Financial and Infrastructure Report

Alternate Municipal Structure Project The City of Leduc and Leduc County

April 2017

Table of Contents

Title Page #

AMS PROJECT REVIEW EXECUTIVE SUMMARY ...... 1 What We’ve Done...... 1 Where We Are Now ...... 1 What the City and County Councils are asked to do ...... 2 A. INTRODUCTION ...... 3 B. DRIVERS FOR A SHARED GOVERNANCE MODEL ...... 4 B.1 Rationale for a Changed Governance Structure ...... 4 B.2 Detailed Review of a Specialized Municipality Model ...... 5 B.3 Risk and Opportunity Analysis ...... 6 FINANCIAL AND INFRASTRUCTURE ANALYSIS A. EXECUTIVE SUMMARY ...... 9 A.1. Study Design ...... 9 A.2. Projected Impacts of Restructuring ...... 9 A.3. Study Conclusion ...... 10 B. Purpose of the Financial Analysis ...... 11 B.1. Approach to the Analysis ...... 11 C. Growth Scenarios ...... 13 C.1. Population Forecasts ...... 14 C.2. Employment Forecasts ...... 14 C.3 Impact of Edmonton’s Annexation ...... 15 C.4 Financial Sustainability ...... 17 D. Financial Implications of Restructuring ...... 17 D.1. Economies of Scale in Delivery of Municipal Services ...... 18 D.2. Operating Revenues...... 21 D.3. Assessment and Taxation ...... 21 D.4 Impacts of Restructuring ...... 22 D.5. Sensitivity of Restructuring Benefits to Alternate Growth Scenarios ...... 24 D.6. Other Sensitivity Analysis Results ...... 27 D.7. Financial Sustainability with Restructuring ...... 28

AMS Project Review

EXECUTIVE SUMMARY

What We’ve Done

For a number of years, Leduc County and the City of Leduc have worked hard to develop a healthy and mutually beneficial relationship. Their current list of common projects has more than 95 initiatives ranging from common service, to delivery, to consistent planning practices.

In 2015, the two municipalities embarked on a process to determine whether their strongly collaborative relationship should be developed into a governance model that more accurately reflected their daily practices. After a considerable period of studying governance models, including the benefits and risks of each, the municipalities decided to do a detailed study of the financial, infrastructure and implementation implications of a specialized municipality model.

There is compelling rationale to suggest that both Leduc County and the City of Leduc could benefit from adopting a more integrated governance model that would provide improved service and greater influence on regional issues. The two councils listed the following as achievable outcomes.

1. A strong, unified voice 2. Better and more cost-efficient services 3. Simplification and streamlining of processes 4. Enhanced ability to seize opportunities 5. Ability to shape the future of Leduc sub-region

A detailed study on an alternative municipal structure was launched to explore the benefits and risk in more depth.

Where We Are Now

The first stage of this detailed review was a financial and infrastructure assessment of both municipalities. Conclusions from this assessment are listed below.

1. There are financial benefits to considering a specially-designed municipal structure.

2. Both municipalities will be sustainable in the future whether they are separate or amalgamated.

3. The financial review demonstrates potential benefits from consolidation. These include:

. Improved efficiency, cost savings and service level improvements through shared costs;

. Risk reduction because of greater diversification of tax base and expenditures spread over a bigger population base;

. Easier coordination of control over land use with resulting reductions in development costs;

. Unified economic development efforts creating a stronger market presence;

. Increased opportunities to coordinate purchases and influence with vendors because of larger base and ability to combine projects;

. Ability to provide more focused and specialized services because of more efficient use of staff; e.g., purchasing, bylaw enforcement, training, etc.; and

. Reduction of administration time currently dedicated to managing many joint service agreements.

What the City and County Councils are asked to do

1. Receive the results of the finance and infrastructure review as information and recommend its consideration to the post-election Councils.

2. Approve communicating the finance and infrastructure findings to the citizens of the two municipalities

3. Approve a work plan outlining steps for the new Councils (post 2017 elections) to continue consideration of Alternative Municipal Structure project.

A. INTRODUCTION

In 2015, Leduc County and the City of Leduc embarked on a process to determine whether their strongly collaborative relationship should be developed into a governance model that more accurately reflected their daily practices. After a considerable period of studying models of governance, as well as the benefits and risks of each, the municipalities decided to do a detailed study of the financial, infrastructure and implementation implications of this move.

The project plan included:

. Gathering detailed information about the financial and infrastructure status of the two municipalities.

. Involving, when appropriate, the community in a study identifying the impacts of restructuring, and to design a process to share information with citizens and provide effective and varied channels for their involvement in consultation processes.

. The two municipalities deciding whether to proceed with the next step – organizational design planning.

. If agreed upon, the designing of a proposed organizational structure and the preparation of an implementation plan. This work is intended to set in place the policy frameworks and processes for the change process that will take a number of years to complete.

This mid-project report provides the detailed financial and infrastructure information outlined above.

B. DRIVERS FOR A SHARED GOVERNANCE MODEL

B.1 Rationale for a Changed Governance Structure

There is compelling rationale to suggest that both Leduc County and the City of Leduc could benefit from adopting a more integrated governance model that would enable greater cooperation on regional issues.

The Councils of the municipalities participated in a joint discussion to explore the basis for, and desired benefits of, a more integrated governance model. The outcome of that discussion indicated that increased collaboration is in the best interest of both municipalities given their geographic proximities and like-minded regional interests. A shared approach to managing issues within the Leduc Region, as well as the greater Edmonton region, could ultimately strengthen their positioning and identity, enable better and more efficient service delivery, and align their political motivations within the greater Edmonton region.

