HomeMy WebLinkAboutFSD-005-24Staff Report
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Report To: General Government Committee
Date of Meeting: February 5, 2024 Report Number: FSD-005-24
Submitted By:
Reviewed By:
Authored by:
File Number:
Report Subject:
Trevor Pinn, Deputy CAO/Treasurer, Finance and Technology Mary-
Anne Dempster, CAO Resolution#:
Trevor Pinn, Deputy CAO/Treasurer, Finance and Technology
By-law Number:
2023 Annual Leasing Report and Policy Update
Recommendations:
1.That Report FSD-005-24, and any related delegations or communication items, be
received;
2.That the Lease Financing Policy attached to Report FSD-005-24, as attachment 1,
be approved;
3.That Attachment A to Report FND-021-03, as the Statement of Lease Financing
Policies and Goals be replaced by the “Lease Financing Policy”; and
4.That all interested parties listed in Report FSD-005-24, and any delegations be
advised of Council’s decision.
Municipality of Clarington Page 2
Report FSD-005-24
Report Overview
The Municipality of Clarington adopted a Statement of Lease Financing Policies and Goals
in 2003 as required by the Ontario Municipal Act, 2001. The Statement requires the
Treasurer to report to Council annually on material leases entered into by the Municipality.
As part of continuous improvement, staff have prepared a new Lease Financing Policy to
replace the existing statement of lease financing policies and goals.
This Report meets the reporting requirements under the Municipal Act, 2001, and
modernizes the policy based on current best practices.
1. Background
1.1 Under Ontario Regulation 635/05, the Treasurer is required to report annually to Council
the details of existing material leases, including the following:
a. Confirmation of compliance with the lease policy;
b. Summary of material leases;
c. Estimated costs of material leases;
d. Impact of the leases on the financing arrangements and the debt servicing levels.
1.2 As required by the Municipal Act, 2001, the Council adopted a Statement of Lease
Financing Policies and Goals in report FND-021-03 on September 8, 2003. To date,
Clarington has typically chosen to purchase or debenture (if necessary) rather than use
financial lease agreements. There is no impact on the Municipality's long-term financing
or debt servicing levels.
2. 2023 Annual Report
2.1 There were no material leases to report for the fiscal year 2023.
3. Lease Financing Policy
3.1 The last policy statement on leasing by Council was approved in 2003. As part of
continuous improvement and updating policy formats to a con sistent model, staff felt it
appropriate that an updated policy be brought to Council for consideration.
Municipality of Clarington Page 3
Report FSD-005-24
3.2 The Draft Lease Financing Policy, see Attachment #1, is based on research from other
municipalities, including the City of London. Adjustments have been made to suit
Clarington’s needs and policy framework.
3.3 The policy allows staff to enter into lease financing arrangements to acquire the rights to
use capital property and equipment rather than an outright purchase. The Municipality
currently leases specific small office equipment such as multi-function devices
(printers/copiers); however, the policy could be used for leasing vehicles, property, or
other equipment.
3.4 Leasing is a financing option to spread the cost over a period of time while the risk of
ownership of the asset remains with the lessor. There are many types of lease
arrangements; some may result in the ability of the Municipality to gain ownership at the
end of the lease period.
3.5 Staff will consider lease arrangements as an option to purchase where the lease terms
are advantageous and beneficial to the taxpayer.
4. Financial Considerations
4.1 There are no financial considerations specifically as a result of this report. The
economic impacts of leasing will be brought to the Council when considering future
capital purchases.
4.2 The Municipality will enter into lease arrangements where the cost of the agreement is
financially beneficial compared to the cost of purchase.
5. Strategic Plan
5.1 Creating a Lease Financing Policy supports priority L.2.5 Maintain, protect and invest in
Municipal infrastructure and assets. Specifically, the policy will be used in developing
the funding strategy for future capital investments.
6. Concurrence
Not Applicable.
7. Conclusion
It is respectfully recommended that the annual report be received, and the draft policy
be approved.
