Audit, Budget and
Finance Committee
and Council / et au Conseil
11 January 2010/le 11 janvier 2010
Submitted by/Soumis par : Marian Simulik, City Treasurer
Contact Person/Personne ressource : Mona Monkman, Deputy City Treasurer
Corporate Finance/ Trésorière municipale adjointe – Finances municipales
Finance
Department/Service des Finances
(613)
580-2424 x 41723, Mona.Monkman@ottawa.ca
That the Audit Budget and
Finance Committee recommend Council:
1. Establish a Committee known as the
Debenture Committee in accordance with the Terms of Reference contained in
Document 1 and delegate authority to the Debenture Committee to make final
decisions with respect to the following matters to the extent that the
authority has not already been delegated:
(a) the authority to enact debenture by-laws to authorize the issuance of debentures where the project debt authority has been approved by Council and the Treasurer has proceeded with one or more debt issues pursuant to Section 16, Schedule “A” of By-law No. 2009-231, the Delegation of Authority By-law by finalizing the terms and conditions of such debt issues;
(b) the authority to enact temporary borrowing by-laws for current
operations in accordance with section 407 of the Municipal Act, 2001 to
authorize short term borrowing for the purpose of meeting current expenditures
in any year until such time as the taxes are collected and other revenues are
received and to authorize any one or more members of the Debenture Committee to
do all things and execute any loan or other agreements required to give effect
to any temporary borrowing;
(c) the authority to enact the required by-law(s) to enter into new arrangements
with CDS Clearing and Depository Services Inc. (“CDS”) to ensure that CDS
accepts new debenture issues and maintains existing City debentures in the CDS
system and to authorize any one or more members of the Debenture Committee to
do all things and execute all documents, instruments and agreements in order to
make these arrangements effective; and
(d) the
authority to enact a by-law authorizing the City to issue replacement debenture
certificates if and when required, to replace defaced, lost, mysteriously or
unexplainably missing, stolen, destroyed or other instances such as
dematerialized debenture certificates on such terms and conditions considered
appropriate including a bond of indemnity as a condition of issuing replacement
debenture certificates;
2. Subject to the approval of
Recommendation 1, the delegation provision contained in Recommendation 1, shall
be held by the Debenture Committee exclusively and shall remain in full
force and effect until the end of the term of City Council at which time this
delegation may be revoked otherwise this delegation remains in effect;
3. Subject to the approval of
Recommendation 1, approve the enactment of amendments to the Procedure By-law
to reflect the notice requirements contained in Document 1 and to the
Delegation of Authority By-law to indicate that the authority to enact the
debenture by-laws has been delegated to the Debenture Committee; and
4. Subject to the approval of
Recommendation 1, amend the Policy on Debt and Financing to reflect the establishment
of the Debenture Committee and the delegations noted in Recommendation 1.
Que le Comité de vérification, du budget et des
finances recommande au Conseil :
1. de
créer un comité nommé « Comité sur les débentures » conformément au
mandat décrit dans le Document 1 et de déléguer les pouvoirs à ce comité pour
qu’il puisse prendre des décisions finales à l’égard des questions suivantes,
sous réserve que ces pouvoirs n’ont pas déjà été délégués :
(a)
Le
pouvoir d’édicter des règlements municipaux sur les débentures visant
l’autorisation de l’émission de débentures dans les situations où le Conseil a
approuvé le pouvoir d’endettement pour un projet et que le trésorier a procédé
à l’émission obligataire conformément à l’article 16 de l’Annexe A du Règlement
2009-231, Règlement sur la délégation de pouvoirs, en ce qui concerne ses
modalités d’endettement;
(b)
Le
pouvoir d’édicter des règlements d’emprunt temporaire en vertu de
l’article 407 de la Loi de 2001 sur
les municipalités, qui autorise
les emprunts à court terme pour couvrir les dépenses de l’exercice en cours
jusqu’à ce que les impôts soient perçus et que les autres recettes soient
rentrées, et d’autoriser un ou plusieurs membres du Comité sur les débentures
de prendre les mesures nécessaires et de consentir des prêts ou de conclure
d’autres ententes qui sont nécessaires pour contracter les emprunts
temporaires;
(c)
Le
pouvoir d’édicter les règlements nécessaires pour conclure des ententes avec
CDS Clearing and Depository Services Inc. (CDS) pour s’assurer que CDS accepte