A more integrated governance model also has the potential to yield significant benefits for each municipality and its residents. The more integrated the provision of services becomes between the two municipalities, the greater the administrative capacity and operational efficiency gains that can be achieved. For example, if the planning and delivery of services were centrally or jointly delivered, the result would be a reduction, if not elimination, of redundancies. There would be no need for duplicate purchases, or administration, or services. Instead, these municipal functions could be built to an appropriate scale.

The focus of the initial discussion with both Councils was to identify the overarching principles, shared goals, and desired outcomes they wished to achieve, rather than to analyze various governance models for suitability. Several key themes emerged from those discussions which represent the high-level goals and the rationale of considering a more integrated governance model. Each principle is described below.

Governance options would be considered if they promote:

1. A strong, unified voice

. The Leduc Region will become a recognized and valued partner in the Edmonton Metropolitan region.

. Governance structures that facilitate shared wisdom, and stronger influence in metropolitan affairs, will be valued.

2. Better and more cost-efficient services

. Building on efficiencies and opportunities of scale, the Leduc region will choose options that allow the provisions of a broader range of services as at more economical price.

3. Simplification and streamlining of processes

. For the benefit of citizens, businesses and visitors, governance options will be chosen that eliminate redundancy of processes between municipalities, and enable coordinated regional planning.

. Options that allow the sub-region to seek opportunities as one entity, rather than competing against each other, will be favoured.

4. Enhanced ability to seize opportunities

. Structures that join the strengths and resources of the Leduc region so the resulting municipality is of sufficient critical mass to be one of the few significant partners in the Edmonton Metropolitan area.

. Enable shared benefit and shared risk.

5. Ability to shape the future of Leduc sub-region

. Building on an honoured and diverse history, any future governance option will identify the Leduc region as a mature, viable and unique.

B.2 Detailed Review of a Specialized Municipality Model

The City of Leduc and Leduc County, as part of this process, undertook a review of alternate governance models which might enable a more coordinated effort between both municipalities to foster and facilitate economic growth, providing services for residents, and accommodating population growth and economic development strategically within the region.

The Councils of both municipalities identified numerous objectives and principles to support and provide rationale for evaluating a joint governance model that can better meet and promote the needs of the region.

WMC assessed a number of governance and service delivery models and measured each option’s suitability based on its ability to deliver on the desired outcomes identified by both Councils.

The results of the research and analysis suggest that amalgamation as a Specialized Municipality is the most attractive model given the needs identified and rationale for pursing joint governance.

A Specialized Municipality is the best of the models reviewed, given that it allows for different service levels and tax rates to be established, reflecting the distinct urban and rural areas that form the region.

The full report on Governance options is available upon request, and was distributed with the original report.

The consultant team recommended a detailed review of the Specialized Municipality Model as the option most likely to achieve the outcomes identified by the Leduc County and City of Leduc Councils.

B.3 Risk and Opportunity Analysis

B.3a Motivators for Change

. Leduc County and the City of Leduc are examining governance options to maximize their economic potential and increase influence for the Leduc Sub-Region:

. This strategy is not driven by crisis or lack of resources.

. Projected strong growth is a key driver for doing this now.

. Improving service delivery for their citizens is an important motivator.

B.3b Critical Outcomes

. Influence:

. The municipalities want a stronger voice and greater influence in regional discussions.

. If combined into one municipality, the new structure would be in the upper reaches of population in the Edmonton Metropolitan Region.

. The City of Leduc and Leduc County have a population of 40,400, which would make them the fourth largest municipality in the area.

. The combined population of the seven regional municipalities makes them the third largest municipality in the capital region behind Edmonton and Strathcona County.

. At 66,800 people, the sub-region would be the sixth largest municipality by population in the province – larger than Medicine Hat, Grande Prairie, and St. Albert.

. Opportunity:

. The population and employment figures make the sub-region a major player in the area.

. A unifying structure would allow optimization of growth areas since growth can be targeted to a best-use area, rather than limited by smaller municipal boundaries.

. This critical mass does not happen without a single governance structure. Only the amalgamation or specialized municipality options can give the sub-region this status.

. Efficiency

. Shared governance would leverage economies of scale and build on operational and administrative efficiencies in service delivery. This would reduce the duplication of effort where there is significant overlap.

. Given that each municipality offers a different mix of services and level of service, joint delivery means residents could benefit from a broader range of services at a more economical price.

B.3c MMGA Requirements

Changes in the modernized Municipal Government Act (MGA) provide even more impetus to a closer relationship for the two municipalities. The new Act and regulations mandates that municipalities collaborate with their neighbours and their regions to deliver and fund intermunicipal services. The City and the County have led the way in collaborative work, but all municipalities will be required to adopt an Intermunicipal Collaboration Framework (ICF).

ICF’s will highlight and formalize existing collaborative work across the province, and provide a forum for neighboring municipalities to work more closely together to better manage growth, coordinate service delivery, and optimize resources for citizens. The frameworks will need to address intermunicipal land-use planning and how servicing will support development, as well as regional service delivery and funding.

Consideration of a specialized municipal model would allow the City and County to maintain their advantage over other municipalities.

