Policy on Long-term Capital Plans

1. Effective date

This document contains the policy as revised June 1, 1994.

2. Policy objectives

• To retain or acquire only the essential assets required to deliver government programs efficiently;
• To manage the existing asset base effectively and make appropriate changes to it within available resources; and
• To provide a rational context for resourcing considerations and project approvals.

3. Policy statement

It is government policy that capital assets be

• acquired, improved, and retained;
• in support of program goals consistent with broader government objectives;
• based on long-term plans that outline a responsible investment program within available resources and that take into account managing the asset base on a life-cycle basis;
• justified and approved, through capital projects, in the context of long-term plans; and
• disposed of, as being surplus, when they are no longer required.

4. Application

This policy applies, in general, to departments listed in Schedules I and II of the Financial Administration Act. However, only those departments and agencies listed in Policy Appendix A, or others identified by the Treasury Board, are required to submit long-term capital plans for consideration by the Board.

5. Policy requirements

1. Departments must plan the management and investment in their capital assets, over the longer term, based on adequate information on the state and best use of their asset inventory with due consideration given to the life cycle management of the asset base:

2. The Long-term Capital Plan (LTCP) is a management tool intended to assist departments in the overall management of projects and the capital assets that support their programs. It can also serve in establishing an accord with the Treasury Board with respect to the management of the capital base. Departments, in developing capital plans, should consider the impact of other departmental strategies such as those contained in their information management plans and any long-term accommodation plans. In arriving at appropriate plans and projects to implement those strategies, departments should base their decisions on the full costs of the preferred options, including both capital and ongoing operating expenditures, and the projected full costs of alternatives. Departments should make a strategic investment decision by making a relative comparison of the fully costed options that have been identified as meeting program requirements.

3. For those departments listed in Policy Appendix A, or others as specifically identified by the Treasury Board, the LTCP provides Treasury Board ministers with the opportunity to review the department's capital priorities and strategies. It also allows the ministers to review any significant issues with respect to the asset base and resource levels that either the Treasury Board of Canada Secretariat or the department wishes to raise. The LTCP provides the context for Treasury Board decisions about appropriate funding levels for departmental capital programs and individual project approvals.

4. The LTCP is to be prepared in two parts. Part 1 sets out the department's proposed capital priorities and strategies over a period of at least five years, and Part 2 outlines proposed funding profiles and project activity. The project funding estimates in the LTCPs must, in aggregate, relate to departmental reference levels and any proposed changes. The relationship of individual projects to the capital asset strategies specified in the LTCP and to the department's goals and objectives must be shown.

5. Basic content requirements for LTCPs are outlined in Appendix B. Departments are encouraged, upon consultation with their Treasury Board analyst, to make use of existing internal documentation to meet these information requirements.

6. LTCPs are intended to include all capital expenditures as defined in the Glossary to this volume and any operating expenditures (like leases) where these expenditures are used to acquire the long-term use of a capital asset.

7. Departments should also indicate any changes to ongoing operating and maintenance (O&M) expenditures associated with capital strategies or individual projects listed in the LTCP. Any revenue implications (both vote-netted and revenues accruing to the Consolidated Revenue Fund) associated with the proposed capital strategy should also be highlighted.

8. Part 1 of an LTCP must set out the proposed capital priorities and strategies, for a planning horizon of at least five years. It outlines proposed capital asset and expenditure priorities, clearly indicating linkages to program results, and specifies how the department intends to implement the stated priorities. Departmental priorities and implementation strategies must be established within the context of approved resource levels and broader government-wide priorities. Significant issues with respect to the department's asset base or proposed priorities with resource implications should be highlighted.

9. Part 2 of the LTCP provides information on the concrete plans and associated funding levels the department has developed to implement the priorities outlined in Part 1. Annual updates of Part 2 must be submitted along with the fall multi-year operational plan (MYOP). A new planning year must be included with each update in accordance with MYOP procedures. Alternate timing for the submission and the time-span of the LTCP may be negotiated with the Treasury Board of Canada Secretariat. The updated LTCP provides justification for the department's proposed future year reference levels.