Municipality of Clarington Page 4
Report FSD-005-24
Staff Contact: Michelle Pick, CPA, CGA, Manager, Accounting Services/Deputy Treasurer,
905-623-3379 ext.2605 or mpick@clarington.net.
Attachments:
Attachment 1 – Draft Policy “Lease Financing Policy”
Interested Parties:
There are no interested parties to be notified of Council's decision.
Attachment 1 to Report FSD-005-24
Council Policy
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Coordinator at 905-623-3379 ext. 2131
Number: CP-00#
Title: Lease Financing
Type: Financial Management
Sub-type: Debt Management
Owner: Finance and Technology
Financial Planning
Approved By: Council
Approval Date: February 26, 2024
Effective Date: February 26, 2024
Revised Date: Click or tap to enter a date.
Applicable to: All Staff
1. Legislative or Administrative Authority:
1.1. The Municipal Act, 2001, S.17(2) states that the Minister may make regulations
prescribing financial actions for the purpose of clause (1). This includes the
ability for the Municipality to enter into agreements for the purpose of
minimizing costs or financial risk associated with the incurring of debt.
1.2. The Province of Ontario Regulation 653/05: Debt-Related Financial
Instruments and Financial Agreements outlines the requirements for a
municipality to enter into a lease financing agreement for the purpose of
obtaining long-term financing of a capital undertaking.
2. Purpose:
2.1. This policy constitutes The Municipality of Clarington’s (the “Municipality”)
statement of policies and goals relating to the use of Lease Financing
Agreements, in accordance with Ontario Regulation 653/05 made under the
Municipal Act, 2001.
2.2. The purpose of this policy is to provide guidance to staff when contemplating
Lease Financing Agreements for the provision of municipal equipment and
facilities. Lease Financing Agreements may be preferred to outright purchase
and/or debt financing of equipment, facilities, and land. The Municipality may
enter into Lease Financing Agreements in order to acquire the rights to use
capital property and equipment, including some or all of the benefits and risks
of ownership for specific periods of time and stipulated rental payments.
Council Policy
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3. Scope:
3.1. This policy applies when the Municipality is contemplating Lease Financing
Agreements for the provision of municipal equipment and facilities.
4. Definitions:
4.1. Combined Material Impact - The costs or risks of a proposed Non-Material
Lease which, when combined with all other Non-Material Leases entered into
or proposed to be entered into in a particular year by the Municipality, result in
a material impact.
4.2. Lease Financing Agreement - A financial agreement for the purposes of
obtaining long term financing for a capital undertaking of the Municipality.
4.3. Material Impact - The costs or risks that significantly affect, or would
reasonably be expected to have a significant effect, on the Municipality’s debt
and financial obligation limit as determined by O. Reg. 403/02
4.4. Material Lease - Any Lease Financing Agreement that does not meet the
definition of a Non-Material Lease.
4.5. Municipality – The Corporation of the Municipality of Clarington.
4.6. Non-Material Lease - A Lease Financing Agreement that will not result in a
Material Impact on the finances of the Municipality and includes:
4.6.1. rental agreements which have a term of less than one year and the
cancellation of which results in no financial penalty to the Municipality;
4.6.2. commercial real property leases with a term of five years or less;
4.6.3. Lease Financing Agreements requiring annual payments for an individual lease
of less than $100,000;
4.6.4. Lease Financing Agreements where the net present value of all lease
payments, including possible extensions, renewals and bargain purchase
options, is less than $1.0 million in the year the Lease Financing Agreement is
entered into.
