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Home My WebLink AboutCS 18-02 Ciú/ o~ REPORT TO THE FINANCE & OPERATIONS COMMITTEE Report Number: CS 18-02 Date: September 18, 2002 From: Gillis A. Paterson Director, Corporate Services & Treasurer Subject: Final Approval for Financing of Council Approved Capital Projects - Internal Loans and External Borrowing Through the Issuance of Debt Recommendation: 1. That Report CS 18-02 from the Director, Corporate Services & Treasurer be approved and that: 2. Council approve the internal borrowing of $7,677,000 as at January 1, 2001 and $1,224,000 for projects approved in 2001 and 2002 from the Reserve Funds based on the purposes, terms & conditions as specified in Attachments #1 and #2 and furthermore, that the Director, Corporate Services & Treasurer be authorized and directed to take whatever actions necessary, including the recommendations below, to give effect thereto: 3. The Director, Corporate Services & Treasurer be authorized to: a) undertake long term financing through the issuance of debt up to a total amount of $4,279,000 for the projects listed on Attachment #4 in the indicated amounts up to a maximum term of 20 years, through the Region of Durham or the Ontario Municipal Economic Infrastructure Financing Authority (OMEIFA) for the following purposes, as indicated in Attachment #4: Roads Fire Hall and Communications Parks Arenas and Recreation Total $303,000 1,400,000 60,000 2,516.000 $4.279.000 and the funding for remaining balances in these accounts be provided from the annual Current Budget; b) undertake the financing of any projects or portions thereof that cannot be accommodated through the foregoing through a financial institution offering long term financing under similar terms and conditions; Report CS 18-02 Date: September 18, 2002 Subject: Final Approval for Financing of Council Approved Capital Projects -Internal Loans & External Borrowing Through the Issuance of Debt Page 2 c) finance any capital expenditures currently financed through internal loans, should the need for funds arise, through the Region of Durham or through a financial institution; d) make any changes, adjustments, revisions to amounts, terms and conditions or any other actions necessary in order to effect the above directions of Council; 4. The costs of undertaking the financing, currently estimated at up to approximately $54,000, be charged to the 2002 Current Budget, General Government Loan Repayment; 5. The Director, Corporate Services & Treasurer be directed and authorized to finance any capital projects, the financing for which is not specifically approved by Council, through the issuance of debt or long term financing arrangements, through the Region of Durham, a financial institution, internal loans or whatever means necessary at the discretion of the Treasurer; 6. The Director, Corporate Services & Treasurer be authorized to engage the services of the legal firm of Macmillian Binch, or any other firm, legal or otherwise, necessary to assist in the preparation of documentation, completion of an undertaking and any other aspects in regards to the financing of capital projects; 7. The Director, Corporate Services & Treasurer be authorized to apply any excess proceeds raised on external and internal loans to other capital projects for which long-term financing is required, or to reduce the promissory notes for internal loans as is permitted under the Municipal Act. 8. The Director, Corporate Services & Treasurer be directed to prepare the requisite by-laws for presentation to and adoption by Council at its meeting of October 7, 2002; and, 9. The appropriate officials of the City of Pickering be given authority to give effect thereto. Executive Summary: While long term financing (internal and external) was always generally approved by Council during the annual capital budgeting process and/or through specific reports, there has never been a specific formal approval by the Council for capital projects requiring such financing with the terms and conditions being specified in detail. This Report to Council serves as that final formal approval and Corporate Services will complete all the necessary documentation. In 2001, internal loans for capital projects for the period 1998 to December 31, 2000 were officially recorded in the books of the City of Pickering. This requires final approval from the Council for internal borrowing from Reserve