Loading...
HomeMy WebLinkAboutFND-021-03 'J_ ... CJillington REPORT FINANCE DEPARTMENT Meeting: GENERAL PURPOSE AND ADMINISTRATION COMMITTEE Foa. GE Date: MONDAY, SEPTEMBER 08, 2003 Resolution #: GPPt -357 -0 3 Report #: FND-021-03 File#: By-law #: Subject: MUNICIPAL LEASE FINANCING POLICIES AND GOALS Recommendations: It is respectfully recommended that the General Purpose and Administration Committee recommend to Council the following: 1. THAT Report FND-021-03 be received; 2. THAT the attached Statement of Lease Financing Policies and Goals (Attachment A) be adopted. Submitted by: Re~owed by r:?~ I anklin Wu, ./...1 Chief Administrative Officer. /0" NT/kc 1326 REPORT NO.: FND-021-03 PAGE 2 ~ BACKGROUND AND COMMENT: 1.0 As Council is aware, there have been circumstances over the last few years where a number of municipalities entered into financial leases where it appears the long- term costs were not realized nor properly disclosed. These leases turned out to be far more costly for participating municipalities than expected. As a consequence, the Province has now established some mandatory leasing requirements. These requirements were brought forward in the new Municipal Act and described more fully in Ontario Regulation 266/02 which amended Ontario Regulation 46/94. The regulations are attached to this report as Attachment B. 2.0 Under the new Regulations, Council may not enter into any financing lease unless it first adopts a Statement of Lease Financing Policies and Goals and provides that each lease includes a schedule of all payment amounts. Council is required to obtain legal and financial advice with respect to any proposed lease covered by its policy and consider whether the scope of the lease warrants obtaining independent legal or financial advice. 3.0 The regulation allows for the Policy adopted by Council to provide for a category of financing leases that, in the opinion of both the Treasurer and Council, would not result in a material impact for the municipality. This is intended to cover items such as minor office equipment leases. These leases would not have the same stringent reporting requirements. 4.0 This report is intended to meet the new municipal requirements for a leasing policy. 5.0 The Treasurer is also required to report annually to Council details of existing leases confirming that they comply with the lease policy including estimating the total financing arrangements of the municipality that is undertaken through leases. COMMENTS: 6.0 Ontario Regulation 46/94 amended by O. REG. 266/02 deals with the steps that are necessary prior to a Municipality entering into a lease. Under this regulation, the Treasurer in particular has a number of specific responsibilities. 7.0 The Statement of Lease Financing Policies and Goals should include: >- A discussion of financial and other lease risks. >- A definition of financial lease materiality. 1327 '-- REPORT NO.: FND-021-03 PAGE 3 Before entering into a lease, the Treasurer shall: ~ Report to Council the costs and financial risks of each lease including the effective financing rate. ~ Provide a comparison of the buy versus lease options including financing costs associated with each. ~ Identify any contingent obligations under the lease, including lease termination provisions, and guarantees or indemnities. ~ Identify all assumptions used in any lease or purchase option. ~ Include an analysis of any possible extension or renewal periods. ~ Provide any other information on the lease requested by Council. 8.0 Further, the Treasurer shall prepare for Council annually, a report containing: ~ A summary of material leases. ~ Estimated cost of the leases. ~ The impact of these leases on the financing arrangements and debt servicing levels of the Municipality. ~ Any leasing activity undertaken that was not in accordance with the Municipal Leasing Policy. ~ Any other information the Treasurer considers relevant under the circumstances. 9.0 Attachment A to this report contains the proposed Municipal Lease Financing Policies and Goals. The Leasing Policy, attached, recommends that if collectively all leasing costs exceed 5% of the Municipal Annual Debt Repayment Limit the leasing costs are material. This materiality limit of 5% has a current value of approximately $480,000 per year. Alternatively, if an individual lease cost exceeds 2% of the Municipal Annual Debt Repayment Limit the lease costs would be considered material. This would approximate $192,000 per annum. 