|
5. TEMPORARY BORROWING BY- LAW FOR
2007 CURRENT OPERATIONS RÈGLEMENT
MUNICIPAL D'EMPRUNT TEMPORAIRE POUR LES OPÉRATIONS COURANTES DE 2007 |
COMMITTEE RECOMMENDATION
That Council approve the enactment of the draft by-law, contained in
Attachment 1, authorizing temporary borrowings for current purposes for the
year 2007 in accordance with existing legislation.
RECOMMENDATION DU COMITÉ
Que le Conseil approuve le décret
d’un règlement municipal provisoire, figurant dans la pièce jointe 1,
autorisant les emprunts temporaires pour les besoins actuels de l’année 2007,
conformément à la loi établie.
DOCUMENTATION
1.
Chief
Corporate Services Officer’s report dated 10 October 2006
(ACS2006-CRS-FIN-0043).
Report to/Rapport au :
Corporate Services and Economic Development Committee
Comité des services organisationnels
et du développement économique
and Council / et au Conseil
10 October 2006 / le 10 octobre 2006
Submitted by/Soumis par : Greg Geddes, Chief Corporate Services Officer/
Contact
Person/Personne ressource: Marian
Simulik, Director, Financial Services and City Treasurer/Directrice des
services financiers et trésorière municipale
(613)
580-2424 x 14159, Marian.Simulik@ottawa.ca
|
SUBJECT: |
|
|
|
|
|
OBJET : |
RÈGLEMENT MUNICIPAL D'EMPRUNT
TEMPORAIRE POUR LES OPÉRATIONS COURANTES DE 2007 |
REPORT RECOMMENDATION
That the Corporate Services and Economic Development Committee recommend Council approve the enactment of the draft by-law, contained in Attachment 1, authorizing temporary borrowings for current purposes for the year 2007 in accordance with existing legislation.
RECOMMANDATION DU RAPPORT
Que le Comité des services organisationnels et du
développement économique recommande au Conseil d’approuver le décret d’un règlement
municipal provisoire, figurant dans la pièce jointe 1, autorisant les emprunts
temporaires pour les besoins actuels de l’année 2007, conformément à la loi
établie.
BACKGROUND
In accordance with Section 407 of the Municipal Act, 2001, a municipality may authorize such short-term borrowings for current purposes as may occur from time to time. The maximum amount 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 requested authority of $70 million is within the limits set out in subsection (2) of Section 407. The draft by-law authorizes the Mayor and City Treasurer to execute any loan agreements necessary to implement the borrowing.
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. From 1 January to 31 August 2006, two overdraft positions occurred resulting in a total interest cost of $292. During the same period, the City's cash balances resulted in bank interest earnings of $262,504.
The amount authorized in the attached Short Term Borrowing By-law has been increased to $70 million from $50 million in previous years. The short-term borrowing authority had been set at $50 million since 2001 at the time of amalgamation, without any adjustment as the City's expenditures and revenues increased during this time. An increase in the short-term borrowing authority to $70 million is recommended to bring the short-term borrowing authority more in line with current City cash inflows and outflows.
DISCUSSION
Given the expected flow of cash revenues to the City with property taxes being paid in March and June, it is anticipated that the City's cash and short term investments may fall below a minimum of one month's forecast expenditures which is considered to be the minimum liquidity required for the City to meet on-going expenditures.
The City uses a very proactive cash management system in order to maximize interest earnings on unutilized cash flow and minimize borrowing requirements. A forecast of the expected daily cash position for the next twelve months is updated each business day. The cash forecast for 2007 indicates that cash outflow will average $180 million monthly, excluding Ontario Works, Financial Assistance and Employment Programs. Of course there will be incoming revenue from tax and water billings, especially during months when major tax billings occur, anticipated during March and June, and other sources of continuing revenue such as POA, building permits, parking tickets, payments from the Province, and GST rebates. However, as a contingency, to provide cash resources to maintain operations and to respond to extraordinary and unanticipated events, it is recommended that the City maintain its cash balances plus its short-term investments maturing within the next twelve months at no less than the expected average outflow of funds for one month.
A review of the 2007 cash forecast indicates that liquidity may fall below this threshold during January and February as well as in December 2007, which are typically the months in any year with the lowest cash positions. However, actual cash flows invariably will differ from forecasts prepared this long in advance. Borrowings will only be made to maintain sufficient liquidity as outlined above.
