Policy statement
The Corporation of the Town of Oakville (Town) enhances its economic environment by achieving maximum utilization of all available financial resources, in accordance with legislation and the town’s strategic goals. The prudent use of debt financing as a capital financing tool complements the funding of capital works which benefit future growth. In doing so, it ensures those who benefit will contribute to the cost.
Purpose
This policy provides guiding principles for the issuance of external debt by the town. Debt, in the context of this policy means external debt issued through the Region of Halton.
Scope
This policy summarizes the town’s standards of care and legal authority relating to the financing of capital works through external debt.
Standards of care
Debt and financial obligation limit
The statutory annual repayment limit is a provincial calculation that limits the amount of debt a municipality can issue without requiring approval from the Ontario Municipal Board (OMB). This policy sets out further limitations on the amount of debt that the town may issue for each type of debt; tax levy supported, self-supported and Development Charge (DC) supported.
For the town of Oakville, the amount of debt issued shall be limited to;
- 6.25% of operating revenues for tax supported debt,
- 12% of operating revenues for total corporate debt and,
- 25% of a five year average of forecasted DC revenues for DC supported debt.
Debt to discretionary reserves will not exceed the ratio of 1:1 recommended by credit review agencies.
The term of the debt repayment must match or be less than the expected useful life of the asset.
Authority
The provisions and requirements of the Municipal Act, 2001 and its regulations govern the issuance of external debt.
In accordance with the Municipal Act, 2001 where there is a two-tier government structure, debt must be issued by the upper tier. Therefore all external debt is issued by the Region of Halton on the town’s behalf.
The Deputy Treasurer and Director, Financial Planning and/or their agent in accordance with the annual capital budget process shall determine eligible capital works for debt financing.
The authorization of debt financing for Capital works approved through the budget process shall be by town by-law.
Definitions
Development Charge (DC) Supported Debt – debt issued in advance of DC collections. Debt charges for this type of debt are funded from DC reserve funds.
External Debt – includes any obligation for the repayment of funds - typically debentures issued through the Region of Halton on behalf of the town.
Ontario Municipal Board – is an independent administrative board, operated as an adjudicative tribunal, in the province of Ontario. It hears applications and appeals on municipal and planning disputes, as well as other matters specified in provincial legislation.
Self-Supported Debt – means debt issued for capital expenditures related to self-supporting business units such as Harbours and Parking, or community groups. Debt charges for this type of debt are funded from fees received from these entities.
Statutory Annual Repayment Limit – the annual debt and financial obligation limit determined for municipalities by the Province described in O. Reg. 403/02. This calculation limits annual debt service costs to 25% of operating income as reported in the municipality’s audited financial statements.
Tax Supported Debt – means debt issued for capital expenditures related to tax-supported operations. Debt charges for this type of debt are funded using net revenue fund revenues.