Financial and Infrastructure Analysis

A. EXECUTIVE SUMMARY

A.1. Study Design

. The financial analysis will provide an indication of the direction and magnitude of municipal restructuring on the financial position of both the City of Leduc and Leduc County. If beneficial, restructuring will result in a reduction in municipal property tax rates, all else being equal.

. The Restructure Scenario assumes that a combined City of Leduc and Leduc County would form a Specialized Municipality.

A.2. Projected Impacts of Restructuring

. Total savings associated with operating efficiencies are estimated to total $1.3 million annually for the City. This represents approximately 1.7% of the City’s 2015 operating expenses.

. Total savings associated with operating efficiencies are estimated to total almost $1.0 million annually for the County. This represents approximately 1.6% of the County’s 2015 operating expenses.

. It can be expected that some savings on capital expenditures could also be achieved. These savings vary from a benefit of 5% of capital costs for selected major road and other infrastructure projects and a saving of up to 50% for selected software.

. City of Leduc ratepayers are projected to experience an average annual reduction in their municipal tax bill of 3.7%. In the short term, 2016 - 2025, this benefit averages 2.2% per year. The benefit of the Restructure Scenario as compared to the Baseline Financial Forecast for the City ranges from a 0.8% reduction in municipal taxes in 2017 to a 5.6% reduction in municipal taxes by 2040.

. Leduc County ratepayers are projected to experience an average annual reduction in their municipal tax bill of 2.3%. In the short term, 2016 - 2025, this benefit averages 1.3% per year. The benefit of the Restructure Scenario as compared to the Baseline Financial Forecast for the City ranges from a 0.4% reduction in municipal taxes in 2017 to a 3.7% reduction in municipal taxes by 2040.

A.3. Study Conclusion

Given that restructuring has a net financial benefit to both the City and County, it is concluded that the viability of a combined municipality as defined in the Restructure Scenario results in a stronger municipality. This is evidenced by the following:

. Reduced municipal tax rates for both municipalities participating in restructuring. . A direct financial benefit as measured annual savings in each year following restructuring. . Assumptions regarding the potential cost savings and financial benefits of the Restructure Scenario are conservative.

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B. Purpose of the Financial Analysis

The financial analysis is intended to provide an indication of the direction and magnitude of the implications of municipal restructuring on the financial position of both the City of Leduc and Leduc County. If municipal restructuring is beneficial, it will result in a reduction in municipal property tax rates and/or improved service.

B.1. Approach to the Analysis

To evaluate the financial implications of municipal restructuring, a Baseline Financial Forecast has been prepared for both the City of Leduc and Leduc County. This forecast anticipates growth in 7 growth scenarios and determines the demand for services and infrastructure required to support growth in each scenario.

Municipal Restructuring has been evaluated against these Baseline Financial Forecasts taking into account adjustments that would be made to accommodate joint service delivery. This Restructure Scenario includes consideration of potential economies of scale that could be achieved in delivering services jointly, as well as potential savings that could be achieved in sharing capital expenditures.

B.1.a. Specialized Municipality

The Restructure Scenario assumes that a combined City of Leduc and Leduc County would form a Specialized Municipality. This would be similar to Strathcona County and the Regional Municipality of Wood Buffalo where the new ‘restructured’ municipality would have an Urban Services Area (USA) and Rural Services Area (RSA) that would roughly conform geographically to the current municipal boundaries of the City of Leduc and Leduc County respectively. This would allow for the restructured municipality to delivery services to both the USA and RSA at a level consistent with current practices and levy different municipal tax rates to each area commensurate with these different levels of services.

Why a Specialized Municipality model is needed

Without creating a Specialized Municipality that allows for the establishment of different service areas and an ability to levy different tax rates in each area that reflect these different service levels, there would be an immediate issue of transitioning from existing municipal tax rates in each municipality to a ‘blended’ tax rate for the newly restructured municipality. This would result in a significant increase in what would be former Leduc County ratepayers that would reflect a ‘blended’ City/County tax rate structure. Similarly, City of Leduc ratepayers would receive a municipal tax reduction. These impacts would be the result of ‘blending’ the costs of service delivery and assessment bases of each municipality, without being able to distinguish between the different nature and level of services currently delivered in both the City and County.

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Below are the 2016 municipal tax rates for both the City and County:

2016 Municipal Tax Rates City of Leduc Leduc County Residential 6.311 3.280 Non-residential 7.974 7.110

B.1.b Transition to a Restructured Municipality

A Specialized Municipality would minimize the potential implications of transitioning from the current municipal structures to a new municipality by allowing for the impacts of restructuring to be implemented over a transition period that would allow for existing service level and cost structure differences to be reflected in different municipal tax rates applied to an Urban Services Area (City of Leduc) and Rural Services Area (Leduc County). The benefits of restructuring have been assumed to be shared by both the USA and RSA as reflected in the financial results in the Restructure Scenario.

This analysis has assumed that the Restructure Scenario creates a new municipality with a USA and RSA coterminous with the City of Leduc and Leduc County. Over time, as restructuring evolves, it may be useful to consider how the USA (former City of Leduc) be expanded to include adjacent areas in the RSA that are receiving the same or similar levels of services to the USA. Similarly, it may be useful, in the future, to consider the creation of additional urban services areas for East Vistas and New Sarepta. This would allow for further delineation of the demand and provision of municipal services to these areas and levy municipal tax rates commensurate with the provided services.