At the present time, the City has a line of credit arrangement with its banker, Royal Bank of Canada, in the amount of $50 million. There is no cost for this credit facility and interest costs are only incurred when amounts are borrowed under the facility. Interest on this facility is based on the Prime rate of the bank which is currently 6%. In order to meet any temporary borrowing requirements extending beyond a few days, it is anticipated that arrangements will be made to access a number of other borrowing alternatives.
A credit facility, based on Banker's Acceptances (BAs), is frequently used by corporate and other borrowers for short-term borrowing purposes. Arrangements for such a facility are normally made through a bank or perhaps an investment firm if there is a large amount required for an extended period of time. There is usually a minimum amount of $100,000 which can be borrowed and the terms are fixed typically at 30, 60 or 90 days. The BA market in Canada is well developed and borrowers and investors are actively trading BAs on a daily basis. The cost of borrowing would be the quoted rate for the term selected plus a stamping fee for a bank endorsement on the bank draft. Currently, BA rates are 4.31% for 30 days, 4.32% for 60 days and 4.33% for 90 days plus the applicable stamping fee. Interest rates for BAs are constantly changing but once a BA is issued, the rate is fixed for the term of the BA.
Eligible participants are now able to obtain short-term funding by bidding on Government of Canada surplus cash balances through the Bank of Canada. This facility is known as the Receiver General Auction. Municipalities may apply to become an eligible participant. On a daily basis eligible participants are able to view what is available and submit their request for funding at the posted rate. Funding is subject to availability and is generally limited to terms of up to 90 days. The interest rate would be fixed for the term for each borrowing. The overall interest cost of borrowing under this program is expected to be less than BAs. At this time it is staff's understanding that in addition to the proposed by-law attached to this report, a credit rating, a participant agreement and evidence of signing authorities will be required to complete an application to become an eligible participant. The attached Short Term Borrowing By-law authorizes the signing and execution of any required documents to participate in this funding facility. However, since funding is subject to availability and the borrowing term may not coincide with any of the City's requirements at any point in time, it is anticipated that the City will maintain its line of credit with its banker, set up a BA credit facility and apply to become an eligible participant in the Receiver General Auction.
A maximum temporary borrowing limit not to exceed $70,000,000 at any one time is considered to be sufficient to meet the short term requirements from operations during 2007 in accordance with existing legislation.
CONSULTATION
The authority requested to enact a by-law authorizing temporary borrowings is an administrative matter and entirely in accordance with existing legislation. The proposed by-law would facilitate the administration of payments by the City and the cash management process. Public consultation is not required on this administrative matter.
FINANCIAL IMPLICATIONS
The interest expense, which may be incurred will be offset by earnings from the investment of surplus funds.
SUPPORTING DOCUMENTATION
Attachment 1 - Draft Short Term Borrowing By-law
DISPOSITION
City Solicitor to place the draft by-law on the Orders of the Day for enactment by City Council.
DOCUMENT 1
BY-LAW NO. 2006 -
A by-law of the City of Ottawa to authorize the borrowing of monies to meet the current expenditures of the City of Ottawa in 2007 until the taxes are collected and other revenues are received.