10.0 Most often leasing is used as a form of long term financing, this being an alternative to the issuance of debentures. It makes sense then, that leasing should impact the finances of a Municipality in the same way as long term debt. Significant areas of Municipal exposure might typically include property, vehicles, or computer hardware. To date Clarington has typically chosen to purchase and debenture (if necessary) rather than to use financial leases with the exception of small office equipment and computers. 1328 ,~ REPORT NO.: FND-021-03 PAGE 4 CONCLUSION: 11.0 The new regulations impose a higher reporting standard for municipalities. Attachment A complies with those regulations to enhance information to Council, while allowing immaterial leases to proceed in accordance to the purchasing by- law. 12.0 All existing leases are deemed immaterial according to the policy recommended for adoption and predate Ontario Regulation 266/02. Attachments: Attachment A - Statement of Lease Financing Policies and Goals Attachment B - Municipal Act, 2001 - Ontario Regulation 46/94; Municipal and School Capital Facilities- Agreements and Tax Exemptions CORPORATION OF THE MUNICIPALITY OF CLARINGTON 40 TEMPERANCE STREET, BOWMANVILLE, ONTARIO L 1C 3A6 T (905)623-3379 F (905)623-4169 1329 Attachment A to Report FND-021-03 Page 1 of 2 Statement of Lease Financing Policies and Goals 1. The purpose of this policy is to establish a framework and outline requirements for entering into leases of municipal capital facilities, and for reporting such leases to Council as required under Ontario Regulation 46/94 as amended by O. Reg. 266.02. 2. Risk assessment is an important component of the lease decision. Some possible risks that must be assessed include: ~ Leasing an asset may be more costly if a thorough lease versus purchase analysis is not completed to assess whether the terms available under the lease are favourable. ~ Rapidity of obsolescence of capital items and impact upon lease decision. ~ Ownership at expiry of lease and residual value. ~ Hidden costs due to contractual terms of proposed leases. ~ Availability of alternative financing options. 3. Municipal capital facilities to which this policy applies is defined in the regulation to include land, works, equipment, machinery, and related systems and infrastructures under the following classes: ~ Facilities used by Council. ~ Facilities used for the general administration of the municipality. ~ Municipal roads, highways and bridges. ~ Municipal local improvements. ~ Municipal facilities related to the provision of transit and transportation systems. ~ Municipal facilities for sewers, drainage and flood control. ~ Municipal facilities related to firefighting and by-law enforcement. ~ Municipal facilities for the protection, regulation and control of animals. ~ Municipal facilities for public libraries. ~ Any combination of the above. ~ Parking related to any of the above. ~ Municipal community centres and any related parking. ~ Municipal facilities used for cultural, recreational or tourist purposes and any related parking. ~ Municipal general parking facilities. 1330 '-- Attachment A to Report FND-021-03 Page 2 of2 Statement of Lease Financing Policies and Goals 4. Any lease, or cumulative group of leases, that exceeds a term of one year that is entered into by the Municipality, being in effect at anyone time, shall be considered material if collectively all leasing payments incurred in any calendar year exceeds 5% of the Municipal Annual Debt Repayment Limit as determined by the Treasurer. Once the 5% limit has been exceeded all leases subsequently entered into by the Municipality shall be considered material. 5. Any individual lease that exceeds a term of one year that is entered into by the Municipality shall be considered material if all leasing payments incurred in any calendar year for that lease exceeds 2% of the Municipal Annual Debt Repayment Limit as determined by the Treasurer. 6. All material leases shall be forwarded to Council for approval and the report to Council shall comply with the requirements of Ontario Regulation 46/94, Section 9. Leases deemed not material under this policy shall be dealt with through the normal purchasing process as identified under the purchasing by- law in effect at the time. 7. Leases that do not obligate the Municipality to pay for all, or most, of the cost of an asset and that contain an unconditional cancellation clause with not more than one year's notice and which contain no cancellation penalty, are exempt from this policy. 