B.1.c. Financial Forecasting Methodology

The financial analysis has been completed using Applications Management Consulting Ltd.’s Municipal Finance Impact Model. This model includes consideration of the following:

. Operating revenues . Operating expenses . Capital expenditures

. Life cycle costs associated with existing and newly acquired assets. . New infrastructure provided by the municipality to accommodate growth. . New infrastructure acquired by the municipality from development. . Financing of capital expenditures from various sources including: grants, developer contributions, off-site levies, reserves, operations.

. Assessment base growth by type of assessment (based on Growth Scenarios) . Municipal tax rates (based on tax rate splits) . Amortization

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The Baseline Financial Forecast for each municipality has been reviewed by administration in each municipality through a series of meetings and reports. In addition, the potential impacts of restructuring have been identified through discussions with various municipal staff. The results of these discussions are reflected in the analysis provided below.

B.1.d. Use of Alberta Municipal. Affairs Function Categories

To analyze and review the impacts of the Restructure scenario on both the City and County of Leduc, Alberta Municipal Affairs financial report function areas have been used. Where information is available from each municipality, the information reported by Municipal Affairs has been checked against the municipal financial information.

B.1.e Base Year – 2015

The Base Year for the analysis is 2015. This includes actual year end information for 2015. Some year-end information for 2016 is available and has been used in the analysis. However, as final year end data is not yet available, this year is technically considered a forecast year.

B.1.f Real 2015 Dollars

All projections of the financial forecast use real 2015 dollars. Inflation is not incorporated into the analysis.

C. Growth Scenarios

Seven growth scenarios have been developed for this analysis. These include the following:

Growth Forecast Scenarios (With & Without Annexation)

SCENARIO POPULATION EMPLOYMENT

CRB High Status Quo Dispersed (SQD)

Status Quo Core (SQC)

CRB High Economic Diversification Dispersed

(EDD)

Economic Diversification Core (EDC)

CRB Low CRB Low CRB Low

Growth Management Strategy Moderate GMS Mod Div GMS Mod Div Diversification

Growth Management Strategy High GMS High Div GMS High Div Diversification

Scenarios 4 7

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C.1. Population Forecasts

The population forecasts defined for this analysis are briefly described below.

. Scenario 1 CRB High Scenario: This scenario is derived from the Capital Region Board’s Edmonton Metropolitan Region Growth Plan - High Forecast (CRB High). Employment totals differ across these scenarios, but population in the capital region is project to reach 2,235,100 by 2045.

. Scenario 2 CRB Low Scenario: This scenario is also derived from the Capital Region Board’s Edmonton Metropolitan Region Growth Plan, but uses the Low Forecast (CRB Low). In this scenario, total population in the capital region is projected to reach 1,959,300 by 2045.

. Scenarios 3-4 Leduc Growth Management Strategy Scenarios: The third and fourth scenarios are both derived from the Leduc Growth Management Strategy (GMS) study, with each assuming a different degree of industry-specific economic diversification. The GMS Moderate scenario (GMSM) uses a moderate level of diversification, while the GMS High (GMSH) incorporates a stronger magnitude of diversification. In both variations of the Leduc Growth Management Strategy scenarios, total population in the capital region is projected to reach 2,200,000 by 2045, but sub-totals differ across geographies.

C.2. Employment Forecasts

The employment forecasts defined for this analysis are briefly described below.

. Scenarios 1-4 Based on CRB High Scenario: The first four scenarios included are derived from the Capital Region Board’s Edmonton Metropolitan Region Growth Plan - High Forecast (CRB High). In these scenarios, total employment in the capital region is projected to reach 1,217,205 by 2045.

. The first scenario is the Status Quo Dispersed (SQD). This scenario assumes the energy sector is the primary driver for growth in the region.

. The second scenario is the Status Quo Core (SQC). This scenario assumes the energy sector is the primary driver for growth in the region. However, employment growth will be focused in the Edmonton Core where appropriate jobs can be located.

. The third scenario is the Economic Diversification Dispersed (EDD). This scenario continues to assume that the energy sector is a primary driver of the local economy, however it also assumes greater diversification of other sectors such as manufacturing, and agriculture.

. The fourth scenario is the Economic Diversification Core (EDC). This scenario continues to assume that the energy sector is a primary driver of the local economy, however it also assumes greater diversification of other sectors such as manufacturing, and agriculture.

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However, employment growth will be focused in the Edmonton Core where appropriate jobs can be located.

. Scenario 5 CRB Low Scenario: The fifth scenario is also derived from the Capital Region Board’s Edmonton Metropolitan Region Growth Plan, but uses the Low Forecast (CRB Low). In this scenario, total population in the capital region is projected to reach 1,049,423 by 2045.

. Scenarios 6-7 Leduc Growth Management Strategy Scenarios: The sixth and seventh scenarios are both derived from the Leduc Growth Management Strategy (GMS) study, with each assuming a different degree of industry-specific economic diversification. The GMS Moderate (GMSM) scenario uses a moderate level of diversification, while the GMS High (GMSH) incorporates a stronger magnitude of diversification. In both variations of the Leduc Growth Management Strategy scenarios, total employment in the capital region is projected to reach 1,178,542 by 2045.

C.3 Impact of Edmonton’s Annexation

The City of Edmonton has applied to annex significant areas from Leduc County that have both an impact of Leduc County as well as a direct and indirect impact on the City of Leduc. The proposed annexation areas are currently defined in the map below.

