4.       TEMPORARY BORROWING BY-LAW FOR 2008 CURRENT OPERATIONS

 

RÈGLEMENT MUNICIPAL D’EMPRUNT TEMPORAIRE POUR LES OPÉRATIONS
COURANTES DE 2008


 

 

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 2008 in accordance with existing legislation.

 

 

Recommandation du comité

 

Que le Conseil approuve l’adoption du règlement municipal provisoire, figurant dans la pièce jointe 1, autorisant les emprunts temporaires pour les besoins actuels de l’année 2008, conformément à la loi établie.

 

 

 

 

 

Documentation

 

1.      City Treasurer's report dated 6 November 2007 (ACS2007-CMR-FIN-0028).

 

 

 

 


Report to/Rapport au :

 

Corporate Services and Economic Development Committee

Comité des services organisationnels et du développement économique

 

6 November 2007 / le  6 novembre 2007

 

Submitted by/Soumis par :  Marian Simulik, City Treasurer / trésorière municipale

 

Contact Person/Personne ressource : Gerry Mahoney, Manager, Treasury

Financial Services/ Trésorerie, Services financiers

(613) 580-2424 x 21310, gerry.mahoney@ottawa.ca

 

City Wide / À l'échelle de la ville

Ref N°: ACS2007-CMR-FIN-0028

 

 

SUBJECT:

TEMPORARY BORROWING BY-LAW
FOR 2008 CURRENT OPERATIONS

 

 

OBJET :

RÈGLEMENT MUNICIPAL D’EMPRUNT TEMPORAIRE
POUR LES OPÉRATIONS COURANTES DE 2008

 

 

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 2008 in accordance with existing legislation.

 

 

RECOMMANDATION DU RAPPORT

 

Que le Comité des services organisationnels et du développement économique recommande au Conseil d’approuver l’adoption du règlement municipal provisoire, figurant dans la pièce jointe 1, autorisant les emprunts temporaires pour les besoins actuels de l’année 2008, 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 Debt and Financing Policy adopted by Council on 11 April 2007, identifies sources of short-term financing available to the City.  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.  

 

The amount authorized in the attached Short Term Borrowing By-law has been set at $70 million.

 

 

DISCUSSION

 

The City uses a 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 2008 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.   The City, as a guideline, continues to 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 as a contingency to provide cash resources to maintain operations and to respond to extraordinary and unanticipated events.   

 

A review of the 2008 cash forecast indicates that liquidity may fall below this threshold during January and February, 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.  Staff monitor expected cash flows and financial market conditions daily and would only borrow funds if a reduction in liquidity was expected to continue for an extended period and a draw on the City’s short-term loan facility was considered to be the best available alternative at the time. 

 

The City has a line of credit arrangement with its banker, Royal Bank of Canada, in the amount of $70 million.    This type of loan facility is listed as an eligible source of short-term financing in the City’s Debt and Financing Policy.   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 6.25%, or through Bankers Acceptances (BA’s). 

 

A credit facility based on Banker's Acceptances (BA's) is frequently used by corporate and other borrowers for short-term borrowing purposes.   There is a minimum amount of $500,000, 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 BA's 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 4.86% for 30 days, 4.87% for 60 days and 4.87% for 90 days plus the applicable stamping fee.  Interest rates for BA’s are constantly changing but once a BA is issued, the rate is fixed for the term of the BA.

 

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 2008 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.   

 

 

STRATEGIC DIRECTIONS

 

Not applicable

 

 

SUPPORTING DOCUMENTATION

 

Attachment 1 – Draft Short Term Borrowing By-law

 

 

DISPOSITION

 

City Solicitor to place the draft by-law on the Agenda of Council for enactment by City Council.


 

ATTACHMENT 1

BY-LAW NO. 2007 -

 

                        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 2008 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 2008, 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 2008;

 

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 2007 as set forth in the estimates adopted for the year 2007 amounted to two billion, one hundred and seventy-two  million, and one hundred and seventy-six thousand dollars ($2,172,176,000.00);

 

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 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 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 2008, 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 2008, fifty per cent (50%) of the total, or during the period from October 1 to December 31 of the year 2008, 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       , 2007.

 

 

CITY CLERK                                                 MAYOR