10. Sponsoring departments are responsible for the cash management of projects within their approved program so that the aggregate cash flow remains within the department's approved reference levels. If the department has exhausted all internal measures to contain deviations within approved reference levels, it should consult with its Program Branch analyst at the earliest opportunity regarding the possibility of reprofiling capital funds.

11. Departments may choose to use the LTCP to seek specific Treasury Board approvals. For example, departments may seek Treasury Board approval for individual projects or groups of projects through their LTCP Part 2. When reviewing or proposing a capital project for approval, departments must consider and describe the relationship of the project to their capital priorities and their goals and objectives. Where Treasury Board project approval is being sought, the level of detail and completeness of the information provided must meet the requirements set out in the Treasury Board Project Approval policy.

12. Departments may also propose certain policy exemptions and tailored delegation authorities for particular types of projects within the LTCP. Increased delegations would be considered in those instances where the Treasury Board has agreed with the importance the department attaches to a particular priority and that priority will be realized through a series of similar projects within the context of a specific management framework.

6. Monitoring

The Treasury Board of Canada Secretariat will use the following criteria to assess departmental performance in meeting the objectives of this policy:

• consistency between capital strategies developed in the LTCP and all other government objectives, including those related to expenditures in general and expenditures associated with the government's capital stock in particular;
• consistency between broad capital strategies contained in the LTCP and projects proposed for approval within the context of the LTCP; and
• compliance with the information requirements provided for in this policy, including the timeliness of submissions and the quality of the information provided. Quality is considered to cover such aspects as completeness, accuracy, and ease of understanding.

7. References

This policy on Long-term Capital Plans replaces Treasury Board Circular 1983-25, dated May 1, 1983, on the Approval of Capital Projects and Long-term Capital Plans. It is issued under the authority of section 7 of the Financial Administration Act. It should be read with the other chapters in this volume and other policies, particularly those dealing with Risk Management, Materiel Management, Information Technology Management, Contracting and Common Service Organizations, and Real Property Management.

8. Enquiries

Policy Interpretations

Please direct enquiries about this policy to your departmental headquarters. For interpretation of this policy, departmental headquarters should contact:

Submissions

For questions relating to particular details of the LTCP or specific projects, departments should contact their analyst within Treasury Board of Canada Secretariat Program Branch and, as appropriate, their specialist analyst in the Real Property and Materiel Policy Directorate or the Office of Information Management, Systems and Technology.

Appendix A - Departments and Agencies Required to Submit a Long-term Capital Plan

Note: Treasury Board may also require other departments to submit an LTCP for approval.

Agriculture and Agri-Food Canada
Canadian Heritage
Canadian Space Agency
Correctional Service Canada
Department of Foreign Affairs and International Trade
Environment Canada
Fisheries and Oceans Canada
Public Works and Government Services Canada
Health Canada
Human Resources Development Canada
Indian Affairs and Northern Development Canada
Industry Canada
National Defence
National Research Council Canada
Natural Resources Canada
Royal Canadian Mounted Police
Transport Canada
Veterans Affairs Canada

Appendix B - Content of a Long-term Capital Plan

Introduction

The purpose of this policy appendix is to provide departments with the basic requirements for a Long-term Capital Plan (LTCP). An LTCP must be designed to reflect the department's mandate, programs, and structure in a manner that is meaningful to departmental management. For that reason, apart from the broad general sections of the plan outlined here, no specific format is required. Departments may wish to discuss with the Treasury Board of Canada Secretariat whether existing internal documents will fulfil requirements for an LTCP.

Part 1: The department's proposed capital program priorities and strategies

The purpose of Part 1 is to establish the department's capital asset priorities and strategies over a longer time frame, normally five years. It should be developed on the basis of existing resource levels and a realistic assessment of the department's asset base, as well as departmental and known government-wide priorities.

Part 1 must clearly relate these capital priorities and strategies to the department's overall objective and its intended program results. The presentation of the department's capital program (including investment and disposal initiatives) should be high level and concise, yet comprehensive in scope.