City of Edmonton Proposed Annexation Areas

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As the results of the lands that may be annexed by Edmonton and financial arrangements associated with the transfer of lands has not been determined, several scenarios have been considered in this analysis, including:

. Annexation of lands contained within the Framework for Annexation Agreement, which includes the annexation area lands defined above, except of the Edmonton International Airport.

. Annexation of all proposed annexation area lands defined above.

The resulting population forecasts are summarized below.

POPULATION FORECASTS

BASE YEAR 2045

GEOGRAPHY 2015 CRB HIGH CRB LOW GMSM GMSH

No Annexation

City of Leduc 30,777 68,000 49,600 71,534 76,818

Leduc County 14,990 23,200 19,300 40,225 44,776

Total 45,767 91,200 68,900 111,759 121,594

With Annexation (Entire Annexation Area)

City of Leduc 30,777 65,349 47,215 68,639 73,885

Leduc County 14,990 21,201 18,500 37,989 42,500

Total 45,767 86,550 65,715 106,628 116,385

The employment forecasts are summarized below.

EMPLOYMENT FORECASTS

BASE YEAR 2045

CRB GEOGRAPHY 2015 SQD SQC EDD EDC GMSM GMSH LOW

No Annexation

City of Leduc 16,241 24,630 23,475 27,502 25,695 20,303 26,228 26,946

Leduc County 20,587 43,287 39,832 47,355 43,589 30,479 38,191 42,425

Total 36,828 67,917 63,307 74,857 69,284 50,782 64,419 69,371

With Annexation (Entire Annexation Area)

City of Leduc 16,241 24,397 23,295 27,194 25,386 20,190 25,769 26,482

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EMPLOYMENT FORECASTS

BASE YEAR 2045

CRB GEOGRAPHY 2015 SQD SQC EDD EDC GMSM GMSH LOW

Leduc County 20,587 18,466 17,618 17,334 16,733 14,283 15,686 16,358

Total 36,828 42,863 40,913 44,528 42,119 34,473 41,455 42,840

C.3.a Financial Analysis Growth Scenarios

The financial analysis has been completed for each of the scenarios. The reporting of financial results has used the CRB Status Quo Dispersed scenario (SQD) as a baseline growth forecast as it falls between the higher and lower ends of both the population and employment projections.

. CRB Status Quo Dispersed (SQD): Baseline Growth Scenario . Growth Management Strategy High Diversification (GMSH): High Growth Scenario . CRB Low (CRB Low): Low Growth Scenario

All the other forecasts largely fall within the designed high and low growth projections. In testing the model results against all the scenarios, the financial implications of restructuring also fall within this range.

Details of each Growth Scenario have been documented in a Working Paper available separately.

C.4 Financial Sustainability

Both the City of Leduc and Leduc County are currently in good financial health. Compared to their peers, both the City and County are average or better than average for all key financial indicators. A complete picture of financial sustainability is provided in a report - Leduc Restructuring Analysis: Financial Analysis (DRAFT) - provided as a companion document to this summary.

D. Financial Implications of Restructuring

The results of the financial analysis of restructuring is provided below. In addition, the key assumptions that have been incorporated in this analysis are summarized. Details of this analysis, assumptions used in the analysis and results are provided in a report - Leduc Restructuring Analysis: Financial Analysis (DRAFT) - provided as a companion document to this summary.

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D.1. Economies of Scale in Delivery of Municipal Services

In reviewing the potential impacts of restructuring on the operations of both the City of Leduc and Leduc County, a number of areas for the potential benefit of combining service delivery overheads have been identified.

D.1.a City of Leduc Operating Expenditures

The estimated overhead savings identified for the City of Leduc include the following:1

. Bylaws Enforcement: 20% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $65,000 per year.

. Common Equipment Pool: 2% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $75,000 per year.

. Council & Legislative: 40% savings in fixed costs estimated based on a reduction in the total cost of administrative support to Council meetings and related expenses. Savings equivalent to $120,000 per year.

. Family & Community Support: 10% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $25,000 per year.

. General Administration: 5% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $460,000 per year.

. Land Use Planning: 10% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $260,000 per year.

. Parks & Recreation: 2% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $115,000 per year.

. Roads, Streets, Walks, Lighting: 10% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $150,000 per year.

Total savings associated with operating efficiencies are estimated to total $1.3 million for the City. This represents approximately 1.7% of the City’s 2015 operating expenses. It is expected that the estimated savings represent a conservative estimate of the potential savings that could be achieved with restructuring.

1 Note that the savings are reflective of a reduction in overhead costs that could be saved through restructuring and do not impact on the variable costs of delivering services.

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D.1.b Leduc County Operating Expenditures

The estimated overhead savings identified for the Leduc County include the following:2

. Bylaws Enforcement: 20% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $6,000 per year.

. Council & Legislative: 40% savings in fixed costs estimated based on reduced cost of administrative support to Council meetings and related expenses. Savings equivalent to $225,000 per year.

. Family & Community Support: 10% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $50,000 per year.

. General Administration: 5% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $400,000 per year.

. Land Use Planning: 5% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $130,000 per year.

. Parks & Recreation: 2% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $30,000 per year.

. Roads, Streets, Walks and Lighting: 3% savings in fixed costs estimated based on overhead savings associated with the management and operations of this function area - $280,000 per year.

Total savings associated with operating efficiencies are estimated to total almost $1.0 million for the County. This represents approximately 1.6% of the County’s 2015 operating expenses. It is expected that the estimated savings represent a conservative estimate of the potential savings that could be achieved with restructuring.

