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BORROWING

BORROWING. Manitoba Local Government Municipal Finance and Advisory Services Victoria Inn, Winnipeg, MB April 27, 2010. COUNCIL’S DECISION. Capital Borrowing / Debenture Issue General Borrowing - Section 172

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BORROWING

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  1. BORROWING Manitoba Local Government Municipal Finance and Advisory Services Victoria Inn, Winnipeg, MB April 27, 2010

  2. COUNCIL’S DECISION Capital Borrowing / Debenture Issue • General Borrowing - Section 172 • Local Improvement – Sections 310 to 325 INFRASTRUCTURE CAPITAL PROJECTS INFRASTRUCTURE GRANT MUNICIPAL PORTION

  3. CAPITAL PROJECTS • Financial Plan: Capital Estimates – Page 13 • Part 1 • List all capital projects • Total cost • Funding amounts • Part 2 • Funding from Reserves • Part 3 • Borrowing information (from Part 1)

  4. CAPITAL PROJECTS • Borrowing Options • Council’s decision - WHO and HOW to tax??

  5. CAPITAL PROJECTS • Who to tax? • The whole municipality (at large) • The whole municipality including otherwise exempt property (Schools, Hospital, Municipal lands) • Part of the municipality (LUD, property along the water pipeline etc) • Combination (whole municipality – WTP, part of municipality – water pipeline)

  6. CAPITAL PROJECTS • How to tax? • Based on portioned assessment • Based on a frontage amount • Based on a per parcel amount • Based on a combination of 1 and 2, or 1, 2 and 3, or 1 and 3 …….. • i.e. 60% assessment; 20% of frontage, 20% per parcel

  7. CAPITAL PROJECTS • If Council’s decision is to tax by: Portioned Assessment on the At Large GENERAL BORROWING

  8. CAPITAL PROJECTS • If Council’s decision is to tax on: any other basis than Assessment or to tax on any other part of the municipality other than the At large LOCAL IMPROVEMENT

  9. BORROWING • Section 172 of The Municipal Act defines borrowing as: • Borrowing to refinance existing debt • Borrowing to pay for a local improvement • A lease of capital property with a term that exceeds 3 years or with a right of renewal that if exercised would extend the original term beyond 3 years • An agreement to purchase capital property with a term exceeding 3 years • Issuing debentures

  10. BORROWING • Subsection 174(1) of The Municipal Act gives Municipalities authority to borrow: • Requires a by-law • Borrowing must be set-out in the operating or capital budget or authorized under Section 169(5) • Section 169(5) requires a public hearing

  11. BORROWING • Subsection 174(3) of The Municipal Act outlines content of borrowing by-law • Amount of money to be borrowed and general purpose • Anticipated maximum interest rate and terms of repayment • Source of money to pay principal and interest • Source of any interim financing

  12. General Borrowing Process • Current year capital projects are reported on the Capital Estimates page 13 of the Financial Plan • Municipalities prepare borrowing by-laws [Sections 172, 174 and 176 of The Municipal Act]

  13. General Borrowing Process • If, the capital project is not reported on the Capital Estimates page 13 of the Financial Plan, Council must give Notice and hold a Public Hearing under Section 169(6) of The Municipal Act

  14. General Borrowing Process • After 1st reading [per Municipal Board Act section 61 which supercedes section 176 of The Municipal Act], the Municipality submits the original and 3 certified copies of the by-law along with an Application for By-law Approval and an Affidavit / Statutory Declaration to the Municipal Finance Officer • MFO forwards to The Municipal Board for approval

  15. General Borrowing Process • The Board issues a Board Order to the Municipality • If approved, the Municipality now has the authority to proceed with the project

  16. General Borrowing Process • Municipal Council to give 2nd and 3rd reading to the by-law with any amendments as set-out in the Order • The Municipality to send a certified copy of the by-law after 3rd reading back to The Municipal Board