Council Policy
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5. Policy Requirements:
Statement of Goals and Objectives
5.1. The following goals and objectives will be used in the consideration and
evaluation of all Lease Financing Agreements:
5.1.1. The Municipality shall only consider Lease Financing Agreements that prioritize
the Municipality of Clarington’s governing principles;
5.1.2. Lease Financing Agreements shall be entered into with care and prudence,
applying experience and professional judgment to each agreement reviewed,
with the best interest of the Municipality’s ratepayers in mind;
5.1.3. All lease financing activities shall adhere to statutory requirements as governed
by the Ontario Municipal Act, 2001 as well as other Council approved policies;
5.1.4. Consideration will be given to its impact on future ratepayers in order to
achieve an appropriate balance between lease financing and other forms of
funding; and
5.1.5. The Municipality shall manage the exposure to financial risk and the financial
impact the Lease Financing Agreements will have on current and future fiscal
years.
5.2. Without limitation, the Municipality may enter into Lease Financing
Agreements:
5.2.1. for the purpose of obtaining long-term financing of a capital undertaking;
5.2.2. to finance equipment, buildings, land or other assets that the Municipality does
not have a long-term interest in or may not be able to acquire through other
means; or
5.2.3. where a lease provides material and measurable benefits compared with other
forms of financing.
5.3. It is the opinion of the Council and the Treasurer, or designate, that the
category of Lease Financing Agreements defined as Non-Material Leases in
this policy will not result in a Material Impact for the Municipality.
Council Policy
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5.4. It is the opinion of the Council and the Treasurer, that Non-Material Leases that
require or may require the Municipality to make payments after the expiry of
the term for which the Council authorizing the agreement was elected and that
have a Combined Material Impact less than 20% of the Municipality’s annual
debt and financial obligation limit determined in accordance with O. Reg.
403/02 will not result in a Material Impact for the Municipality.
Application of the Policy (General Provisions – All Lease Financing Agreements)
5.5. All Lease Financing Agreements shall be reviewed by the Treasurer or
designate who shall determine:
5.5.1. if this policy applies;
5.5.2. if the Lease Financing Agreement is a Material or Non-Material Lease;
5.5.3. the financial and other risks of the Lease Financing Agreement, compared to
other forms of financing, which shall include:
a) The ability for lease payment amounts to vary if based on changes in an
underlying benchmark debt instrument (generally expressed as a particular
Government of Canada Bond);
b) The ability for lease payments to vary based on changes in the assumed
residual values of the asset being leased;
c) Uncertainty over leasing costs if contract needs are to be extended or
renewed. The normal practice of the Municipality will be to negotiate these
costs prior to the Lease Financing Agreement being executed; and
d) The potential for the seizure and removal of leased equipment if the leasing
company goes into default of its obligations to creditors, and its creditors
have the legal right to seize assets of the leasing company. The practice of
the Municipality will be to assess the financial strength of the normal
leasing company prior to the leasing agreement being executed.
5.6. All Lease Financing Agreements shall include a schedule of all fixed payments,
if any, required for the term and any extensions or renewal.
5.7. The requirements in sections 5.9 and 5.10 apply to all Lease Financing
Agreements except;
Council Policy
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5.7.1. Non-Material Leases that do not or may not require the Municipality to make
payments after the expiry of the term for which the Council authorizing the
agreement was elected; or
5.7.2. Non-Material Leases that require or may require the Municipality to make
payments after the expiry of the term for which the Council authorizing the
agreement was elected and that have a Combined Material Impact less than
20% of the Municipality’s annual debt and financial obligation limit determined
in accordance with O. Reg. 403/02.
5.8. A Lease Financing Agreement to which this policy does not apply must comply
with any other applicable Municipal policies or procedures, including without
limitation to any requirements for review, approval and reporting to Council.
Lease Financing Agreements Approval Process
5.9. This section applies to:
5.9.1. all Material Leases; and
5.9.2. all Non-Material Leases that require or may require the Municipality to make
payments after the expiry of the term for which the Council authorizing the
agreement was elected and that have a Combined Material Impact greater
than 20% of the Municipality’s annual debt and financial obligation limit
determined in accordance with Ontario Regulation 403/02.
