HomeMy WebLinkAboutCS 06-03
REPORT TO FINANCE &
OPERATIONS COMMITTEE
Report Number: CS 06-03
Date: May 14, 2003
From:
Gillis A. Paterson
Director, Corporate Services & Treasurer
Subject:
Lease Financing Policy
Recommendation:
1.
It is recommended that Report CS 06-03 of the Director, Corporate Services &
Treasurer be received and that:
2.
the attached Lease Financing Policy be approved effective immediately; and,
3.
the appropriate officials of the City of Pickering be authorized to give effect
thereto.
Executive Summary: The Province of Ontario recently passed Ontario Regulation
401/02, under the Municipal Act, 2001, as amended, which deals with financing leases
for municipal capital facilities. A "financing lease", as defined under the Regulation, is 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.
"Municipal capital facilities" include land, as defined in the Assessment Act, works,
equipment, machinery and related systems and infrastructures.
The Regulation specifies that Council must adopt a statement of lease financing
policies and goals before Council enacts a by-law authorizing a financing lease.
To ensure compliance with the Regulation, attached Policy on Lease Financing has
been prepared for Council's approval.
Financial Implications: This policy is required to be approved by Council under the
Municipal Act, 2001 as amended and Regulations thereunder before any leases can be
entered into. While none are forthcoming at this time, it is prudent to have this policy in
place now, before any need is identified.
Report CS 06-03
Date: May 14, 2003
Subject: Lease Financing Policy
Page 2
Background: This policy is subject to the Legislation and Regulations of the
Province of Ontario including but not limited to the Municipal Act, 2001, as amended
and Ontario Regulation 401/02 and any amendments thereto.
The proposed policy states that the City of Pickering is committed to the philosophy
whereby City facilities and infrastructure are not built unless City funding is available,
including, internal loans and/or debt financing. However, the City also recognizes that
there may be circumstances when leasing an asset is preferred over purchasing it
outright. It is the City of Pickering's intent to use lease financing where in the opinion of
the Treasurer, it is financially advantageous over other forms of financing or it provides
a benefit in the acquisition or use of an asset. The purpose of the policy is to establish
a framework and outline requirements for entering into leases of municipal capital
facilities, and for reporting such leases to Council.
All lease payments are a long-term financial obligation and shall form part of the Annual
Repayment Limit as established annually by the Ministry of Municipal Affairs and
Housing and the Treasurer shall update the amount approved under this Limit and
provide such certification as required.
The policy identifies types of financing leases which will not typically result in a material
impact for the City. These include but are not limited to:
1.
Any lease entered into in accordance with the City's Budgets, By-Laws and
Policies consisting of:
. Office equipment;
. Vehicles;
. Information technology infrastructure, hardware, and software; and
. Communications equipment;
In such cases materiality, financial or otherwise, becomes the determining factor
in considering lease financing for the above capital expenditures as may be
approved by Council in the annual current or capital budgets.
2.
Any leases in place at the time of Council approval of the attached policy.
The attached policy also defines "material impact" as 10% of the annual Debt and
Financial Obligation Repayment Limit for the City of Pickering or a lease that extends
beyond 5 years. The City's Annual Repayment Limit (ARL) is approximately $11.2
million for 2003 of which approximately $9.5 million remains uncommitted. The Lease
Financing Policy also identifies types of leases which are expected to have no material
impact on the municipality.
Report CS 06-03
Date: May 14, 2003
Subject: Lease Financing Policy
Page 3
This policy is being presented to Council prior to receiving input from the Policy Review
Committee in order to have it in place prior to a need arising. This Committee's review
may result in some changes to wording to ensure consistency with other City policies.
Attachments:
1.
Lease Financing Policy
Prepared I Approved I Endorsed By:
GAP:vw
Attachment
Copy: Chief Administrative Officer
,~~~
Gillis A. Paterson
Director, Corporate Services & Treasurer
Recommended for the consideration of
Pickering City Council
"
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001
Policy Title: LEASE FINANCING POLICY
POLICY STATEMENT:
This policy constitutes the statement of the City of Pickering's lease financing policies and
goals under Ontario Regulation 401/02, to the Municipal Act, 2001, as amended.