  17. General Borrowing Process • Key Points: • Borrowing to be recovered by mill rate on the At large • Capital project on Page 13 of Financial Plan or hold public hearing under s169(6) of The Municipal Act

  18. Local Improvement Process • Two critical documents: • Local Improvement Plan • Section 315(1) of The Municipal Act provides format and outline of content • Public Notice • Section 318 of The Municipal Act

  19. Local Improvement Plan • The Local Improvement Plan must provide: • Description of the project • Identify LID / potential taxpayers • State method and rate of tax • State the estimated cost of project • Identify funding sources • State the amount to borrow, estimated interest rate, term and annual payment • State how the annual operations and maintenance of local improvement to be funded

  20. Local Improvement Notice • Proper Notice is essential • Send the Notice • To each potential taxpayer • By regular mail • At least 21 days prior to the Public Hearing • Per The Municipal Act section 318(1)

  21. Local Improvement Notice • Exception to mailing • If all taxpayers in the Municipality are a potential taxpayer under the Local Improvement Plan • Municipality may give public notice (publish) rather than mailing a notice • Per The Municipal Act section 318(4)

  22. Local Improvement Notice • The Public Notice process: • Publish twice in local publication • at least 6 days apart and ending 7 days prior to the public hearing • In addition, must post the Notice in the Municipal Office for 14 days • Per The Municipal Act section 420(1)

  23. Local Improvement Notice • The minimum notice period is 21 days; the maximum notice period is 40 days. • Per Section 318(3) Notice must be sent by REGISTERED mail to Railway Companies

  24. Local Improvement Notice • Notice is a summary of the LI Plan • describes the project • states the estimated costs • states the funding sources • states the potential taxpayers and • provides the method and rate of taxation

  25. Local Improvement Public Hearing • At the public hearing, council presents the local improvement plan • An opportunity for taxpayers to ask questions, voice support or objections • If 2/3 of the potential taxpayers object, the plan is quashed for at least 2 years

  26. Local Improvement Taxpayer Objections • “Potential Taxpayer” are defined in The Municipal Act section 310 as a person who would be liable to pay for the local improvement • In 2006, the Court of Queen’s Bench ruled time-share holders were potential taxpayers • Example: property with 2 names on roll = 2 potential taxpayers = 2 objections

  27. Local Improvement Taxpayer Objections • Potential taxpayer may file a notice of objection in person (verbal) or by mail (written) • the Notice of Objection must state the name & address of the person, their property in the LID and the reason for the objection • All Objections must be received by the end of the public hearing

  28. Local Improvement Taxpayer Objections • Subsequent to the Public Hearing, the Municipality must: • send a Notice, by regular mail, to each person who filed an objection. They have 30 days from the date of the notice to object directly to The Municipal Board

  29. Local Improvement Taxpayer Objections • The Municipal Board must wait 30 days from the date the notice was sent • And if 10% or 25 potential taxpayers object to The Municipal Board, the Board must hold a Public Hearing, before making on Order • Secretary of The Board will contact the Municipality to set a date for the Public Hearing

  30. Local Improvement Process • After 1st reading [per Municipal Board Act section 61 which supercedes section 176 of The Municipal Act], the Municipality submits the original and 3 certified copies of the by-law along with an Application for By-law Approval and an Affidavit / Statutory Declaration to the Municipal Finance Officer. • MFO will forward to The Municipal Board for approval.