l’émission de nouvelles débentures et qu’il conserve les débentures actuelles
de la Ville dans son système et autoriser un ou plusieurs membres du Comité sur
les débentures à prendre les mesures nécessaires et à signer tous les
documents, instruments et accords nécessaires pour donner cours aux ententes
avec CDS; et
(d)
Le
pouvoir d’édicter un règlement autorisant la Ville à émettre, au besoin, des
certificats de débenture pour remplacer les certificats oblitérés, perdus,
mystérieusement disparus, volés, détruits ou dématérialisés selon des
conditions jugées appropriées, comme la production d’un acte de cautionnement
avant le remplacement des certificats de débenture;
2. Sous
réserve de l’approbation de la première recommandation, d’attribuer la
délégation de pouvoirs décrits dans la recommandation exclusivement au Comité
sur les débentures jusqu’à la fin du mandat du Conseil municipal, auquel moment
la délégation pourra être révoquée ou reconduite;
3. Sous
réserve de l’approbation de la première recommandation, d’approuver les
modifications au Règlement de procédure afin de refléter les exigences d’avis
décrites dans le Document 1 et celles apportées au Règlement sur la délégation
de pouvoirs pour préciser que le pouvoir d’édicter des règlements sur les
débentures a été délégué au Comité sur les débentures; et
4. Sous
réserve de l’approbation de la première recommandation, de modifier la
politique sur les dettes et le financement afin de refléter la création du
Comité sur les débentures et la délégation de pouvoirs décrite dans la première
recommandation.
On April 12, 2006, in order to improve operating flexibility and efficiency, Council amended the Delegation of Authority By-Law to delegate to the Treasurer the authority to proceed with debenture issues provided that:
Ÿ the current year's debt servicing budget is not exceeded;
Ÿ the project debt authority has been previously approved by Council; and
Ÿ an information report is brought forward to Council on the conclusion of a debt issue.
Since April 2006, the City has successfully launched
three debenture issues raising a total of $300 million in accordance with the
Delegation of Authority By-law. Once
the terms and conditions of each debenture issue are finalized, a debenture
by-law is placed directly on the next available Council agenda.
On September 26, 2007, Council approved the Fiscal Framework document which provides guidelines for key financial decisions including debt. For capital works, principal and interest payments are not to exceed 7.5% of the City’s own source revenues and the increase in debt service costs in any year for non legacy projects will not be greater than 0.25% of taxes from property. Additional debt may be permitted for identifiable legacy projects that benefit multiple generations.
Each year Council enacts a Temporary Borrowing by-law in accordance with Section 407 of the Municipal Act, 2001 to authorize any short-term borrowings for current purposes which may occur from time to time. The legislation requires this by-law to be adopted each year although the amount required is not changed.
On April 11, 2007 Council adopted a Debt and Financing Policy, which provides the administrative framework and guidelines for issuing short and long-term debt. This report will discuss and recommend improvements to the current debt issue process.
DISCUSSION
Recommendation 1
Currently long-term debt is authorized for specific capital works through the Capital Budget or through a specific report and the Delegation of Authority By-law gives the authority to the City Treasurer to proceed with debenture issues by finalizing the terms and conditions of such issues. However the timing of a debenture issue is still constrained by the requirement for Council to enact debenture by-laws before the financial transaction can be closed and the proceeds from the debenture issue received. Because of the timing of Council meetings this may result in a delay of two to three weeks between the time the terms and conditions for a debenture issue are finalized and the time all the documents are completed and the proceeds received. As new processes are adopted in the financial markets, this timeline is now considered to be relatively long by current standards which can be as short as one week. Occasionally, the City will be required to pay a small premium (1-3 basis points) to investors for a delayed settlement. For a debenture issue of $100 million, this could amount to $10,000 - $30,000 per year. There are also occasions when other debt issuers may be trying to bring forward new debt issues in the capital markets at the same time as the City and it may be appropriate to delay the City’s debenture issue to avoid competing with another issuer for investor interest and funds at the same time.
