City ‘carefully’ watching inflation impacts on capital projects

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An “extraordinary bump” in inflation prompted city staff to reorganize funds and restart work to help pay for more expensive capital projects.

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While City Hall says it ‘generally considers’ the impacts of inflation on cost estimates for all projects, a sixth-month capital variance report before Windsor Council this week points to higher inflation. high pushing tenders for several projects over budget.

“Current projects could not have contemplated a rate of inflation that we are currently experiencing,” the report said.

While the emergency funds have been helpful in dealing with “minor to modest price fluctuations…this is no longer the case with some recent results,” the report said.

In response, the city resorted to negotiating with contractors, transferring funds from project reserves and surpluses, pre-committing future financing, re-tendering, and postponing work until that additional funds can be found.

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This report…really scared me

According to Statistics Canada, the country’s consumer price index for April was 6.8%, “far exceeding the Bank of Canada’s inflation target of 1-3%,” the report said. Additionally, non-residential building costs increased by more than 17% in the first quarter of this year.

“When you look at this report, it really scared me,” Ward. 1 Conv. Fred Francis said at Monday’s board meeting. “You talk about postponing work.”

Anticipating that 2023 “is not going to be a particularly good fiscal year,” Francis asked how city staff plan to limit the impacts of inflation going forward, “apart from deferring work.”

Joe Mancina, the city’s chief financial officer and commissioner of business services, said Windsor has responded to recent overbudget tenders through the Inflationary Pressures Capital Budget, which has funds. With this fund, additional funds from reserves and funds reallocated from surpluses from other projects, “we have been able to deal with this on a continuous and regular basis.”

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Mancina, who called some of the current inflationary issues unique, said the city hopes “this is not something that will go on and on for too long.” With the 2023 capital budget discussions underway, “we will be looking at some strategies, similar to what we have done in the past, in terms of mitigating against (inflation).”

One such strategy could be to inflate the city’s inflationary pressures emergency project account, “so that we don’t necessarily have to postpone capital projects,” he said.

The administration doesn’t have an immediate solution, he said, but “we were able to fill it in the short term.” In the long term, “if this continues for an extended period, it will pose challenges.

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“We are watching (inflation) very carefully. We monitor it. As we approach the fall and the capital budget, we will certainly come back to the board with strategies on how to manage this to allow us to balance the work that continues to be done, but also to ensure that we have enough resources.

The city does not expect relief funding from higher levels of government to meet the high costs of inflation, Mancina said. However, he has received “some indications” that pandemic relief funding for transit and social services is on the way.

Municipal relief funding to address pandemic shortfalls incurred in tunnel and airport operations, among others, has yet to be affected.

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Long-term funding agreements pose an additional risk that staff continue to monitor, the report said. While the approval of several longer-term grants has allowed the city to expedite some “needed work,” grant amounts “tend to be fixed.”

Inflation will require additional city funding to ensure these projects are completed, according to city staff.

The city currently has 597 open and/or active capital projects with total budgeted expenditures of approximately $1.4 billion. Eight of them have an estimated combined deficit of $907,177, while 28 have a combined surplus of about $7 million.

The remaining 561 capital projects are expected to be completed within budget.

tcampbell@postmedia.com

twitter.com/wstarcampbell

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