  31. Local Improvement Process • Key Points • Borrowing to be recovered by mill rate or per parcel or frontage or….. on a specific district in the municipality • Requires Notice and a Public Hearing • Requires a Plan

  32. Borrowing & The Municipal Board • Submission to The Municipal Board: • Application - provide additional information on the project • Affidavit / Statutory Declaration – attach copies of the Notice (all publications & RR); copies of Objections, copy of the Notice to Objectors

  33. Borrowing & The Municipal Board • The Municipal Board considers the application under Section 64 of The Municipal Board Act • nature of the work • necessity • financial position of the municipality • other relevant matters

  34. Borrowing & The Municipal Board • The Board applies 2 financial guidelines: • 7% of the current municipal (At large) assessment • to determine debt capacity of the municipality • 20% of current municipal revenues • to determine debt servicing capacity of the municipality

  35. Borrowing & The Municipal Board • The Board issues a Board Order to the Municipality. The Order may: • approve • approve with conditions • refuse If approved, the Municipality now has the authority to proceed with the project

  36. Borrowing & The Municipal Board • Municipal Council to give 2nd and 3rd reading to the by-law with any amendments as set-out in the Order • The Municipality to send a certified copy of the by-law after 3rd reading back to The Municipal Board

  37. Borrowing By-Law • Couple of overall points on Borrowing: • Interest Rate – recommend add 2% to current rate (to cover any rate fluctuation prior to issuance) • Clause No. 3 – the financial institution that the municipality has their account with • Clause No. 7 – establishes authority for temporary borrowing (while project in progress)

  38. Borrowing Process • Resources and sample documents may be found: • The Municipal Act • The Procedure Manual • Local Government website • Municipal Finance Officer – sample by-laws & documents and Provincial interest rates

  39. Borrowing Process - Issue Borrowing

  40. Issue Borrowing • Second Step - amending by-law to issue a the debt • The original by-law establishes the Municipality’s authority to complete the project and borrow • An amending by-law authorizes the issuance of the borrowing (debenture)

  41. Issue Borrowing • While the project is in process, the Municipality in the original by-law will have established temporary borrowing with a financial institution, general operating or reserve fund to pay for the costs being incurred

  42. Issue Borrowing • Once the project is complete and the final costs are known, the Municipality should issue an amending by-law • Municipalities may make arrangements with a local financial institution, general public, own reserve funds or with the Minister of Finance of Manitoba to issue the money to pay the temporary borrowing • Make the best deal!!

  43. Issue Borrowing • Remember for Local Improvement By-laws where the method of taxation was based on frontage and / or per parcel, the amount of pre-payments collected is subtracted from the total cost of the project and the balance is the amount of the debenture • Costs less pre-payments = amt to issue

  44. Issue Borrowing • The amending by-law issues the borrowingamount (which must be equal to or less than the borrowing amount in the original by-law), at the current interest rate, with new issuance and payable dates for the debenture. • After 1st reading, the Municipality submits the original and 3 certified copies of the by-law to the Municipal Finance Officer. • MFO forwards to The Municipal Board for approval.

  45. Issue Borrowing • The Municipal Board considers the application and issues a Board Order to the Municipality • If approved, the Municipal Council gives 2nd and 3rd reading to the by-law with any amendments as set-out in the Order

  46. Issue Borrowing • The Municipality sends a copy of the by-law after 3rd reading back to The Municipal Board • The Municipal Board then prepares the debenture, which is sent to the Municipality for signatures….. Debenture

  47. Issue Borrowing • Reporting on the Financial Plan: • Each year for the term of the debenture, the municipality provides for a levy (page 8) to raise the required amount as detailed on Schedule A of the amending by-law • Debenture debt is detailed on pages 11 and 12 • A cheque is issued for the required amount on the payable date of the debenture and mailed to the purchaser.

  48. Borrowing – Key Points • Borrowing must be reflected in operating or capital budget, or invoke Section 169(5) • Borrowing must be authorized by by-law • Borrowing by-law must be approved by The Municipal Board before the project commences

  49. Borrowing – Key Points • All borrowing requires some level of public scrutiny, either through the annual Financial Plan public hearing or a public hearing for a Local Improvement Plan • Two borrowing guidelines are applied to assess the financial position of the Municipal and its ability to repay the borrowing

  50. Borrowing Resources • Local Government website: www.gov.mb.ca>Manitoba Local Government

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