The additional flexibility on the timing of the City’s debenture issue will also provide the ability to respond more quickly to market opportunities which may arise from time to time to take advantage of attractive interest rates. In addition, there are times during the year when Council meetings are less frequent such as during the summer, which may restrict the timing of a new debenture issue. If Council adopts the recommendation in this report to delegate authority to authorize and sign debenture by-laws, then the constraint of attempting to schedule a debenture issue close to a Council meeting would be removed.
Staff are recommending the establishment of a Debenture Committee in accordance with the Terms of Reference described in Document 1. It is proposed that the Committee be comprised of the Mayor, Vice-Chair, Audit Budget and Finance Committee, the City Treasurer and the City Manager, all of whom are very familiar with the City’s financial matters.
It is recommended that the Debenture Committee be authorized to enact by-laws from time to time authorizing the issuance of debentures, a by-law authorizing arrangements with CDS Clearing and Depository Services Inc. to ensure the City’s debentures are maintained on the CDS system, a by-law authorizing replacement debenture certificates and by-laws related to temporary borrowing. Delegated authority of these functions is permitted under the Municipal Act, 2001 and would improve the City’s access to financial markets and potentially result in savings in its debt service costs as the Committee could meet on shorter notice rather than requiring a full Council meeting to enact the required debenture by-laws.
Under section 23.1(1) of the Municipal Act, 2001, the City is authorized to delegate its powers and duties under the Act including legislative or quasi-judicial powers subject to certain restrictions. The City can only delegate its legislative powers to:
(a) one or more members of its council or a council committee;
(b) a body having at least two members of whom at least 50 percent are,
(ii) individuals appointed by its council,
(iii) a combination of individuals described in the above two subclauses.
A Debenture Committee composed of the members cited above would be consistent with subclause (b)(iii).
(a) Enactment of Debenture By-laws
It is recommended that authority to enact the by-laws authorizing the issuance of debentures be delegated to this Committee in those circumstances where Council has approved the project debt authority, the annual debt charges are within the debt servicing budget as approved by Council and the terms of the debenture issue comply with the City’s Debt and Financing Policy. Since the decision to borrow has previously been approved by Council, and the decision to delegate the authority to proceed with specific debenture issues by the finalization of the terms and conditions thereof has been delegated to the Treasurer, delegating the authority to enact the debenture by-laws would enable the City to act more quickly to take advantage of favourable market situations and thereby possibly reduce costs to the City.
(b) Authorization to enter into Arrangements with CDS
The City and the former Region have issued debentures through the CDS book entry system since 1995. This system allows the City to issue global debenture certificates to CDS rather than issuing a debenture certificate to each individual investor. CDS holds the global debenture certificates and records the holdings in the CDS system of each of its participants (the “Participants”) which use the services of CDS and act on their own behalf or on behalf of beneficial owners (who are clients or customers of the Participants). The Participants record and track the holdings of each individual client or customer. Subsequent sales and re-registrations of debenture certificates are maintained through the CDS and Participant networks. With the CDS system, the City is not required to print and maintain thousands of blank debenture certificates to provide for exchanges and re-registrations of debentures during the term of the debenture issue. It is understood that virtually all Canadian publicly traded stock and bond issues are issued and maintained through the CDS network. The costs of using the CDS book entry system are nominal compared to the costs of printing and safekeeping blank debenture certificates for each debenture issue and recording changes in ownership as debentures are sold and transferred during the term of the debenture issue which may be as long as 20 years.
CDS has introduced changes to its book entry system effective August 1, 2009 which will apply to all Ontario municipalities using the CDS book entry system. These changes are being implemented by CDS to further reduce paper documentation and streamline its processes. A debenture certificate replacement by-law is required to be passed before the new arrangements are entered into with CDS in order to preserve the City’s ability to request indemnification from the debenture holder against any losses which may arise as a result of the need to replace an original debenture certificate.
Since this matter is linked to debenture issuance, it was considered appropriate to delegate the enactment of such by-laws to the Debenture Committee.