5.10. Before entering into a Lease Financing Agreement, the Corporation shall:
5.10.1. have the Treasurer or designate prepare a report with a recommendation
assessing, in their opinion, the costs and financial and other risks associated
with the proposed Lease Financing Agreement, including any possible
extensions or renewals which report shall include:
a) a comparison between the fixed and estimated costs and the risks
associated with the proposed Material Lease and those associated with
other methods of financing;
b) a statement summarizing, as may be applicable, the effective rate or rates
of financing for the Material Lease, the ability for lease payment amounts to
Council Policy
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vary, and the methods or calculations, including possible financing rate
changes, that may be used to establish that variance under the lease;
c) a statement summarizing any contingent payment obligations under the
lease that, in the opinion of the Treasurer or designate, would result in a
Material Impact for the municipality, including lease termination provisions,
equipment loss, equipment replacement options and guarantees and
indemnities;
d) a summary of the assumptions applicable to any possible variations in the
lease payment and contingent payment obligations; and
e) any other matters the Treasurer or designate or Municipality Council
considers advisable.
5.10.2. Obtain legal advice and financial advice with respect to the proposed
agreement.
5.10.3. Consider if the scope of the proposed transaction warrants obtaining legal
advice or financial advice with respect to the proposed agreement that is from
a source independent of the source of the advice mentioned in paragraph
5.10.2 above.
5.10.4. Consider, as of the date of the report under paragraph 5.10.1 above, whether
the costs of financing for the proposed agreement are lower than other
methods of financing available to the Municipality and whether the risks
associated with the proposed agreement are reasonable. Costs of any legal or
financial advice would also be included in the costs of financing.
5.10.5. If at any time after a report is made but before the proposed Lease Financi ng
Agreement is entered into, the Treasurer or designate becomes of the opinion
that a changed circumstance with respect to the proposed Lease Financing
Agreement may result in a Material Impact for the Municipality, the report shall
to updated as soon as reasonably possible and present the updated report to
Council.
Annual Report to Council
5.11. Once in every fiscal year or more often if Council requires, the Treasurer or
designate shall provide a report to Council containing the following:
Council Policy
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5.11.1. a description of the estimated proportion of the total financing arrangements of
the municipality that is undertaken through Lease Financing Agreements to the
total long-term debt of the Municipality;
5.11.2. a description of the change, if any, in that estimated proportion since the
previous year's report;
5.11.3. a statement by the Treasurer or designate as to whether, in their opinion, all
Lease Financing Agreements were made in accordance with this policy; and
5.12. any other information that may be requested by Council or that, in the opinion
of the Treasurer or designate, should be recorded.
6. Roles and Responsibilities:
6.1. Council is responsible for:
6.1.1. Establishing policy regarding the use of lease financing as a form of financial
agreement for funding the purchase of goods.
6.2. Chief Administrative Officer (CAO) is responsible for:
6.2.1. As applicable under the Purchasing By-law, Delegation of Authority By-law or
other Council policy or management directive of the Municipality, authorizing or
signing for lease agreements.
6.3. Deputy CAO, Finance and Technology/Treasurer is responsible for:
6.3.1. Ensuring any long-term leases entered into by the Municipality are in
accordance with this policy.
6.3.2. Developing procedures and practices to properly account for lease agreements
in accordance with Public Sector Accounting Standards.
6.4. Directors / Managers are responsible for the following within their scope
of authority:
6.4.1. As applicable under the Purchasing By-law, authorizing or signing for lease
agreements.
6.4.2. Ensuring staff are trained in this policy.
Council Policy
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6.5. All Staff are responsible for:
6.5.1. Ensuring compliance with the Lease Financing Policy.
6.5.2. Informing the Finance and Technology Department of any leases entered into
that qualify under this policy.
7. Related Documents:
7.1. O.Reg. 653/05
7.2. Purchasing By-law
7.3. Debt Management Policy
8. Inquiries:
8.1. Manager, Accounting Services/Deputy Treasurer
8.2. Manager, Financial Planning/Deputy Treasurer
9. Revision History:
Date Description of Changes Approved By