Funds. The debt financed projects from Report CS 18-02 Date: September 18, 2002 Subject: Final Approval for Financing of Council Approved Capital Projects -Internal Loans & External Borrowing Through the Issuance of Debt Page 3 the 2001 and 2002 Capital Budgets will be funded by a combination of issuance of internal loans and external loans through the Region of Durham or a financial institution as per Attachment #2 and #4. Council has to formally approve the request to undertake the long term financing most likely through the issuance of debentures through the Region of Durham at the terms and conditions as arranged in the capital markets. The Director, Corporate Services & Treasurer has certified that this loan and the repayment thereof falls within the City's Debt and Financial Obligations approved Annual Repayment Limit for debt and other financial obligations for 2002 as established by the Province for municipalities in Ontario. Financial Implications: Internal Loans Based on our Auditor's recommendation, internal loans amounting to $7,677,000 were formally recorded in the books of the City of Pickering as at January 1, 2001. These internal loans were funded by the Development Charges and Parkland Reserve Funds: Development Charges Parkland Reserve Fund $6,741,000 $ 936,000 The combined principal and interest payment booked for 2001 was $926,172 and $126,018 respectively for each of these sources of funds. Attachment 1 provides a detailed breakdown of principal and interest payment per project recorded in 2001. The interest rates were determined by taking the average rate of municipal, provincial and federal bonds for the similar terms. The rates were provided by our investment company, Nesbitt Burns (Attachment #3). Therefore, the interest rates set forth for the internal loans are as follows: Term 5-Year 10-Year Rate 5.3% 5.8% In addition, there is an additional $1,224,000 for internal loans for projects approved in the 2001 and 2002 Capital Budget but cannot be financed from external debt. These funds will be borrowed from the Development Charges Reserve Fund. Report CS 18-02 Date: September 18, 2002 Subject: Final Approval for Financing of Council Approved Capital Projects -Internal Loans & External Borrowing Through the Issuance of Debt Page 4 External Loans The cumulative debt financing approved within the Capital Budgets by Council from 1998 to 2002 that is required at the present time is $13,180,000. With internal borrowings of $7,677,000 as at January 1, 2001 plus $1,224,000 for 2001 and 2002 capital projects to date, it is felt that the reserve funds are financing the maximum amount possible at this time with the exception of additional financing that may arise during the remainder of 2002. The balance of the Obligatory Reserve Funds as at December 31, 2001 was $13,015,766. The remaining $4,279,000 of capital expenditures will have to be financed externally and $13,960 be provided from 2002 Current Budget. Attachment #4 provides a breakdown of Council approved projects that require financing externally through the Region. The external borrowing rate will be determined by the capital markets at the time of the issuance of the debt. Financial Burden The annual loan and debt repayment charges are funded through the general property tax levy in the annual Current Budgets. The projected total of debt outstanding for December 31, 2002 is $11,951,074 net of principal repayments to date. Please refer to Attachment #5. There is an additional $800,000 of 2001 and 2002 capital projects earmarked for long term financing which has been deferred pending commencement of capital construction, for which specific approval by Council for expenditure and the financing will be required. In arriving at our total long-term financial obligations, we must also consider other commitments. The 2001 Capital Budget provided for the purchase of three vehicles. As the financing rate through General Motors Acceptance Corporation was only 0.9% at the time of acquisition and we were earning approximately 3% on our investments, it was decided to finance the purchase over four years ending 2005. In addition it was originally anticipated that the replacement of the City's telephone system would be financed by a lease over seven years. However when this project was completed in the spring of 2001, several municipalities and school boards were experiencing problems in leasing arrangements. That together