(c) Authorization
to Issue Replacement Debenture Certificates
Prior to issuing debentures through CDS, definitive debenture certificates were issued directly to individual registered debentureholders. Occasionally a debenture certificate would be lost or damaged and require replacement. In such circumstances before a replacement certificate would be issued, the registered holder of the debenture certificate would usually be required to provide a bond of indemnity or such other indemnification considered satisfactory to protect the former Region against loss if the original certificate was found and presented for payment.
Although unlikely with CDS, it is nevertheless possible that the City could be requested to issue a replacement certificate in various circumstances such as the loss or defacement of a global debenture certificate. The new CDS procedures provide that CDS will only provide indemnification if the by-laws of the issuer require such indemnification as a condition of issuing a replacement certificate. Accordingly, a debenture certificate replacement by-law is required to be passed before the new arrangements are entered into with CDS in order to preserve the City’s ability to request indemnification from CDS against any losses which may arise as a result of the need to replace an original global debenture certificate.
Again because of the connection to debentures, it would be appropriate to delegate the enactment of this by-law to the Debenture Committee.
(d) Temporary Borrowing By-Law
In
accordance with Section 407 of the Municipal
Act, 2001, a municipality may authorize such short-term borrowings
for current purposes as may be required from time to time. The maximum amount of short-term borrowings
that may be outstanding at any one time, determined in accordance with
subsection (2) of Section 407, is based
on the estimated revenues adopted by Council for the preceding year until the
estimated revenues for the current year have been adopted as provided for in
subsection (3).
The
consolidated cash position for the City is normally sufficient to finance its
usual daily cash requirements as well as to allow cash to be invested in a
variety of money market investments in order to optimize investment
income. Occasionally, however, unusual
or unanticipated cash shortfalls will result in overdraft positions. Annually Council receives a request to enact
a temporary borrowing by-law.
Under
the existing circumstances with the City having sufficient cash flow available
to meet its operating requirements, the temporary borrowing by-law is
administrative in nature which supports the credit arrangements which are in
place with the City’s banker, Royal Bank of Canada. Short term borrowings
occassionally occur to cover bank overdrafts. On December 9, 2009 Council
enacted By-law 2009-403 a temporary
borrowing by-law for 2010 (Report ACS2009-CMR-FIN-0057). Delegating authority to enact this by-law in
the future to the Debenture Committee would remove this administrative
requirement from Council’s agenda.
Since
the parameters for temporary borrowing are established in the Municipal Act,
2001,this is a routine matter that can appropiately be delegated to the
Debenture Committee.
This is a provision to ensure that the delegation remains in full force and effect and that the delegation is exclusive to the Debenture Committee unless Council revokes such delegation at the end of the term of Council in order to assure external legal counsel that the decisions taken by the Debenture Committee are binding and final.
In order to implement the recommendations to establish the Debenture Committee, it is necessary to amend the Procedure By-law to indicate the procedures to be followed regarding notice both to Committee members and the general public. In view of the routine nature of the authority to be exercised by the Debenture Committee and the necessity for the City to react quickly to market conditions to coincide with investor demand and market liquidity, it was felt that a minimum of two calendar days advance notice of a meeting of the Debenture Committee is sufficient. For the general public, such notice would be provided by public service announcements on the City’s website. A debenture certificate replacement by-law is required to be passed by Council before the new arrangements are entered into with CDS in order to preserve the City’s ability to request indemnification from CDS against any losses which may arise as a result of the need to replace an original global debenture certificate.
The Delegation of Authority By-law currently provides the Treasurer with authority to proceed with a debenture issue in accordance with the provisions of that by-law. After the terms and conditions of the debenture issue have been finalized by the Treasurer the Treasurer and the City Clerk and Solicitor are jointly authorized to place the debenture by-law directly on the Agenda of Council. If the delegation of authority to the Debenture Committee described in this report is authorized by Council, the Delegation of Authority By-law will be amended to indicate that the debenture by-law will go to the Debenture Committee for enactment. The exercise of delegated authority by the Treasurer and the Debenture Committee will then be reported to Council at the earliest opportunity after the debenture issuance. Currently this information report goes to Corporate Services and Economic Development Committee and to Council.