Part 1 must be submitted at least once every five years or more frequently when warranted by significant changes in either priorities or funding levels. Part 1 must contain an overview of the following:

• certain baseline data, including capital expenditures as defined in the Glossary and any operating expenditures (like leases) where these are used to acquire the long-term use of a capital asset;
• the proposed capital program priorities over the planning horizon and how these are linked to the department's program activities, results, and broader departmental priorities;
• how the proposed capital priorities will be realized;
• any formula-driven expenditures (e.g. fleet replacement at a given rate of x units per year);
• any standards (e.g. square metres per person) that relate to capital procurements;
• any trade-offs related to capital requirement priorities that have been made; and
• any significant issues related to the department's capital program over the planning period, including funding shortfalls and the impact of any such shortfall on program objectives.

Part 2: Proposed funding profiles and project activity

Part 2 of the LTCP translates the department's capital priorities and strategies into a detailed project listing and associated expenditures. The level of proposed resources in the plan must be explained and linked to priorities.

Part 2 must be submitted annually together with the fall multi-year operational plan (MYOP). Alternate timing for the submission may be negotiated with the Treasury Board of Canada Secretariat. Part 2 consists of two sections as described in the following paragraphs.

Part 2, section 1 - proposed LTCP funding levels

This section provides the following:

1. The proposed level of funding for the Plan. In this instance, funding refers to capital expenditures as defined in the Glossary and any operating expenditures (like leases) where these are used to acquire the long-term use of a capital asset. To support this, proposed expenditures should be broken down by appropriate categories. Examples include the following:

• the program activity structure;
• capital and operating dollars;
• class of asset (such as real property, equipment, information technology);
• program priority (expenditures to meet each program priority);
• replacement or refurbishment of the existing asset base and new assets (i.e. expansion of the capital asset base);
• existing capital base and incremental funding requested; and
• expenditures by region (if appropriate, available, and sufficiently reliable).

2. The relationship between the capital strategies proposed in Part 1 and the requirement for operating resources. This should include changes to lease or rental costs as well as the impact on the operating base of acquisitions and disposals; and

3. Justification of any proposed incremental LTCP funding.

Part 2, section 2 - project activity

This section provides an overview of the intended project activity within proposed reference levels consistent with the priorities identified in Part 1. This information is required to justify the proposed reference levels and consists of the following:

• a listing of projects and groups of similar or related projects that have already received at least preliminary approval, including current approval status (both internal to the department and by Treasury Board), total estimated project costs, and the most current forecasts of cash requirements. Details concerning the grouping of projects and information requirements are to be determined through negotiation with the Treasury Board of Canada Secretariat by each department. In general, most projects approved internally are expected to fit within a very small number of groups for LTCP reporting purposes;
• a description of projects and groupings of similar or related projects, complete with total estimated project costs and cash flow requirements, that are being put forward within this section for the purposes of approval by Treasury Board; and
• brief descriptions of planned projects and groups of projects that have received at least initial approval within the department and that will require separate consideration by Treasury Board.

For the latter two sets of projects, financial information should be provided to indicate the impact of the project on the ongoing departmental operating and maintenance expenditures. For real property projects, this would include grants in lieu of taxes. This includes any changes to lease or rental costs, implications of acquisitions and disposals, and the impact of productivity improvements arising from capital expenditures. Finally, where there are revenue implications (both vote-netted and revenues accruing to the Consolidated Revenue Fund) associated with projects, they should be highlighted.

The descriptions of projects proposed for approval and planned projects must identify the linkages with the departmental priorities defined in Part 1. The data on planned projects are submitted to the Treasury Board of Canada Secretariat for its information and to support, in aggregate, proposed future year reference levels. To facilitate the presentation of information, departments are encouraged to adopt a database approach to capturing, storing, revising, and reporting the resource and project information required to prepare their LTCPs.

When Treasury Board project approval is being sought, the level of detail and completeness of the information provided must meet the requirements of the Treasury Board Project Approval policy.

Appendix C - Example of a Long-term Capital Plan

This example is intended to be illustrative only. Departments, in meeting the requirements set out in Appendix B, should develop an information display that is meaningful to departmental management.

Department of National Infrastructure
Long-term Capital Plan
1993-94 to 1997-98
Part I
Departmental Strategies and Priorities

The Department of National Infrastructure is responsible for ensuring that the infrastructure is in place across Canada to support a safe and reliable transportation system either by air, surface transport, or through navigable national waters. In support of this mandate, the department has, under its control, assets with a replacement value amounting to some $40 billion, including airports, the Marine Transport and Rescue fleet, air and marine navigational aids, and the Trans-Canada Highway.