D.1.c Phase-In of Operating Expenditure Savings

In the Restructure Scenario financial analysis, it has been assumed that the potential benefits associated with reduced operating expenditure overheads would be phased in over time.

. Year 1-5: It is assumed that 80% of the potential overhead cost savings would be phased in equally over the period 2016-2020 and reach 80% of the maximum savings identified above.

. Year 6-25: The remaining 20% of operating expenditure savings have been assumed to be achieved over the remained of the 25-year forecast period, reaching 100% by 2040.

2 Note that the savings are reflective of a reduction in overhead costs that could be saved through restructuring and do not impact on the variable costs of delivering services.

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It is expected that phasing in of the potential operating expenditure benefits of restructuring as defined above is both realistic and conservative.

D.1.d. Capital Expenditures

In addition to the potential operating expenditure savings associated with restructuring, it can be expected that some savings on capital expenditures could also be achieved. This would result from combining tenders for projects that would otherwise be undertaken separately by the City and County, as well as the sharing of expenditures on equipment and software that would be possible in a restructured municipality. These savings vary from a benefit of 5% of capital costs for selected major road and other infrastructure projects and a saving of up to 50% for selected software and studies that would be conducted for a single restructured municipality.

In addition, there are some major capital projects that have been identified where there would be the potential for cost savings in the Restructure Scenario. These are projects that have been assumed to be required in the long term and without restructuring would be completed independently by both the City and County. These include the following:

. City/County Hall Upgrade: It is assumed that both the City and County will require to upgrade their respective civic offices during the forecast period. In the Restructure scenario, it assumed that these costs would be combined and shared resulting in a net saving in the Restructure Scenario.

. Municipal Operations Facility: It is assumed that both the City and County will require to upgrade their respective municipal operations facilities during the forecast period. In the Restructure scenario, it assumed that these costs would be combined and shared resulting in a net saving in the Restructure Scenario.

. New Recreation Facility: It is assumed that both the City and County will require to develop new recreation facilities. This includes the development of a New Major Recreation Facility in the developing west area of the City of Leduc and that Leduc County would build a New Major Recreation Facility to service East Vistas and development in and around Nisku. In the Restructure scenario, it assumed that some programming costs would be combined and shared resulting in a net saving in the Restructure Scenario.

It is expected that the estimated savings for new combined facilities and services represent a conservative estimate of the potential savings that could be achieved with restructuring. It is likely that following restructuring a rationalization of municipal service delivery will be evaluated resulting in the identification of additional future capital projects that could be developed jointly, resulting in additional savings.

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D.2. Operating Revenues

In the Restructure Scenario, there would be a requirement to consider harmonizing charges for various services provided by the new municipality. This may have the following implications for some operating revenues.

. User Charges: In the financial analysis of the Restructure Scenario, it has been assumed that the user fees and charges currently levied by the City and County would remain in place over the forecast period. It is noted that City has a wider array of fees and charges for various items. Over time, it can be expected that these user fees and charges would be harmonized. It may be possible that this would result in the application of user fees and charges in the RSA that the County of Leduc does not charge for. As a result, it is likely that additional operating revenues would be received in the Restructure Scenario than captured in the financial analysis.

. Business License: The financial analysis of the Restructure Scenario assumes that businesses in the USA would be charged for a business license as currently the case for the City of Leduc. Similarly, it has been assumed that businesses in the County would continue to not be charged for a Business License. It is likely that restructuring would result in a consistent business license policy resulting in all businesses in the newly restructured municipality being licensed. This would result in an increase in operating revenues that have not been captured in the financial analysis.

. Franchise Fees: It has been assumed that existing utility franchises would continue as currently exist in both the City and County. It can be expected that over time these franchises would evolve which may have a financial implication for the restructured municipality that is not captured in the financial analysis.

It has been assumed that all other revenue generating activities, including the collection of fines, sale of assets, rentals, investment income and other revenues would continue to be generated in the restructured municipality as currently is the case in both the City and County.

D.3. Assessment and Taxation

There are two issues relating to assessment and taxation that were considered in the Restructure Scenario:

1. Assessment Services: Currently the City and County have a different approach to assessment, with the City contracting this service and the County delivering the service in- house. It has been assumed that combining assessment services and delivering these services in-house in the restructured municipality would be neutral. This would ensure that consistent assessment practices are applied across the newly restructured municipality and a consistency of historical assessment practices.

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2. M&E Taxation: Currently the County assesses and taxes machinery and equipment assessment. The City has a small amount of M&E assessment, that could be taxed (or not) with a small impact to the restructured municipality.3 As a result, it is assumed that all M&E is assessed and taxed in the restructured municipality.

D.4 Impacts of Restructuring

The impact of the Restructure Scenario has been measured as the change in municipal tax rates in this option as compared to the Baseline Financial Forecast for each municipality. If municipal tax rates are lower in the Restructure Scenario, this represents a tax benefit. Based on the analysis, it is projected that both the City of Leduc and Leduc County ratepayers would see a reduction in their municipal tax bill as a result of restructuring. This benefit is expected to increase gradually over the first fine years following restructuring and yield larger benefits over the medium and longer term as the operating benefits are phased in and opportunities for cost sharing on capital projects occur.

Municipal Tax Reduction (Benefit) - Restructure Scenario vs. Baseline Financial Forecast4

3 It is noted that while there is a negligible impact of taxing M&E in the City to the City, there would be an impact to the ratepayers affected by this policy change. As a result, it may be considered by the Council of the Restructured municipality to allow for tax forgiveness for this assessment, or some alternate solution that would allow for a reasonable transition of this policy for the affected ratepayers.

