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 to provide long-term financial flexibility and sustainability. This not only meets the Town’s current financing needs for capital works, but also 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 or long-term lease agreements.
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 provided annually to the Town by the Ministry of Municipal Affairs and Housing and is a provincial calculation that limits the amount of debt a municipality can issue without requiring approval from the Ontario Land Tribunal (OLT). The provincial limit is set at 25 percent of operating revenues. This policy sets out further limitations on the amount of debt that the Town may issue to limit financial vulnerability and ensure the Town maintains a sound financial position. Limits are set 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 non-obligatory reserves and reserve funds should not exceed the ratio of 1:1 as recommended by credit review agencies. This is a key financial indicator of the financial sustainability of the Town and contributes to the credit rating of Halton Region, securing a low cost of borrowing for the Town.
The term of the debt repayment must match or be less than the expected useful life of the underlying asset. The term may be structured to more closely match the revenues or cost savings of a specific project.
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, debentures must be issued by the upper tier. Therefore, all external debentures are issued by the Region of Halton on the Town’s behalf.
The Treasurer and/or their designate shall determine eligible capital works for debt financing.
A by-law shall be passed providing the authorization of debenture financing for capital works approved through the budget process by Council.
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 Land Tribunal – 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.
Operating Revenues – means the municipality’s annual own-source revenue from sources such as property taxes, user fees and investment income.
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 per cent of operating revenue 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.