Of the total asset base, $25 billion is devoted to the national air transportation system and includes such capital assets as airports, surrounding land, associated infrastructure, and air navigational aids and equipment, including snow removal and fire fighting equipment situated at airports.

A further $10 billion of the base is devoted to the Navigable Waters Program to ensure that national waters are safe and navigable. Of this amount, $5 billion is for the existing Marine Transport and Rescue fleet and $5 billion for navigational aids and supporting machinery and equipment, such as automated buoys.

The balance of the asset base, $5 billion, belongs to the Land Infrastructure Program and includes the roads and bridges comprising the Trans-Canada Highway system and all equipment necessary to maintain it.

In terms of annual expenditures, Annex A shows last year's capital expenditures by activity and by major asset group. In recent years, the department's capital expenditures have been driven by two primary factors. The first, external to the department, are clients' demands for the department's services. This includes, for example, demands for ferry services to the province of Newfoundland and increasing traffic at international airports. Additional spending over the planning horizon will be required to meet these external demands if reasonable service levels are to be continued. In addition, the department has been attempting to slow down and, if possible, reverse deterioration of the existing capital stock. This rustout is most noticeable in the areas of roads and bridges and the Marine Transport and Rescue fleet. The department will address the issue of roads and bridges internally. For the Marine Transport and Rescue fleet, the department is in the process of developing a reasoned approach to replacing it that will involve rationalizing active use schedules, decommissioning certain ships, and obtaining the agreement of the Treasury Board to replace the remaining ships on a regular basis over the next 20 years. It is currently expected that the department will be approaching the Treasury Board with a formal plan for the Marine Transport and Rescue fleet within the next two years.

The department's primary program priority over the planning horizon is to ensure that the required infrastructure is in place to allow the department to fulfil its mandate to provide a safe and reliable national transportation system. This infrastructure includes not only buildings and equipment but also trained and motivated staff and a viable information gathering and sharing network. This overall program priority has been subdivided into three strategic objectives that the department will be pursuing over the next five years. These strategic objectives are further explained in the 1993-94 MYOP Program Memorandum.

These strategic objectives form the backdrop against which the department's capital priorities, addressed in greater detail below, have been developed. The strategies that the department will be adopting in pursuing these priorities are described later in this section.

The department intends to pursue five capital priorities over the next five years. The LTCP has been constructed with those priorities in mind.

The first is to ensure that all constitutional entitlements in which this department has a role to play are fulfilled in a reasonable manner. More specifically, one of the critical and most non-discretionary objectives of this department is providing the transportation links to the province of Newfoundland promised as a condition of confederation. Certain aspects of these links are falling into disrepair and are being overused. These problems must be urgently addressed.

The second capital priority is to ensure that urgent safety concerns are addressed. While this crosses all three program areas of the department - land infrastructure, air, and navigable waters - initial priority will be placed on addressing the concerns identified in the land infrastructure program. This is where the greatest potential hazards to the travelling public have been identified. The primary program result of these expenditures will be the safer movement of people and goods across Canada.

The third capital priority is to increase the efficiency of the national air traffic network by eliminating the causes of slowdowns and backups at the Western hub of air traffic in Canada. With deregulation, four regional air traffic hubs have developed, all served by the major airlines and smaller regional carriers. To contribute to the program result of supporting and promoting the competitiveness of the Canadian airline industry, it is essential that the Western hub be upgraded to minimize the diversion of passenger traffic to the United States.

The fourth capital priority is investing in new information technologies to reduce administrative overhead costs. These can be reallocated internally to meet emerging funding pressures. This project is expected to result in increased efficiency in delivering all of the department's programs and services.

The fifth capital priority is maintaining the existing national infrastructure, including such projects as repaving runways and replacing certain navigational aids. This priority contributes to all of the department's results.