with relatively high lease rates in the range of 7 to 9 percent prompted staff to withdraw from this course of action. Instead it was decided to fund the acquisition from savings in the Current Budget telephone accounts over six years. Report CS 18-02 Date: September 18, 2002 Subject: Final Approval for Financing of Council Approved Capital Projects - Internal Loans & External Borrowing Through the Issuance of Debt Page 5 Background: Continuous growth has created a need for capital infrastructure to maintain the level of services provided to residents and businesses. Funding sources for capital projects are identified and approved by Council prior to the commencement of the projects. During the period from 1998 to 2002, many capital projects were identified to be financed by long term borrowings. However, due to available resources in the reserve funds, monies were borrowed from the reserve funds to finance those capital projects identified for long term financing. Such internal borrowings require appropriate approvals and documentation in accordance with both the Municipal Act S142 and the Development Charges Act RSO 1990, Regulation 12(3)(4)(5). Corporate Services has completed the necessary documentation including Promissory Notes indicating the amount, term, interest rate and other relevant information relating to the internal loans and their repayment. Normally, all external debt requested by an Area Municipality is issued through the Region of Durham. However, given recent announcements by the Province there may be other, perhaps more cost effective, means of financing available. While I have discussed this with provincial staff, details are not known at this time, and may not for some time. Furthermore, alternate financing may be desirable or necessary for some portions of the City's requirements. The Recommendations allow for the best course of action to take place. The recommendations also provide a limited degree of flexibility in the event that the documentation for projects or portions thereof is insufficient to meet the legal requirements for a debenture issue in that the project can then be financed through other means. They also provide for some flexibility with the treatment of excess proceeds that may be raised as a result of the market conditions (i.e. issued as a premium) or excess funds resulting once project costs are complete and final. The costs of financing of $18,163 were included in the 2002 Current Budget for the 2001 capital projects. The current estimated balance of the cost for 2002 capital projects of up to $36,000 would be met by a projected surplus in the General Government Loan Repayment account. This cost represents commissions, legal fees, registration for debentures with the Canadian Depository for Securities (CD.S.) and any discount upon sale. Under Resolution 144/99 the Mayor and Treasurer has the authority to sign the Promissory Notes. Report CS 18-02 Date: September 18, 2002 Subject: Final Approval for Financing of Council Approved Capital Projects - Internal Loans & External Borrowing Through the Issuance of Debt Page 6 Attachments: 1. Internal Loans Funded by Reserve Funds as at January 1, 2001 2. Internal Loans Funded by Reserve Funds for 2001 & 2002 Capital Projects 3. Interest Rates of Similar Municipal, Provincial and Federal Bonds 4. External Debt, Through Region of Durham or a Financial Institution 5. Total Projected Debt Outstanding at December 31,2002 Prepared I Approved I Endorsed By: GAP:vw Attachments ~ ~~c:> ~ Gillis A. Paterson Director,Corporate Services & Treasurer Copy: Chief Administrative Officer Recommended for the consideration of Pickering City Co cil ,f ATTACHMENT#-L. TO REPORT # (SiS - 'Ü;;¿ Annual Original Principal Loan Repayment Interest Total Development Charges -4227 Old By-Law Purpose of Loan: Terms Rosebank Road 10-Year 5.8% $ 900,000 $ 68,975 $ 52,589 $ 121,564 Eastshore Community Centre 10-Year 5.8% 781,000 59,855 45,636 105,491 Fire Tanker 10-Year 5.8% 159,000 28,609 8,479 37,088 Dispatch Centre 10-Year 5.8% 175,000 13,412 10,150 23,562 1999 Roads Projects 10-Year 5.8% 935,000 71,717 54,214 125,931 1999 Streetlights 10-Year 5.8% 571,000 43,761 33,118 76,879 2000 Roads Projects 10-Year 5.8% 833,000 63,841 49,822 113,663 Sub-total 4227 $ 4,354,000 $ 350,170 $ 254,008 $ 604,178 Development Charges -4229 New By-Law Purpose of Loan: Terms Specialized Transit 5-Year 5.3% $ 85,000 $ 6,514 $ 4,930 $ 11,444 