8. Any actual or likely future payments required under any lease shall be deemed to impact the Municipal Annual Debt Repayment Limit in the current year, based on a Net Present Value calculation using a discount rate established by the Treasurer. 9. In each year the Treasurer shall prepare and present to Council a report outlining the impact on Municipal finances of all leases and, if material, shall identify each lease or group of leases separately showing the financial impact of each. 1331 Municipal Act, 2001 - O. Reg. 46/94 Page I of6 Municipal Act, 2001 Loi de 2001 sur les municipalites ATTACHMENT B ONTARIO REGULATION 46/94 Amended to O. Reg. 401/02 MUNICIPAL AND SCHOOL CAPITAL FACILITIES - AGREEMENTS AND TAX EXEMPTIONS Notice of Currency: * This document is up to date. *This notice is usually current to within two business days of accessing this document. For more current amendment information, see the TabkQfReglllatiQrlsCLegislativeHistQry}. This Regulation is made in English only. 1. In this Regulation, "financing lease" means a lease allowing for the provision of municipal capital facilities if the lease mayor will require payment by the municipality beyond the term for which the council was elected; "housing project" means a project or part of a project designed to provide or facilitate the provision of residential accommodation, with or without any public space, recreational facilities and commercial space or buildings appropriate thereto; "housing unit" includes a unit in a housing project owned or rented by an occupant; "material impact" means costs or risks that significantly affect, or would reasonably be expected to have a significant effect on, the debt and financial obligation limit prescribed under Ontario Regulation 799/94; "municipal capital facilities" and "school capital facilities" include land, as defined in the Assessment Act, works, equipment, machinery and related systems and infrastructures. O. Reg. 46/94, s. 1; O. Reg. 189/01, s. I; O. Reg. 266/02, s. 1; O. Reg. 401/02, s. 1. 2. The council of a municipality may enter into an agreement under subsection 110 (1) of the Act for the provision of the following classes of municipal capital facilities: 1. Facilities used by the council. 2. Facilities used for the general administration of the municipality. 3. Municipal roads, highways and bridges. 1332 http://www.e-Iaws.gov.on.ca: 81/ISYSquery/frame/IHT9460.c 8/25/2003 Municipal Act, 2001 - O. Reg. 46/94 Page 2of6 '-- 4. Municipal local improvements and public utilities, except facilities for the generation of electricity . 5. Municipal facilities related to the provtston of telecommunications, transit and transportation systems. 6. Municipal facilities for water, sewers, sewage, drainage and flood control. 7. Municipal facilities for the collection and management of waste and garbage. 8. Municipal facilities related to policing, fire-fighting and by-law enforcement. 9. Municipal facilities for the protection, regulation and control of animals. 10. Municipal facilities related to the provision of social and health services, including homes under the Homes for the Aged and Rest Homes Act. 11. Municipal facilities for public libraries. 12. Municipal facilities that combine the facilities described in paragraphs 1 to 11. 13. Parking facilities ancillary to facilities described in any of paragraphs 1 to 12. 14. Municipal community centres. 15. Parking facilities ancillary to facilities described in paragraph 14. 16. Municipal facilities used for cultural, recreational or tourist purposes. 17. Municipal general parking facilities and parking facilities ancillary to facilities described in paragraph 16. 18. Municipal housing project facilities. O. Reg. 46/94, s. 2; O. Reg. 189/01, s. 2; O. Reg. 401/02, s. 2. 3. The classes of municipal capital facilities described in section 2 are also eligible municipal capital facilities for the purpose of a tax exemption under subsection 110 (6) of the Act. O. Reg. 46/94, s. 3; O. Reg. 266/02, s. 2; O. Reg. 401/02, s. 3. 4. Municipal capital facilities may be the subject of an agreement under subsection 110 (1) of the Act or a tax exemption under subsection 110 (6) of the Act even if they are contiguous with or part of land or works that are not municipal capital facilities. O. Reg. 49/94, s. 4; O. Reg. 401/02, s. 4. 