The department has developed an integrated strategy for addressing these capital priorities. Specific project proposals that involve the direct expenditure of departmental capital and operating funds for priorities one through four have been or will be developed for Treasury Board approval. The fifth priority will be addressed through a series of departmentally approved projects. In terms of capital replenishment, the department will continue with its past practices that have been dictated by the budget restraints of the last several years. Approximately 80 per cent of available expenditures will be devoted to correcting deterioration of the existing asset base. The most non-discretionary rustout problems will be dealt with on a priority basis, with any new acquisitions limited to those that demonstrate significant resource savings downstream.

In addition, the department intends to rationalize its capital infrastructure, with a view to disposing of any surplus assets and using those proceeds to help address both government-wide land sales targets and the department's considerable capital needs over the next few years. It will probably take two years to identify all redundant assets and develop disposal plans. Approximately $100 million may become available as credits to the Consolidated Revenue Fund from land sales.

Part II
Resource Requirements
1993-94 to 1997-98
Detailed Project Listings

Background

As background information for this section of the LTCP, a series of summary annexes are included.

Annex B shows proposed LTCP funding by activity (air, land infrastructure, navigable waters, and corporate) by class of asset for each year in the planning horizon. Last year's expenditures have been included as a point of reference.

Annex C looks at proposed funding by level of priority.

Annex D shows proposed O&M and capital spending by priority.

Annex E examines the split of proposed expenditures between approved (by Treasury Board and by the department), seeking approval, and planned.

Annex F disaggregates proposed LTCP funding by purpose for each year over the 199394 to 1997-98 period.

Resource requirements

Annex G provides a reconciliation between proposed and approved reference levels.

It is proposed that reference levels for the LTCP increase in total by $10 million in 199394, $18 million in 1994-95, $30 million in 1995-96, $50 million in 1996-97, and $65 million in 1997-98. These proposed increases are attributable to a number of factors.

First, the planned acquisition of the Newfoundland ferry has been delayed one year because a suitable design capability was not available locally. A Memorandum to Cabinet is being prepared on this issue. In addition, anticipated costs of the ferry have risen by about $12 million over the planning period.

A rise in petroleum costs as well as higher-than-anticipated wage settlements has led to an increase in the estimated cost of adding passing lanes to the Trans-Canada Highway. This amounts to $4 million in 1993-94 and $8 million in 1994-95. Further planned additions will not proceed in 1995-96, resulting in a savings of $7 million.

Given the need to generate overhead savings, the department plans to undertake major investments in information technology over the 1993-94 to 1997-98 period. Pilot programs will be established at headquarters in 1993-94, with broader applications implemented in subsequent years. Since the overall costs of this project are likely to be in excess of $100 million and make- or-buy considerations will play a major role in the final decisions, early Treasury Board direction will be sought on this project. This project is responsible for most of the proposed increase over the planning period and is considered absolutely essential if the department is to realize the savings that are expected of it.

Finally, current projections show an increase of close to $46 million in the cost of renovating the Winnipeg International Airport. This is primarily due to the projected upswing in the Manitoba economy with the resultant price and wage inflation.

As indicated in Part 1 of this Plan, the department intends to rationalize its asset base over the next few years. It is currently anticipated it will take about two years to identify surplus assets and develop disposal plans. Once these plans are implemented, funds will be available to offset some of the proposed incremental costs of the LTCP in the out years and as credits to the Consolidated Revenue Fund. However, the department is unable to commit itself to either the split or the precise timing of potential available funds at this time and will address this issue in future LTCPs.

Detailed project listing by priority

1. Projects in support of constitutional commitments

1.1 St. John's Wharf Retrofit (T.B. XXXXXXX), $(000s)

1.2 Newfoundland ferry

Preliminary Project Approval (PPA) for the design of a new ferry to provide passenger service between the mainland and the province of Newfoundland.

Authority is sought to proceed with the project definition phase for the design and construction of a new ferry to service the Province of Newfoundland. Current passenger traffic as well as projections over the next ten years indicate that there will be a significant shortfall in ferry capacity.

1.2.1 Departmental priority and rationale

The department accords this project a high priority in that failure to introduce an additional ferry will seriously undermine the department's ability to provide a reasonable level of service to the residents of Newfoundland and will call into question this pre-Confederation commitment by the federal government to the province.