4 This analysis uses the Status Quo Dispersed Growth Scenario.

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City of Leduc ratepayers are projected to experience an average annual reduction in their municipal tax bill of 3.7%. In the short term, 2016 - 2025, this benefit averages 2.2% per year. The benefit of the Restructure Scenario as compared to the Baseline Financial Forecast for the City ranges from a 0.8% reduction in municipal taxes in 2017 to a 5.6% reduction in municipal taxes by 2040.

Leduc County ratepayers are projected to experience an average annual reduction in their municipal tax bill of 2.3%. In the short term, 2016 - 2025, this benefit averages 1.3% per year. The benefit of the Restructure Scenario as compared to the Baseline Financial Forecast for the City ranges from a 0.4% reduction in municipal taxes in 2017 to a 3.7% reduction in municipal taxes by 2040.

D.4.a. Financial Savings - Restructure Scenario vs. Baseline Financial Forecast

The benefit of restructuring in terms of financial savings that would accrue to each municipality is summarized in the figure below.

Municipal Tax Reduction (Benefit) - Restructure Scenario vs. Baseline Financial Forecast5

The financial benefit to the City of Leduc in the Restructure Scenario as compared to the Baseline Financial Forecast is significant. Over the forecast period (2016-2040), the average annual savings to the City is estimated to be $2.4 million. In the short term (2016-2025), the average annual financial saving to the City is estimated to be $1.2 million.

5 This analysis uses the Status Quo Dispersed Growth Scenario.

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Leduc County is also expected to receive a financial benefit in the Restructure Scenario as compared to the Baseline Financial Forecast. Over the forecast period (2016-2040), the average annual savings to the City is estimated to be $1.7 million. In the short term (2016-2025), the average annual financial saving to the City is estimated to be $0.8 million.

D.4.b Interpretation of Financial Implications of Restructuring

It should be recognized that all benefits of restructuring have been attempted to be reduced to a financial impact. In reality, it can be expected that some of these benefits would be revealed through improved productivity or service improvements that may not directly reduce the cost of delivering services.

D.4.c One Time Restructuring Costs

In addition to the potential savings that could be achieved from restructuring, it is recognized that there will be some additional one-time costs required to implement the option. The magnitude of these costs is not known and will be dependent upon various factors. However, given the magnitude of financial savings expected from restructuring, it is expected that these one-time costs associated with implementing restructuring could be funded through savings from the first two years. Between 2017 and 2018, the total financial benefits of restructuring are estimated to total approximately $1.8 million. If the one-time costs of restructuring are under $2 million, the benefits (on a net basis) would not be achievable until 2019.

D.5. Sensitivity of Restructuring Benefits to Alternate Growth Scenarios

The Restructure Scenario has been compared to the Baseline Financial Forecast for each of the seven Growth Scenarios defined above. The results of this analysis are presented for the extreme high and low projections and compared to that for the Status Quo Dispersed Growth Scenario results (presented above).

Average Annual Benefit of Restructure Scenario (Tax Rate Reduction) City of Leduc Leduc County CRB High/Status 3.7% tax rate reduction 2.3% tax rate reduction Quo Dispersed This is the result for the scenario This is the result for the scenario presented above. presented above.

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Average Annual Benefit of Restructure Scenario (Tax Rate Reduction) City of Leduc Leduc County Growth 3.5% tax rate reduction 1.9% tax rate reduction Management Strategy High This scenario includes additional This scenario includes significantly Diversification growth for the City and operating more urban residential and non- and capital expenditures residential growth for the County. As associated with this growth. The a result, the financial base against impact of restructuring is which the restructuring benefits are somewhat smaller as a percent compared is significantly larger, reduction in municipal tax rates resulting in a lower net change in because essentially the same municipal tax rates. benefits are spread over a somewhat larger cost base. CRB Low 3.8% tax rate reduction: 2.5% tax rate reduction: In this Significantly lower growth for the scenario, there is a significantly lower City results in lower operating and amount of growth. This forecast does capital expenditures. The benefits not contemplate the growth of East of restructuring are largely the Vistas. As a result, the costs same as the base growth scenario associated with growth and resulting in these benefits being development of this urban residential spread over a smaller financial area are not include in the Baseline base, increasing the net tax rate or Restructure Scenario. Similarly, reduction. there is a smaller amount of non- residential growth. As a result, the financial base against which the Restructure Scenario municipal tax rates is compared is smaller, resulting in a larger net change.

In reviewing the implications of growth on the estimated net benefits of restructuring, the following conclusions are evident:

. Restructuring is expected to have a net benefit to both the City and County across the range of Growth Scenarios considered in the analysis.

. Generally, as growth is faster, the net benefit as measured by a net change in municipal tax rates is somewhat lower due to a larger financial base against which this benefit is measured.

. As growth is slower, generally the net benefit as measured by a change in the municipal tax rate is somewhat higher due to a larger financial base against which this benefit is measure.

. Overall, the impact of the wide range of growth has a minor impact on the resulting benefits of restructuring.

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D.5.a. Impact of Edmonton’s Proposed Annexation

The impact of Edmonton’s proposed annexation on the financial position of both the City of Leduc and Leduc County is not known. While a framework for annexation has been agreed to by the City of Edmonton and Leduc County, this covers only those lands in Edmonton’s proposed annexation area excluding the airport. While the framework defines lands to be annexed, the details of any financial considerations associated with the annexation of these lands is unknown.

