HomeMy Public PortalAboutBy-law 2022-50 Adopt a Debt Management PolicyCORPORATION OF THE MUNICIPALITY OF TWEED
BY-LAW NO. 2022-50
Being a By-law to Adopt a Debt Management Policy for the Municipality of
Tweed.
WHEREAS the Municipal Act, 2001. S.O. 2021, c. 25, as amended, provides the
general authority for Councils to adopt policies;
AND WHEREAS the Council of the Corporation of the Municipality of Tweed
deems it expedient to adopt a Debt Management Policy for the Municipality of
Tweed;
NOW THEREFORE the Council of the Corporation of the Municipality of Tweed
enacts as follows:
1. THAT the Debt Management Policy attached hereto as Schedule 'A' to this
By-law, is hereby adopted as the Debt Management Policy for the
Municipality of Tweed.
2. THAT Schedule 'A' attached hereto forms part of this By-law.
3. THAT this By-law shall come into force and take effect immediately upon
the passing thereof by the Council of the Corporation of the Municipality of
Tweed.
Read a first, second, and third and final time, passed, signed, and sealed in open
Council this 23rd day of August, 2022.
MAYO
a.Pp,05-
SCHEDULE 'A' TO BY-LAW NO. 2022-50
Debt Management Policy
Purpose/Background
The purpose of this policy is to set out the strategy, methods, goals and controls for
management of debt requirements and commitments while ensuring compliance with
the Municipal Act, 2001, as amended, and related Regulations.
Policy Statement
The Municipality of Tweed ("the Municipality") recognizes that debt will continue to be
an ongoing component of the Municipality's funding structure. As such, repayment
should be structured in a manger that is fair and equitable to those who pay and benefit
from the underlying assets over time. The servicing of long term debt must be both
affordable and sustainable, while allowing the flexibility to respond to emerging needs in
order to support corporate priorities and approved strategic plans. The Debt
Management Policy will provide framework and guidelines for minimizing debt servicing
costs and significant budget impacts.
Application
This policy applies to the issuance of all debt and resulting repayment terms, including
capital lease financing arrangements entered into by the Municipality.
Definitions
"Act" means the Municipal Act, 2001, S.O. 2001, c25, as amended.
"Annual Debt Repayment Limit" means the maximum amount of annual debt servicing
costs that a municipality can undertake or guarantee without seeking approval of the
Province.
"Debt" means any obligation for the payment of money. The Municipality considers debt
to consist of Debentures, cash loans from financial institutions, capital leases,
debenture financing approved through by-law but for which debt has yet to be issued,
debenture financing approved through the capital budget but for which no by-law has
yet to be established, outstanding financial commitments, loan guarantees, and any
debt issued by, or on behalf of the Municipality, including mortgages, Debentures or
demand loans.
"Long Term Debt" means any Debt for which the repayment of any portion of the
principal is due beyond one year.
"Net Revenues" means total Municipal consolidated revenues less grants from other
levels of government and less sales of land. These revenues do not include donations
of tangible capital assets.
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"Tax Supported Debt" means Debt that is to be recovered from general tax revenues.
"Temporary Borrowing" means Debt for which the repayment of the entire principal is
due within one year or in the case of funding for a capital project, borrowing until Long -
Term Debt to cover the costs is obtained or issued.
"Treasurer" means the CAO/Treasurer for the Municipality of Tweed or designate.
"User Supported Debt" means Debt that is to be recovered from user fee revenues
(water, wastewater, building, etc.).
Background
The Municipal Act, 2001, as amended, provides the authority and imposes the
restrictions concerning a municipality's ability to issue debt such that the annual
principal and interest payments cannot exceed 25% of "own source" revenues. The own
source revenues exclude upper tier government grants, gains or losses on disposal of
assets, and revenues from other municipalities.
A municipality does not gain back significant borrowing capacity through annual
repayments until the debt is fully retired. Unlike individuals and private corporations that
may be able to access the equity in their home or property holdings gained through
reduction of any outstanding debt, a municipality's own ability to increase capacity once
debt has been issued is to:
• Pay the debt off in full (this is difficult given the nature of the debt instrument)
• Seek approval form the Province to increase their debt capacity beyond the 25%
restriction
• Increase their own source revenues significantly, primarily through increased
taxation and user rate revenues
As a result, debt issued with repayment periods that span a significant number of years
restrict the municipality's ability to utilize "room" that should otherwise be available form
the annual debt retirement for the duration of the term of the debt.
Policy Framework
1. Before entering into any Debt, including Lease Financing Arrangements, the
following must be adhered to:
a. The Debt will be managed in a manner consistent with other long-term
planning, financial and management objectives.
b. Consideration will be given to its impact on future ratepayers as a means
to achieve an appropriate balance between debt and other forms of
funding.
c. Debt will be managed in a manner to limit financial risk exposure.
d. The timing, type, and term of Debt will be determined with a view to
minimizing long-term cost.
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e. The term of Debt will be limited to the term of the useful life of the
particular asset, but no greater than 30 years.
2. The Municipality's maximum Annual Debt Repayment will not exceed 15% of the
Municipality's own source revenues in order to maintain up to 10% flexibility to
address emergency issues. This will include debt incurred for the extension of
municipal sewer and water services.
3. Temporary Borrowing as per section 405 of the Municipal Act, 2001, as
amended, is permitted to be used to meet cash flow requirements during the
construction of infrastructure. Temporary borrowing will be no greater than 3
years and long-term debt will be secured as soon as possible after the
completion of a project of 3 years, whichever is less, to replace the short term
borrowing. All temporary borrowing cost will be charged as part of the project
costs and form part of the long-term debt requirements.
4. Temporary Borrowing for operational purposes as per section 407 of the
Municipal Act, 2001, as amended, are authorized to meet the current
expenditures of the Municipality until taxes or other revenues are received. Any
temporary borrowing of this nature is to be repaid as soon as the Treasurer has
determined adequate cash balances are available to do so.
5. Internal "borrowing or unfinanced" will be used as a means of advancing critical
works where the need to proceed with expenditures is deemed necessary
although specific funding (e.g. user rates, reserves, etc.) is not currently
available. Prioritized and identified needs for existing reserves and reserve funds
will be taken into consideration first to ensure that the proper project is being debt
financed when total funds required is greater than those available. The Treasurer
will provide annually to Council as part of the budget document pertaining to debt
including, but not limited to:
a. Debt Service Obligations — this provides info on existing debt levels,
remaining terms and projected future requirements base don long-term
capital needs. We will assist Council in making decisions regarding
reserve requirements to avoid future debt to be incurred and prioritization
of projects to be considered for debt financing.
b. Debt per Capita (households) — this is the amount owing per household
and is useful in comparing to other municipalities and determining the tax
burden per household.
Revenue Cycle
This policy will be reviewed during the term of Council to ensure that the objectives are
consistent with and continue to address the needs and Vision of the Community.
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