ending the project cost without identifying it as pre-payment of their levies. To date there has been no confirmation of this possibility. It is worth noting that borrowing costs are typically lower for the City than they are for private developers, so borrowing costs for large projects, even when recovered through off-site levies, can have an impact on affordability. Private developers may also have challenges obtaining funds through debt for large OSL projects.
As of December 31, 2023, a total of ~$3.6M (~6%) has been collected towards the OSL portion of the NES project from the benefitting lands. The contribution allocations are:
Sanitary Project 2 - $1,944,069 (~7%)
Storm Project 5 - $1,079,055 (~4%)
Water Project 10 (proportionate to NES scope) - $553,929 (~10%)
Strategic parameter 4 - Council approved “Hold” on Northeast Development
Due to sanitary servicing capacity constraints, an administrative “hold” on general development was issued in late 2022 for the northern part of the City except for limited acceptance of case-by-case applications as restraining capacity permitted. Currently, administration has exhausted almost all possible case-by-case servicing applicability within the approved engineering design standards without having to adversely affect the existing sanitary operation within the City’s northeast quadrant.
It is worthwhile to draw Council’s attention to possibly three scenarios after the discussion of Northeast ASP in November 2024:
Scenario 1 - if Northeast ASP is not approved and NES does not proceed or is delayed following the growth direction set by MDP.
Scenario 2 - if Northeast ASP is not approved and NES does proceed to funding approval.
Scenario 3 - if Northeast ASP is approved and NES does proceed to funding approval.
In all scenarios, a Council approved “hold” on development may signal to the community that servicing capacity is limited, and if applications slow or cease as a result, this could help stop the unnecessary drain on staff capacity in reviewing development applications.
In Scenario 1, administration may recommend that Council pass a resolution signaling no servicing capacity in the northeast to the development community. Additionally, administration may consider amending the Land Use Bylaw to change all uses within the northeast area of the City to limit use and/or to only discretionary uses.
Regarding the interim capacity, additional discussions are ongoing with the significant developers in the area to possibly build additional storage capacity for both Sanitary and Storm servicing by having them invest in their own combined sanitary/storm lift stations that could likely gain approximately 3-5 years of interim capacity (for storage and slow release to the constrained existing collection system) for some limited development to proceed until the ultimate NES is built.
In Scenario 2 and Scenario 3, administration may still recommend that Council pass a resolution signaling no servicing capacity in the northeast for a limited time period. In these scenarios, developers are required to invest in the combined sanitary/storm lift stations described above, for efficient conveyance of sanitary and storm flows along with the build out of NES.
As noted, developers’ investment in the combined lift station infrastructure will not be a lost cost in any scenario.
Should Standing Committee of the Whole wish to discuss further any of the matters discussed here in detail and in confidence, the following motion could be adopted to consider an in-camera discussion.
“That Standing Committee of the Whole move in camera in accordance with sections 24(1)(a),(g) and 25(1)(b),(c) of the Freedom of Information and Protection of Privacy Act.”
The legal basis for moving in camera are sections 24(1)(a) and 24(1)(g) of the Freedom of Information and Protection of Privacy Act, which allow the City to keep confidential advice, recommendations, and policy options, as well as information that, if disclosed, could reasonably be expected to reveal information, including the proposed plans, policies or projects of a public body, the disclosure of which could reasonably be expected to result in disclosure of a pending policy or budgetary decision. In addition, the City is relying on sections 25(1)(b) and 25(1)(c), which allow the City to keep confidential financial and technical information that is likely to have monetary value, as well as information which, if disclosed, could prejudice the competitive position of the City.
STAKEHOLDER COMMUNICATIONS OR ENGAGEMENT
Administration will continue to engage affected developers as the design progresses to 100% for this project.
Alberta Environment and Parks of the provincial government has been engaged for all required environmental permitting approvals.
City of St Albert internal departments have been involved in design reviews to date.
ALIGNMENT TO PRIORITIES IN COUNCIL’S STRATEGIC PLAN
N/A
As there is no direct link to the current City’s Strategic Plan, it is notable that when Phase 1 of the Northeast Servicing Project was approved in May 2022, this project was in alignment with the following Strategic Priority:
Strategic Priority #4 Infrastructure Investment: Identify, build and/or enhance needed critical or strategic infrastructure and identify and implement associated optimal business and operating models and lifecycle strategies.
ALIGNMENT TO LEVELS OF SERVICE DELIVERY
D. Land Use and Development
D.2 Infrastructure Planning
D.2.1 Off-Site Levy Program
Support growth and development by administering City's off-site levy program for essential infrastructure needed.
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Report Date: October 8, 2024
Author(s): Meredith Willacy, Tanya Hynes, Regan Lefebvre, Suzanne Findlay, Kristina Peter, Anne Victoor, Dawny George
Department: Engineering Services, Public Operations, Planning and Development, Financial & Strategic Services
Department Director: Dawny George, Timothy Saunders, Anne Victoor, Kristina Peter
Managing Director: Diane McMordie, Diane Enger and Adryan Slaght
Chief Administrative Officer: Bill Fletcher