WHEREAS the Council of the City of Ottawa may, pursuant to Section 407 of the Municipal Act, 2001, S.O. 2001, c. 25, as amended, (the "Municipal Act"), enact a by-law to authorize temporary borrowing of the amount Council considers necessary to meet the current expenditures of the City of Ottawa, hereinafter called the "City", until the taxes are collected and other revenues are received for the year, including the amounts required in the year for sinking and retirement funds, principal and interest due on any debt of the City, school purposes and other purposes the municipality is required by law to provide for;
AND WHEREAS subsection (2) of Section 407 of the said Municipal Act provides that the amount that may be borrowed at any one time for the purposes as aforesaid together with any similar borrowings that have not been repaid, shall not exceed from January 1st to September 30th of the year 2007, 50 per cent of the total, and from October 1st to December 31st of the year 2007, 25 per cent of the total of the estimated revenues of the City as set forth in the estimates adopted for the year 2007;
AND WHEREAS subsection (3) of Section 407 of the said Municipal Act provides that until such estimates are adopted, the limitations upon borrowing prescribed above shall temporarily be calculated using the estimated revenues of the City as set forth in the estimates adopted for the previous year,
AND WHEREAS the estimated revenues of the City for the year 2006 as set forth in the estimates adopted for the year 2006 amounted to two billion, one hundred and thirteen million, and two hundred and twenty-four thousand dollars ($2,113,224,000.00);
AND WHEREAS it may be necessary to borrow a sum not to exceed seventy million dollars ($70,000,000.00) to meet the current and other expenditures of the City as aforesaid until the taxes are collected and other revenues are received;
AND WHEREAS such sum does not exceed from January 1st to September 30th of the year 2006, 50 per cent of the total and from October 1st to December 31st of the year 2006, 25 per cent of the total of the estimated revenues of the City as set forth in the estimates adopted for the year 2006 in accordance with the said Municipal Act;
THEREFORE the Council of the City of Ottawa enacts as follows:
TEMPORARY BORROWING
1. The Mayor and the Treasurer of the City are hereby authorized to borrow from time to time from any person who is willing to loan the same for the purpose of meeting the current expenditures of the City in the year 2007, including the amounts required for sinking and retirement funds, principal and interest due on any debt of the City, school purposes, other purposes the municipality is required by law to provide for and the amount of principal and interest payable by a person or municipality primarily liable for a debt, if the City has guaranteed the debt and the debt is in default until the taxes are collected and other revenues are received.
LIMIT ON BORROWING
2. The amount that may be borrowed at any one time as authorized by Section 1 hereof, together with the total of any similar borrowings that have not been repaid, shall not exceed, during the period from January 1 to September 30 of the year 2007, fifty per cent (50%) of the total, or during the period from October 1 to December 31 of the year 2007, twenty-five per cent (25%) of the total of the estimated revenues of the City as set forth in the estimates adopted for the year, provided that in no case shall the amount exceed seventy million dollars ($70,000,000.00).
CALCULATION OF ESTIMATES
3. Until such estimates are adopted, the limitations upon borrowing prescribed by Section 2 hereof shall temporarily be calculated upon the estimated revenues of the City as set forth in the estimates adopted for the previous year.
REVENUES NOT INCLUDED IN CALCULATION
4. For the purposes of Sections 2 and 3, estimated revenues do not include revenues derivable or derived from,
(a) any borrowing including through any issue of debentures,
(b) a surplus, including arrears of taxes, fees or charges, or
(c) a transfer from the capital fund, reserve funds or reserves.
INTEREST
5. The amount borrowed as authorized by Section 1 shall bear interest at such rate or rates as may be agreed upon.
LOAN AGREEMENTS
6. The City shall draw and deliver from time to time loan agreements and such other agreements as may be required to evidence and secure the said borrowings as authorized by this by-law.
EXECUTION OF BORROWING INSTRUMENTS
7. Any loan agreement or other agreement made under the authority of this by-law shall be signed by the Mayor and the Treasurer of the City and sealed with the seal of the City.
LENDER FURNISHED WITH BY-LAW AND STATEMENT
8. At the time that any amount is borrowed under Section 1, the Treasurer shall furnish to the lender a copy of this by-law and a statement showing the nature and amount of the estimated revenues of the current year not yet collected, or where the estimated revenues have not been adopted, a statement showing the nature and amount of the estimated revenues of the City as set forth in the estimates adopted for the next preceding year, and also showing the total of any amounts borrowed under Section 1, that have not been repaid.
REPAYMENT
9. All sums of money borrowed under the authority of this by-law shall be repaid to the person from whom the same were borrowed, as soon as may be after the taxes are collected and other revenues are received for the current year.
CREATION OF CHARGE
10. The amount that is borrowed under Section 1 shall, with interest thereon, be a charge upon the whole or any part or parts of the revenues of the City for the current year and for any preceding years as and when such revenues are received; provided that such charge does not defeat or affect and is subject to any prior charge then subsisting in favour of any other lender.
EXECUTION OF AGREEMENTS
11. The Mayor and the Treasurer of the City are hereby authorized to sign on behalf of the City, and to furnish to the lender, an agreement or agreements providing that the sums borrowed shall, with interest thereon, be a charge upon the whole or any part or parts of the revenues of the City for the current year and for any preceding years as and when such revenues are received, but such charge does not defeat or affect and is subject to any prior charge then subsisting in favour of any other lender.
SHORT TITLE
12. This by-law may be cited as the "Borrowing By-law".
ENACTED AND PASSED this day of , 2006.
CITY CLERK MAYOR