The status of the airport is even more uncertain, as it has not been agreed in principle that Leduc County is in favour of Edmonton’s annexation of airport lands. In addition, the City of Edmonton, Leduc County, City of Leduc and Edmonton Airports are currently engaged in discussions regarding annexation and the financial implications thereof.

For the purposes of restructuring, several general annexation scenarios have been considered to estimate their impact on the Restructure Scenario results.

. Annexation Framework Area (excluding the EIA): This scenario assumes that all lands, excluding the EIA are annexed by Edmonton. No long term financial considerations emanating from annexation are assumed to be received by Leduc County in this scenario.

. Annexation Framework Area + EIA where the existing municipal financial relationship of Leduc County and City of Leduc with the EIA is grandfathered (no change from the without annexation of the EIA scenario): All future incremental revenues and costs associated with development at the airport are assumed to be the responsibility of Edmonton.

. Annexation Framework Area + EIA where all the existing and future municipal revenues and costs: All future incremental revenues and costs associated with development at the airport are assumed to be the responsibility of Edmonton. In this scenario, Edmonton would assume full responsibility for delivering municipal services to the EIA and receive all the municipal tax revenues.

Annexation of the Framework Area has a negligible impact on the Restructure Scenario results for both the City and County. Similarly, including the EIA in the annexation area but grandfathering the current financial relationships with both Leduc County and City of Leduc also has a negligible impact on the results of the Restructure Scenario.

When annexation of the EIA does not grandfather the existing financial relationship with both Leduc County and City of Leduc, the benefits of restructuring increase for the County, from a base annual reduction in municipal tax rates of 2.3% (average 2016-2040) to 3.6%. Losing the financial benefit of the EIA increases the importance of the benefits of Restructuring.

Similarly, the City of Leduc would see an increase in the benefits of restructuring as measured by a reduction in municipal tax rates, increasing the average annual benefit of 3.7% (2016-2040) to 4.3%.

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D.6. Other Sensitivity Analysis Results

Various other sensitivity analyses have been conducted to test the Restructure Scenario results to changes in key assumptions in the analysis.

. Long Term Infrastructure Costs +20%: An estimate has been made of the long-term capital costs associated with the maintenance of existing and newly acquired assets. While significant costs have been included in the analysis in an attempt to reflect the full cost of maintaining each municipalities infrastructure over the forecast period, the actual value of these costs is unknown. To test the impact of the assumed recapitalization cost of assets, a sensitivity has been conducted increasing the cost of each life cycle cost element by 20%.

. City of Leduc: Restructuring benefits reduced from an average annual municipal tax rate reduction of 3.7% to 3.4%.

. Leduc County: Restructuring benefits reduced from an average annual municipal tax rate reduction of 2.3% to 2.1%.

. Excluding New City/County Hall: It has been assumed that both the City and County would require a new municipal building to accommodate growth within the forecast period. The Restructure Scenario assumes that the cost of this facility could be shared resulting in a net saving to both municipalities. This sensitivity illustrates the benefit of combining the development of facilities that could be shared in restructuring, or alternatively the opportunity cost of not restructuring and sharing these benefits.

. City of Leduc: Restructuring benefits of not developing a joint City/County Hall will reduce the average annual municipal tax rate reduction of 3.7% to 3.1%.

. Leduc County: Restructuring benefits of not developing a joint City/County Hall will reduce the average annual municipal tax rate reduction of 2.3% to 1.6%.

. Including Joint Fire Services in Municipal Restructuring: It has been assumed in the analysis that the City and County will negotiate an arrangement to delivery fire and emergency services jointly, independent of what happens with municipal restructuring. As a result, the joint delivery of fire services does not represent an opportunity for savings with municipal restructuring, but is assumed to occur with (or without) municipal restructuring.6 Given this assumption, delivery fire and other emergency services jointly does not bear on the municipal Restructure Scenario financial analysis results. If however, joint delivery of fire and emergency services doesn’t happen, municipal restructuring would result in some form of joint fire and emergency services delivery. Based on assumptions regarding the merging of these services, it is estimated that there would be a net benefit of jointly delivering fire services to both the City and County as follows:

6 In the Restructure Scenario analysis, it has been assumed that the costs and revenues associated with fire and other emergency services would remain unchanged from current levels. As a result, the joint delivery of these services contributes nothing to the Restructure Scenario financial results.

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. City of Leduc: Restructuring benefits reduced from an average annual municipal tax rate reduction of 3.7% to 5.3%.

. Leduc County: Restructuring benefits reduced from an average annual municipal tax rate reduction of 2.3% to 2.4%.

D.7. Financial Sustainability with Restructuring

Given that restructuring has a net financial benefit to both the City and County, it is concluded that the viability of a combined municipality as defined in the Restructure Scenario result in a stronger municipality. This is evidenced by the following:

In addition to the direct financial benefits the Restructure Scenario provides additional benefits that result from a greater diversity of the assessment base making the restructured municipality less susceptible to changing economic circumstances. Additionally, the location of non- residential development in the Leduc sub-region will be shared in the Restructure Scenario. This means that both municipalities will benefit from this development through restructuring.

Finally, a restructured municipality will better equipped to sustain stresses from external factors, as demonstrated from the sensitivity analysis. The implications of Edmonton’s annexation are better accommodated through restructuring by spreading the benefit and/or cost across a larger municipal base.

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