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Capital Grant Allocation Wind Up

Capital Grant Allocation Wind Up. By: Financial Analysis and Accountability Branch Date: September 2010. Purpose. To provide an update on changes on capital funding leading to implementation of the Capital Wrap Up template. Background.

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Capital Grant Allocation Wind Up

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  1. Capital Grant Allocation Wind Up By: Financial Analysis and Accountability Branch Date: September 2010

  2. Purpose • To provide an update on changes on capital funding leading to implementation of the Capital Wrap Up template

  3. Background • The Pupil Accommodation Grant (PAG) was one of three major components of the funding model when introduced in 1998 • PAG’s main purpose was to construct new schools and / or construct new additions – key component was the New Pupil Places (NPP) grant • NPP Funding was triggered where enrolment exceeded capacity on a board-wide basis • This funding was then smoothed over 25 years. This was a very effective mechanism for its time since capital was not amortized and budget compliance was on a modified cash basis. • Boards typically long-term financed the capital construction costs and repaid the debt with the 25 year grant allocation stream. • Worked well for boards with enrolment growth

  4. Background • Adjustments have been made to the model in recognition that it did not address all school board realities when only looking at enrolment vs. capacity on a board-wide basis. • Capital grants have been supporting debt of sector (related to NPP, GPL Renewal and other GPL programs) in excess of $8B. These include: • Permanently financed debt (non-OFA) • Permanently financed debt (OFA) • Non-permanently financed debt

  5. Rationale for Change • Funding model no longer generating building $ for most boards: • Most boards are experiencing declining enrolment (model works best for boards with continual growth) • The grant is used mainly for debt support, with very little being generated to support new schools or additions • Complicated model • Funding is variable based on a forecast of enrolment, which has to support fixed costs • Model was introduced at a time of using modified cash basis but the accounting standard is now PSAB. • Boards are bringing their tangible capital assets onto their books and deferred capital contributions reporting is introduced for 2010-11. A simplified model is needed.

  6. Capital Wrap -Up • The ministry received approval to proceed with the wrap-up of the capital grant allocation model in February 2010 • NPP, GPL, and the approved pre-1998 permanently financed capital debt will be wrapped up through a one-time grant that recognizes all the existing capital debt as of August 31, 2010, on approved capital expenditures. This grant will be flowed to boards over the remaining term of their existing capital debt instruments. • The implementation involves: • Determination of the current capital debt of the sector that will be supported through grants • Determination of the pupil accommodation reserves that will be recovered through a grants offset • To calculate the above, a template (Capital Wrap Up template - CWT) has been provided to boards as part of the 2010-11 estimates. • Information in the CWT will be subject to specified audit procedures report by the external auditor.

  7. Legislation Changes • The Ministry has made changes to the 2009-10 and 2010-11 GSN to implement the wrap up through: • A grant that recognizes the principal debt up front, while cash will still flow to match debt payments. This creates a significant one-time appropriation and payable in the government books. • 2009-10 GSN Regulation Changes • New section (section 57.1 – Capital debt), determines capital debt (net of reserves) that will be recognized for grant purposes • Section 8 – Payments, has been amended to allow for payments of the capital debt grant over the remaining debt schedule • Section 13 – Grants, has been amended to include the capital debt grant • 2010-11 GSN Regulation implements capital funding entitlement based on projects/or program expenditures rather than on a 25 year long term financing approach. *This excludes administrative buildings, childcare spaces and land costs that are EDC’able

  8. Printed Estimates The 2010-11 Printed Estimates for the Government of Ontario reflect an appropriation of $8.6B: *This excludes administrative buildings, childcare spaces and land costs that are EDC’able 7

  9. Unsupported Debt • Review of capital projects and related debt of school boards through the CWT determines projects/capital debt that are not supported through capital programs, such as: • EDC projects • Projects supported through school renewal grant (as well as any operating grants) • School boards have encumbered future school renewal grants totalling approximately $350M • There are 3 main reasons for why boards encumbered renewal: • Undertaking retrofit projects in anticipation of operating costs going down in the future • Cost over-runs on NPP projects • Boards who are not NPP eligible that still wanted to undertake new school construction

  10. Reserves • Consistent with picking up the school boards’ capital related debt, the ministry will recover NPP related funding provided to boards that are in reserves (Internal reserves or deferred revenue) • This reserve was set aside by boards for future debt repayment which no longer exists as the Province will cash flow to the board an annual amount to support their debt repayments.

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