POLICY OBJECTIVE:
The City of Pickering is committed to the philosophy whereby City facilities and
infrastructure are not built unless City funding is available, including, internal loans and/or
debt financing. However, the City also recognizes that there may be circumstances when
leasing an asset is preferred over purchasing it outright. It is the City of Pickering's intent
to use lease financing where in the opinion of the Treasurer, it is financially advantageous
over other forms of financing or it provides a benefit in the acquisition or use of an asset.
The objective of this Policy is to ensure that prior to entering into any lease agreement the
details are reviewed and approved by the Director, Corporate SeNices & Treasurer and
that the full disclosure of all details, terms and conditions of all leases which, in the opinion
of the Treasurer, mayor will have a material financial impact on the City are provided to
Council prior to the lease agreement being approved.
When considering a financing lease the Council and the Treasurer must take into
consideration financial and other risks associated with this type of financing including but
not limited to: costs of arranging and entering into a lease; term; annual and total
payments; buy-out provisions; costs of termination; cost of ownership of the asset at the
end of the lease; restrictions or covenants on use and maintenance of the facility during the
term of the lease; useful life of the facility being leased; other forms of acquiring and
financing the use of the facility; budgetary implications and the residual value of the asset.
Page 1 of 1
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001/001
Policy Title: LEASE FINANCING POLICY
GENERAL:
01
Definitions
01.01
01.02
01.03
01.04
01.05
01.06
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, would result in a Material Impact.
Financinq Lease - A lease allowing for the provision of Municipal
Capital Facilities (Capital Lease) or services (Operating Lease) if the
lease mayor will require payment by the municipality beyond the term
for which Council was elected. There are two categories of Financing
Lease: Material and a Non-Material Lease.
Material Impact - Costs or risks that significantly affect, or would
reasonably be expected to have a significant effect, on the
municipality's Debt and Financial Obligation Annual Repayment Limit
prescribed under Ontario Regulation 799/94, as amended, in the
amount of 10% or greater, or the lease extends or can be extended
beyond a five year term.
Material Lease -- A Financing Lease which would result in material
financial impact for the municipality.
Municipal Capital Facilities -- Includes land, buildings, works,
equipment, machinery and infrastructures and related systems used in
the course of City business.
Non-Material Lease - A Financing lease which would not result in a
Material Impact or a Combined Material Impact for the municipality or
those leases included under Non-Material Leases (Refer to Section
09).
Page 1 of 7
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001/001
Policy Title: LEASE FINANCING POLICY
02
Responsibilities:
02.01
Council to:
(a)
(b)
02.02
Approve this policy.
Actively support the Lease Financing Policy.
Chief Administrative Officer to:
(a)
02.03
Actively support the Lease Financing Policy.
Department /Division Heads/Manaqers to:
(a)
02.04
Actively support the Lease Financing Policy.
Director. Corporate Services & Treasurer to:
(a)
(b)
(c)
03
Authority
03.01
Implement, oversee and interpret the Lease Financing Policy.
Approve amendments to this policy which are minor in nature
and which do not result in a material change to the intent of the
policy.
Actively support the Lease Financing Policy.
Subject to this Policy and subject to applicable Provincial
Legislation and Regulations the Director, Corporate Services &
Treasurer is authorized to:
Page 2 of 7
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001/001
Policy Title: LEASE FINANCING POLICY
(a)
determine which leases are Material or Non-Material and
administer the review and approval of the leases
accordingly;
(b)
enter into leases for the acquisition of municipal capital
facilities.
04
Classes of Municipal Facilities
Financing lease agreements may be entered into for the provision of the following
classes of municipal capital facilities:
facilities used by council
facilities used for the general administration of the municipality
municipal roads, highways and bridges
municipal local improvement and public utilities, except facilities for the
generation of electricity
municipal facilities related to the provision of telecommunications, transit and
transportation systems
municipal facilities for water, sewers, sewage, drainage and flood control
municipal facilities for the collection and management of waste and garbage
municipal facilities related to policing, fire-fighting and by-law enforcement
municipal facilities for the protection, regulation and control of animals
municipal facilities for public libraries
parking facilities ancillary to facilities described above
municipal community centers and ancillary parking facilities
municipal facilities used for cultural, recreational or tourist purposes and
ancillary parking facilities
municipal general parking facilities
Page 3 of 7
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001/001
Policy Title: LEASE FINANCING POLICY
05
Required Contents
Every Financing Lease must include a schedule of all amounts of payment,
required under the lease and that may be required under any possible termination,
extensions or renewals of the lease.
