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Policy # FIN-004 Debt Management Policy
Page 1 of 4
Policy
Department/Section Coverage
All
Policy Number
FIN-004
Subject
Debt Management Policy
Category
Finance
Motion #
RC/10/16-11-2024
Review Period
5 Years
Date Amended
NEW
Amending Motion #
Not Applicable
Section(s) Amended
Not Applicable
Purpose:
The purpose of the Debt Management Policy is to:
- Establish parameters regarding the purpose for which Debt may be
issued
- Establish the timing, types and terms of permissible Debt
- Promote management of Debt in a consistent manner
- Assist with ensuring the municipality manages Debt in a manner to limit
financial risk exposure and protect municipal credit quality
- Promote integration with other Long Term planning, financial and
management objectives of the Municipality
Policy Statement(s):
Prior to incurring Debt, the following requirements must be adhered to:
- Debt will be used on an ongoing basis as required as a component of
the Municipality's financing structure for capital expenditures.
- Consideration will be given to the impact of Debt on current and future
ratepayers, beneficiaries and/or users as a means to achieve an appropriate
balance between Debt and other forms of funding.
- Repayment of Debt will be structured in a manner that is fair and equitable to
those who benefit or have access to the benefit from the assets.
Policy # FIN-004 Debt Management Policy
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- Debt servicing must be affordable, sustainable and flexible to allow financing
for any appropriate corporate project or priority approved by Council.
- A comprehensive review of each project must be completed prior to
approval of new Debt. The review must include the total cost of the project,
cash flow of the project including Debt issuance, operating costs after
completion of the project and benefit to the community.
- The Municipality will not use Long Term Debt to fund current operations.
- The Municipality may use Long Term Debt to fund major rehabilitation of
existing infrastructure. Use of Reserves will be considered as an alternative
method of financing for this purpose when practicable.
- Upon the repayment of Long-term Debt (excluding any development charge
funded debt, if applicable), the amounts previously committed to annual
debt servicing shall not be removed from the Municipal budget but rather will
be reallocated towards:
a. Debt servicing costs for new Long-term Debt issued by the
Municipality; and/or
b. Contributions to reserves for capital purposes.
Financial Details
- The Municipality may borrow by debenture, mortgage loan or other
equivalent Debt instrument
- Council may authorize the Mayor and Treasurer to borrow funds on a
temporary basis, in accordance with the definition for Temporary Borrowing
in this Policy
- The Municipality may incur Debt for assets that have a useful life of not less
than ten (10) years
- The term of Debt will be limited to the term of the useful life of the particular
asset but not exceeding 40 years
- All debt shall be issued in Canadian dollars ($)
- Percentage of committed legislated debt capacity should not exceed a
target of
- 65%, including any committed internal financing
Responsibilities
- The Municipal Treasurer:
-
will have the overall responsibility for the capital financing
program of the Corporation
-
is authorized to approve short term inter-fund borrowings for
cash flow or other purposes.
-
reviews and recommends the type and term of financing for
Policy # FIN-004 Debt Management Policy
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capital projects
-
Calculates Financial Obligation Limit for the Corporation as
prescribed by the Municipal Act
-
Coordinates the preparation of debt issue by-laws for Council
-
May execute and sign documents on behalf of the Corporation
and perform all other related acts with respect to the issuance of
debt securities, including the payment of principal, interest and
other fees
- The Municipal Clerk:
-
may certify and sign documents on behalf of the Corporation with
respect to the issues of debt securities
Definitions
Annual Debt Repayment Limit (ARL) - The maximum amount of annual Debt
servicing costs that a municipality can undertake or guarantee without seeking the
approval of the Ontario Municipal Board.
The annual amount is provided by the Ministry of Municipal Affairs and Housing and
must be adjusted by the Treasurer in the prescribed manner prior to the authorization by
Council of a Long Term Debt or financial obligation. Refer to Ontario Regulation
403/02.
The Regulation provides a formula which limits annual debt service costs to an amount
equal to 25% of net revenues as outlined in the Regulation.
Capital Expenditures - Expenditures incurred to acquire, develop, renovate or replace
capital assets as defined by Public Sector Accounting Board Section 3150.
Debt - Any obligation for the payment of money consisting of debentures, cash loans
from financial institutions, capital leases, debenture financing approved through By-Law
but for which no Debt has yet been issued, debenture financing approved through the
Capital Budget but for which no By-Law has yet been established, outstanding financial
commitments, loan guarantees and any Debt issued by or on behalf of the Municipality
including mortgages, debentures or demand loans.
Development Charges - means those charges imposed under the Municipality's
Development Charge By-Law 2020-67 or as amended
Internal Financing - a method of financing Capital Expenditures using existing cash
reserves and Inter-fund Borrowing, and adding the cost of such capital projects to the
operating budget to be 'paid back' over a period of time, commonly referred to in the
municipal budget as unfinanced capital
Policy # FIN-004 Debt Management Policy
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Inter-fund Borrowing - under which financial resources are transferred internally from
one fund to another with the express purpose to repay the loan
Long Term Debt - Any Debt for which the repayment of any portion of the principal is
due beyond one year.
Major Rehabilitation - Renovation of an existing asset or any of its components in
order to restore and/or extend the life of the asset.
Percentage of Legislated Debt Capacity (before or after commitments) - Total net
debt charges or total adjusted net debt charges as a percentage of Annual Debt
Repayment Limit.
Temporary Borrowing - 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 is obtained or issued.
Unfinanced Capital - a Capital Expenditure that has no funding source identified in the
Capital Budget but will be paid back over a period of time after the expenditure has been
made, see Internal Financing.
Revision Control
Year-Month-Day
Sections Amended
Comments
2024-10-16
Not applicable
Council Approved initial Policy on
October 16, 2024