Aerial Truck 10-Year 5.8% 400,000 30,656 23,200 53,856 Waterfront Trail 10-Year 5.8% 488,000 * 37,400 28,304 65,704 Western Branch 10-Year 5.8% 1,414,000 108,367 82,623 190,990 Sub-total 4229 $ 2,387,000 $ 182,937 $ 139,057 $ 321,994 Total D.C Reserve Funds $ 6,741,000 $ 533,107 $ 393,065 $ 926,172 Parkland -4230 Purpose of Loan: Terms 2000 Ext. Subdivision Projects 10-Year 5.8% $ 833,000 $ 63,841 $ 48,314 $ 112,155 1999 Roads Projects 10-Year 5.8% 103,000 7,889 5,974 13,863 Sub-total 4230 $ 936,000 $ 71,730 $ 54,288 $ 126,018 Grand Total Reserve Funds $ 7,677,000 $ 604,837 $ 447,353 $ 1,052,190 Principal Outstanding by Function Roads & Streetlights $ 4,175,000 $(320,024) $ 3,854,976 Com. Facilities, Libraries & Parks 2,683,000 (205,622) 2,477,378 Fire Services 734,000 (72,677) 661,323 Transit Services 85,000 (6,514) 78,486 Grand Total $ 7,677,000 $ (604,837) $7,072,163 "In 2002. amount reduced by $257.000 based on Report to Council OES 021-01. Surplus will be used to reduce principal on promissory notes. Reserve Fund Internal Loans Internal Loan >"",TTACHMENT # ~ TO REPORT #Q.J$"- D J. Fire Hall & Communication 2002 02-2240-005-01 5-¥ear 5.3% Replacement Phone System $ 43,000 Parks 2002 02-2718-001-07 10-¥ear 5.8% Waterfront Trail -Western Gateway Design $ 60,000 2002 02-2718-001-10 10-¥ear 5.8% Waterfront Trail Signage (eastern section) 30,000 2002 02-2718-001-11 10-¥ear 5.8% Waterfront Improvments-trail amenities 25,000 2002 02-2718-001-19 10-¥ear 5.8% Morality Lighting 40,000 Roads 2001 Old Brock Road (south of Hoxton) 1 O-¥ear 5.8% Remove & replace concrete box culvert $ 80,000 2001 Pickering/Uxbridge Townline 10-¥ear 5.8% Installation of concrete walls-damaged structure 315,000 2001 Seventh Concession Road 10-¥ear 5.8% New granular base & hard top surfacing 250,000 2001 Vicki Drive 10-¥ear 5.8% Final layer of asphalt from 2000 48,000 Sidewalks 2002 02-2323-001-02 10-¥ear5.8% Rosebank Rd.-Rodd Ave. to Rougemount Dr. $ 38,000 2002 02-2323-001-04 10-¥ear5.8% Ferncliffe Circle-Concrete Sidewalk Walkway 40,000 Storm Water Manaaement 2001 Amberlea Creek/French mans Bay 10-¥ear 5.8% Erosion Control/Rehabilitation $ 100,000 2001 East Duffins Creek-Cone. 5 10-¥ear 5.8% Erosion Control/Rehabilitation 50,000 2001 Pine Creek-Dixie Road 10-¥ear 5.8% Erosion Control/Rehabilitation 10,000 Streetliaht 2002 02-2325-005-02 10-¥ear 5.8% Amberlea Neighbourhood-Belinda Crt $ 30,000 2002 02-2325-005-04 10-¥ear 5.8% Various Streetlight upgrades or replacement 10,000 Arena & Recreation 2002 02-2735-005-03 10-Year 5.8% Supply & Install new rubber flooring $ 25,000 2002 02-2744-006-01 10-¥ear 5.8% New Entrance and Parking Area 30,000 Total Internal Loan - 2002 $ 1,224,000 Note: Principal and interest payments to commence in 2003 External Financing by project RTC-Internal 2002 9/19/2002 ;TTACHHEN', 3 'rf # ~ fð~ 0";> Calculated Terms Maturity Date Yield Averaae 5-Year GOy't of Canada 01-Sep-06 5.084% BC 01-Dec-06 5.360% 5.3% Metro Toronto 15-Aug-07 5.570% 10-Year Canada 15-Mar-14 5.586% Ontario 02-Dec-11 5.871 % 5.8% Halton 28-Jun-12 6.023% Nesbitt Burns ¡'tTY ACHMENT #..L TO REPORT # ~ i"è~ () c;~ 2002 Fire Hall & Communication 02-2240-006-01 Fire Dispatch Communication System 2002 2002 Roads 02-2320-008-04 02-2320-009-04 8th Cone. Road-East of Four Season Whitevale Road Culvert Replacement 10-Year $ 1,400,000 * 10-Year $ 60,000 10-Year $ 204,000 * 10-Year 99,000 * 10-Year $ 100,000 10-Year 250,000 * 10-Year 489,000 * 20-Year 1,677,000 * $ 4,279,000 2002 Parks 02-2718-001-09 Western Waterfront & Duffin Trail Dev. 2002 2002 2002 2002 Arena & Recreation 02-2735-005-01 Repair & Asphalt Parking & Curbs 02-2731-005-04 Repair & Asphalt Parking & Expansion 02-2733-005-01 Rec Complex-Construct Family Change rooms & Fitness Renovations 02-2715-006-01 Don Beer Arena-Construction of Third Ice Pad (Note 1) Total External Debt . Figures revised based on Reports to Council Note 1: The amount excludes $1,000,000 of debt financing for the Partner's share of which terms and conditions are unknown at this time External Financing by project RTC-External Debt 2002 9/19/2002 ATTACHMENT#--L. TO REPORT#~1 '6"- O~ Internal Loans As at January 1,2001 $ 7,677,000 $ (604,837) $ (624,089) $ 6,448,074 2001 Capital Projects 853,000 853,000 2002 Capital Projects 371,000 371,000 Total Internal Loans $ 8,901,000 $ (604,837) $ (624,089) $ 7,672,074 External Loans $ 4,279,000 $ 4,279,000 Total Projected Debt $ 13,180,000 $ 11,951,074