5. The council of a municipality may enter into an agreement respecting municipal capital facilities described in paragraphs 14 and 15 of section 2 only if, http://www.e-laws.gov.on.ca: 81/ISYSquery/frame/IHT9460.c 1333 8/25/2003 Municipal Act, 2001 - O. Reg. 46/94 Page30f6 '-- (a) the municipal capital facilities are primarily used for local community activities; and (b) the council has declared by resolution that the municipal capital facilities are for the purposes of the municipality and are for a public use. O. Reg. 46/94, s. 5; O. Reg. 537/96, s. 1. 6. (1) The council of a municipality may enter into an agreement respecting municipal capital facilities described in paragraphs 16 and 17 of section 2 only if, (a) the municipality or another municipality or a public sector entity described in subsection (2) owns or agrees to purchase or will own on reversion of the property, the municipal capital facilities, including the land where they are situate; and (b) the council has declared by resolution that the municipal capital facilities are for the purposes of the municipality and are for public use. O. Reg. 537/96, s. 2. (2) The following are public sector entities for the purposes of clause (1) (a): 1. The Crown. 2. A local board as defined in section 1 of the Municipal Affairs Act. 3. The board of governors of a college of applied arts and technology established under section 5 ofthe Ministry of Training, Colleges and Universities Act. 4. A person authorized to grant degrees by an Act of the Assembly or by the Minister of Training, Colleges and Universities under the Post-secondary Education Choice and Excellence Act, 2000. O. Reg. 537/96, s. 2; O. Reg. 266/02, s. 3. 6.1 (1) The council of a municipality may enter into an agreement respecting municipal capital facilities described in paragraph 18 of section 2 only if, (a) before the by-law authorizing the agreement is enacted, the municipality has enacted a municipal housing facility by-law that complies with subsection (2); (b) the municipality has determined that all the housing units to be provided as part of the municipal capital facilities fall within the definition of "affordable housing" contained in the municipal housing facility by-law; and (c) the municipality is a delivery agent under the Ontario Works Act, 1997 authorized to operate and manage housing projects under the Social Housing Reform Act, 2000. O. Reg. 189/01, s. 3; O. Reg. 266/02, s. 4. (2) A municipal housing facility by-law shall contain at least the following: 1. A definition of "affordable housing". http://www.e-laws.gov.on.ca:81/ISYSquery/frame/IHT9460.c 1334 8/25/2003 Municipal Act, 2001 - O. Reg. 46/94 Page 4 of6 2. Policies regarding public eligibility for the housing units to be provided as part of the municipal capital facilities. 3. A summary of the provisions that agreements respecting municipal capital facilities described in paragraph 18 of section 2 are required to contain. O. Reg. 189/01, s. 3. 7. Under subsection 110 (12) of the Act, a school board may exempt from taxation as a school capital facility anything that the school board is authorized to provide under the Education Act, the Day Nurseries Act, the Public Libraries Act, the Community Recreation Centres Act or The Essex County French-language Secondary School Act, 1977 . O. Reg. 266/02, s. 5; O. Reg. 401/02, s. 5. 8. (1) The council of a municipality may enter into a financing lease only if, (a) before the by-law authorizing the financing lease is enacted, the municipality has adopted a statement of the municipality's lease financing policies and goals; and (b) the financing lease includes a schedule of all fixed amounts of payment, if any, required under the lease and that may be required under any possible extensions or renewals of the lease. O. Reg. 266/02, s. 5. (2) The statement mentioned in clause (I) (a), (a) shall include, at a minimum, a discussion of the financial and other risks for the municipality of financing leases; and (b) may provide for a special category of financing leases, to be composed of financing leases which, in the opinion of both the treasurer and the council, would not result in a material impact for the municipality. O. Reg. 266/02, s. 5. 