Similarly, the Policy on Debt and Financing that was approved by City Council on April 11, 2007 will require amendments to reflect the establishment of the Debenture Committee and its authority to enact debenture by-laws upon approval of the recommendations.
This is an administrative matter which does not require
public consultation.
Amendments to the Municipal Act, 2001 (the “Act”) that came into effect in January 2007 have expanded a municipality’s ability to delegate its powers. These amendments are now found in sections 23.1 to 23.5 of the Act. Prior to 2007, a municipality was only permitted to delegate powers that were administrative in nature. With the enactment of these amendments, a municipality may now delegate legislative or quasi-judicial powers to one or more members of council or a council committee; to a body having members of whom at least 50% are members of council, individuals appointed by council or a combination thereof or to an officer, employee or agent of the municipality. When authorizing such delegations, Council may place conditions on the delegation. The legislation also specifies certain powers that may not be delegated (including the power to enact zoning by-laws or the adopting of official plans or budgets) but such restrictions do not include by-laws to authorize the issuance of debentures enacted under Part XIII of the Act dealing with debt and investment.
Approving the recommendation will provide more flexibility in issuing debt without diminishing the guidelines provided in the Fiscal Framework, the Debt and Financing Policy approved by Council and the Delegation of Authority By-law 2009-231 authorizing the City Treasurer to proceed with debt issues by finalizing the terms and conditions of such issues. In addition, the change has the potential to reduce debt service charges by up to $30,000 annually on a $100 million debt issue.
RURAL IMPLICATIONS
There are no rural implications to implementing the proposed recommendations in this Report.
Document 1 Terms of Reference
If the recommendations are approved, the City Clerk and Solicitor will prepare a by-law authorizing the delegation of authority described in this report for enactment at the next available Council meeting.
Document 1
· The Debenture Committee shall consist of the following members:
the Vice-Chair, Audit, Budget and Finance Committee;
· The Mayor shall be the Chair of the Debenture Committee and the Vice-Chair, Audit, Budget and Finance Committee shall be the Vice-Chair
· A quorum shall be one-half of all members
· The committee members serve by virtue of their positions and until a successor is appointed
· The Debenture Committee holds this authority exclusively and City Council retains no jurisdiction to revoke this delegation until the end of the term of City Council at which time this delegation may be revoked otherwise this delegation remains in effect
· The Debenture Committee is delegated the authority to make final decisions with respect to the following matters to the extent that the authority has not already been delegated:
(1) the authority to enact debenture by-laws to authorize the issuance of debentures where the project debt authority has been approved by Council and the Treasurer has proceeded with one or more debt issues pursuant to Section 16, Schedule “A” of By-law No. 2009-231, the Delegation of Authority By-law;
(2) the authority to enact temporary borrowing by-laws for current operations in accordance with section 407 of the Municipal Act, 2001 to authorize short term borrowing for the purpose of meeting current expenditures in any year until such time as the taxes are collected and other revenues are received and to authorize any one or more members of the Debenture Committee to do all things and execute any loan or other agreements required to give effect to any temporary borrowing;
(3) the authority to enact the required by-law(s) to enter into new arrangements with CDS Clearing and Depository Services Inc. (“CDS”) to ensure that CDS accepts new debenture issues and maintains existing City debentures in the CDS system and to authorize any one or more members of the Debenture Committee to do all things and execute all documents, instruments and agreements in order to make these arrangements effective;
(4) the authority to enact a by-law authorizing the City to issue replacement debenture certificates if and when required, to replace defaced, lost, mysteriously or unexplainably missing, stolen, destroyed or in other instances such as dematerialized debenture certificates on such terms and conditions considered appropriate including a bond of indemnity as a condition of issuing replacement debenture certificates.
· The Debenture Committee shall provide an information report to Council at the earliest opportunity after each debenture issuance regarding the exercise of its delegated authority
· The Debenture Committee shall meet at the call of the Chair
· The Debenture Committee shall be subject to the provisions of the Procedure By-law save and except that notice will be given to members of the Committee a minimum of two calendar days in advance of the meeting and to the general public via a public service announcement a minimum of two calendar days in advance of the meeting on the City’s website.
· The City Clerk and Solicitor Department will provide meeting management support to the Debenture Committee