06
Process for Approval of a Material Lease
06.01
Treasurer's Report
Before entering into a Material Lease, the Director, Corporate Services
& Treasurer shall prepare a report to Council assessing the costs and
financial and other risks associated with the proposed Material Lease,
including any possible extensions or renewals. The report will include:
(a)
(b)
(c)
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;
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 vary, and the methods or
calculations, including possible financing rate changes, that may
be used to establish that variance under the lease;
a statement summarizing any contingent payment obligations
under the lease that, in the opinion of the Director, Corporate
Services & Treasurer, would result in a Material Impact for the
municipality, including lease termination provisions, equipment
loss, equipment replacement options and guarantees and
indemnities;
Page 4 of 7
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001/001
Policy Title: LEASE FINANCING POLICY
06.02
07
(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 Director, Corporate Services &
Treasurer or Council considers advisable.
As part of the consideration of any lease including those requiring
Council's approval, the Director, Corporate Services & Treasurer is
authorized to obtain such legal and financial advice, as is considered
necessary.
Council's Role
07.01
07.02
07.03
07.04
Council is responsible for determining whether 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.
In considering the report and recommendation from the Director,
Corporate Services & Treasurer, Council is responsible for ensuring
that legal and financial advice has been obtained, and must consider
whether the scope of the proposed lease warrants further legal or
financial advice from an independent source.
Prior to entering into the lease, Council must advise the Region of
Durham, in writing, of the proposed Financing Lease.
If Council decides to approve entry into the Financing Lease, such
approval shall be by by-law.
Page 5 of 7
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001/001
Policy Title: LEASE FINANCING POLICY
08
Chanqe in Circumstances
08.01
09
If, at any time after a report is made, but before the Financing Lease
is entered into, the Director, Corporate Services & Treasurer
becomes of the opinion that a changed circumstance with respect to
the proposed lease may result in a Material Impact or a Combined
Material Impact for the municipality, the report must be updated as
soon as is reasonably possible and presented to Council.
Non-Material Leases
09.01
10
The following types of Financing Leases will not result in a Material
Impact for the municipality and are therefore deemed Non-Material
Leases:
(a)
Any lease entered into in accordance with the City's By-laws
and Policies including, but not limited to, leases of: office
equipment; vehicles; information technology infrastructure,
hardware and software; communications equipment;
machinery and equipment;
(b)
Any leases in place at the time of Council approval of this
policy.
Meaninq of Combined Material Impact
10.01
A proposed Non-Material Lease would have a Combined Material
Impact if the total value of all such Non-Material Leases were greater
than 10% of the City's Annual Repayment Limit. The proposed Non-
Material Lease is to be reported and reviewed by Council as if it were
a Material Lease under this policy.
Page 6 of 7
CITY POLICY/PROCEDURE
Approval: Date Originated: Policy Number:
Chief Administrative Officer Classification: FIN
Reference: Date Revised:
Category:
Subject: 001/001
Policy Title: LEASE FINANCING POLICY
10.02
Where such total value is less than 10%, a proposed Non-Material
Lease is not required to be reported to and reviewed by Council
under this policy.
11
Annual Report to Council
11.01
Once in every fiscal year, the Director, Corporate Services & Treasurer
shall provide a report to Council containing the following:
(a)
(b)
(c)
(d)
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;
a description of the change, if any, in that estimated proportion
since the previous year's report;
a statement by the Director, Corporate Services & Treasurer as
to whether, in his/her opinion, all Financing Leases were made
in accordance with this policy;
any other information that my be requested by Councilor that,
in the opinion of the Director, Corporate Services & Treasurer,
should be recorded,
Page 7 of 7