9. (I) Before entering into a financing lease, the council of a municipality shall, (a) have its treasurer prepare a report with a recommendation, assessing, in the opinion of the treasurer, the costs and financial and other risks associated with the proposed financing lease, including, (i) a comparison between the fixed and estimated costs and the risks associated with the proposed lease and those associated with other methods of financing, (ii) a statement summarizing, as may be applicable, the effective rate or rates of financing for the lease, the ability for lease payment amounts to vary, and the methods or calculations, including possible financing rate changes, that may be used to establish that variance under the lease, (iii) a statement summarizing any contingent payment obligations under the lease that in the opinion of the treasurer would result in a material impact for the municipality, including lease termination provisions, equipment loss, equipment replacement options http://www.e-laws.gov.on.ca: 81/ISYSquery/frame/IHT9460.c 1335 8/25/2003 Municipal Act, 2001 - O. Reg. 46/94 Page50f6 and guarantees and indemnities, (iv) a summary of the assumptions applicable to any possible variations in the lease payment and contingent payment obligations, and (v) any other matters the treasurer or council considers advisable; (b) obtain legal advice and financial advice with respect to the proposed financing lease; (c) consider if the scope of the proposed transaction warrants obtaining legal advice or financial advice with respect to the proposed financing lease that is from a source independent of the source of the advice mentioned in clause (b); (d) advise in writing the regional municipality of which it forms a part of the proposed financing lease before the lease is entered into, in the case of a lower-tier municipality; and (e) consider and give its assessment of the report prepared under clause (a), including whether, in its opinion, the costs of financing for the proposed financing lease are lower than other methods of financing available to the municipality, and whether the risks associated with the financing lease are reasonable. O. Reg. 266/02, s. 5. (2) The costs and risks associated with a proposed financing lease in a report made under subsection (1) shall be assessed as of the date the report is made. O. Reg. 266/02, s. 5. (3) At any time after a report under subsection (I) is made, but before the financing lease is entered into, if the treasurer becomes of the opinion that a changed circumstance with respect to the proposed lease may result in a material impact for the municipality, the treasurer shall as soon as is reasonably possible update the report and present the updated report to the council. O. Reg. 266/02, s. 5. (4) A report made under subsection (1) shall summarize the information required by that subsection for the entire term of the financing lease, including any possible extensions or renewals. O. Reg. 266/02, s. 5. (5) Despite this section, a municipality may enter into a financing lease without complying with the requirements of subsection (I) if, (a) the statement of lease financing policies and goals includes the category referred to in clause 8 (2 ) (b); and (b) in the opinion of the treasurer and the council, the proposed lease is within that category, and its costs and risks, in combination with all the others leases of that category entered into or proposed to be entered into in that year by the municipality, would not result in a material impact for the community. O. Reg. 266/02, s. 5. (6) In this section, 1336 http://www.e-Iaws.gov.on.ca: 81/ISYSquery /frame/IHT9460.c 8/25/2003 -. Municipal Act, 2001 - O. Reg. 46/94 , Page 6 of6 "costs" includes the costs of any advice obtained under clause (1) (b) or (c). O. Reg. 266/02, s. 5. 10. (1) If a municipality has one or more financing leases subsisting in a fiscal year, the treasurer of the municipality shall prepare and present to council of the municipality once in that fiscal year, or more often if the council so desires, a detailed report containing the information described in subsection ( 2). O. Reg. 266/02, s. 5. (2) The detailed report mentioned in subsection (I) shall contain, (a) a description of the estimated proportion of the total financing arrangements of the municipality that is undertaken through financing leases to the total long-term debt of the municipality and a description of the change, if any, in that estimated proportion since the previous year's report; (b) a statement by the treasurer as to whether, in his or her opinion, all financing leases were made in accordance with the statement of leasing policies and goals adopted by the municipality; and (c) any other information that the council may reqUIre or that, m the opmlOn of the treasurer, should be recorded. O. Reg. 266/02, s. 5. Backto top 15.37 http://www.e-Iaws.gov.on.ca: 81 /ISYSquery/frame/IHT9460.c 8/25/2003