1.2.2 Regional strategies

Initial market surveys have indicated that there is limited regional capability for the design phase of this project. As a result, a Memorandum to Cabinet is being prepared and planned construction of the ferry has been delayed one year.

1.2.3 Projected cash flows, $(000s)

1.2.4 Potential risks

As with most projects of this type, the greatest potential risk at this time involves whether the industry in the Maritime region is able to deliver the required product on time and within budget. Past experience has indicated that cost overruns in the order of 20 to 30 per cent are not unusual.

2. Projects concerned with health and safety

2.1 Trans-Canada Highway passing lanes

Doubling the number of passing lanes on the Trans-Canada Highway through Northern Ontario.

2.1.1 Description

Based on traffic analysis that the department has undertaken, doubling the number of passing lanes on the Trans-Canada Highway through Northern Ontario could potentially reduce the number of traffic deaths and injuries by 10 per cent per year.

2.1.2 Priorities and rationale for priorities

Because of the health and safety considerations, the department accords this project a relatively high priority. It is, however, ranked lower than the projects related to passenger and freight service to the province of Newfoundland. Those projects are based on constitutional commitments that must be honoured.

2.1.3 Projected cash flow

The total estimated cost of this project (indicative estimate) is $40 million. It is expected that Treasury Board authority will be sought early next spring so that work can begin with the new construction season.

2.1.4 Potential impact on future O&M expenditures

This project is expected to result in increased maintenance expenditures in the order of $250,000 per annum starting in 1995-96.

3. Maintenance of the national air traffic network

3.1 Expansion of Winnipeg International Airport

3.1.1 Description

With deregulation and the regionalization of air carrier service, Winnipeg has become a major air traffic hub. Studies indicate that current traffic exceeds the airport's capacity. Authority will be sought to add additional runways, expand the terminal, enlarge current baggage-handling facilities, and lease an additional hangar.

3.1.2 Priorities and rationale for priorities

Given the increase in competition from American airlines, the department accords this a relatively high priority to ensure that Canadian airlines can continue to compete for the travelling public.

3.1.3 Projected cash flow

The total estimated cost of this project (indicative estimate) is $150 million. It is estimated that PPA from Treasury Board will be sought within the next fiscal year. Aside from direct capital expenditures for the airport upgrade, O&M expenditures will be incurred for the lease of an additional hangar. This is expected to amount to $5 million per annum over the planning horizon.

4. Investments in new technology

The department is expected to find overhead savings in the order of 5 to 10 per cent over the next five years. Having carefully considered all facets of our operation, the department has concluded that such overhead savings will only be realized with significant investments in information technology. These investments will reduce the need for support staff, increase productivity, and could result in an increase in revenues accruing to the department as a result of improvements in services rendered to outside parties.

4.1 Headquarters information technology

4.1.1 Description

Pilot projects will be established in 1993-94 at headquarters to determine the feasibility of using many of the alternative software and hardware configurations available. The department will undertake a make-or-buy analysis during the course of the next fiscal year to determine the most efficient and prudent means of acquiring the information technology deemed most suitable.

4.1.2 Priorities and rationale for priorities

The department accords this project a very high priority. As indicated earlier, it is deemed to be essential if the expected overhead savings are, in fact, going to be realized.

4.1.3 Projected cash flow

The total estimated cost of this project (indicative estimate) is $150 million. The make-or-buy analysis to be conducted by the department could have a significant impact on these estimates. PPA will be sought from the Treasury Board early in the new fiscal year.

4.1.4 Potential impact on future O&M expenditures

It is anticipated that once mature systems are in place, overhead operating costs can be reduced annually by some 10 per cent or $20 million.

Annex A - Summary of 1991-92 Expenditures by Activity by Class of Asset

Annex B - Proposed LTCP Funding by Activity by Class of Asset, $(000s)

Annex C - Proposed LTCP Funding by Priority by Project, $(000s)

Annex D - Proposed LTCP Funding by Priority and Type of Expenditure, $(000s)

Annex E - Proposed LTCP Funding by Type of Approval, $(000s)

Annex F - Proposed LTCP Funding by Purpose, $(000 s)

Annex G - Reconciliation Between Proposed LTCP Funding and Approved Reference Levels, $(000s)