Hockey Pucking Windsor
The Mayor and Council are really trying super-hard to sell this project to us aren't they. Hmmm, I wonder if this is being done in case the Project Ice Track boys are trying to lure the Pittsburgh Penguins to their new arena. They may want to move their franchise don't they? Imagine Mario Lemieux and Wayne Gretzky together in Tecumseh!
To help sellabrate, customized free hockey pucks will be given away to the first 200 guests at the Icebreaking. My guess is that more than 200 were ordered to keep costs per unit down and to give out as souvenirs to "important" people but I may have to file another Municipal Fredom of Information application to get the details. Somehow I am sure this may provide damaging competitive information to the Town of Tecumseh and the Project Ice Track people so it will not be disclosed easily.
Oh well, the Spitfires get a new arena to play in and taxpayers get a puck!
Speaking of the arena, I had a question about what happened on Monday night at Council respecting financing the arena (Councillor Dilkens is not the only one who knows how to use a segue).
I am going to set out a lot of this material in great detail for you, because I believe that there is a question about how the City has acted. Of course it is commendable to try to save taxpayers money but the Province has said the way it must be done. Has the City complied?
Why am I raising all of this? Remember that I thought that the City may not have complied with its Purchasing By-law. I am still trying to figure out what has been done re an environmental assessment. And now the financing raises questions in my mind!
The agenda item dealt with temporary borrowing of money to finance the arena until torrents of money come in to pay it off by 2010. Since the timing of expenditures does not match the timing of the availability of internal financing, interim financing needs to be obtained. The proposal was:
- to provide the temporary financings of the construction phase by bankers' acceptances
- to pay off the temporary construction borrowings by the proceeds of a permanent, fixed rate bank loan
- the entire project costs be repaid by 2010 from the debt reduction fund.
An RFP was issued and the TD Bank won the competition for the construction phase financing and agreed to issue bankers' acceptances. The borrowing cost was estimated at $2.7M
Interestingly, the fixed rate financing loan part of the RFP for the post construction period--2009 and early 2010--was "deferred" since total amounts of the construction loan are preliminary, subject to timing and corporate cash flows. A report is to come back to Council once definitive figures and timelines are agreed to. The TD Bank agreed to provide a fixed rate instrument (although I do not recall seeing an interest rate). The interest cost for this period was estimated to be $1.5M. Is this just an "agreement to agree?"
The purpose of this approach is the very commendable objection to avoid interest payments associated with long-term (20-30 year) debentures. Who can argue with that!
There were 2 references to the Municipal Act in the Recommendation to Council:
- The Municipal Act 2001, allows a municipality to authorize temporary borrowings to fund expenditures made in connection with a capital project, and
- There was a need for a fixed rate permanent financing loan for the post-construction period.
Being curious, I looked in the Municipal Act and Regulations. I thought I knew what sections were being contemplated as the basis but could not tell for sure. Accordingly, I sent this note to the City Treasurer:
- I read the Council Report respecting the "interim bridge financing."
Please tell me what section of the Municipal Act permits the "temporary borrowings to fund expenditures made in connection with a capital project" and what Regulation permits the interim financing as you have structured it ie the bankers' acceptance notes.
I am only aware of temporary borrowings that are allowed "prior to entering into a long-term bank loan agreement" in the nature of a debenture only and no use of bankers' acceptance notes for your purposes. The only regulation that I have seen that may permit what you are doing is to "support municipal long-term financing of capital infrastructure" which this is not.
I appreciate that the drawings are during the "construction phase" and that the temporary borrowing is supposed to be replaced by a permanent bank loan and the entire loan is to be repaid by 2010.
Since Phase II is NOT being dealt with at this time, it appears to me that there is no legal authority to do the bridge financing. In fact, the Report says that "permanent financing" comes from the debt reduction fund
I would also appreciate as well if you could tell me how this is "bridge financing" in any event. I am not aware that this term is to be used for multi-year borrowings as has been done now on several occasions by the City.
I received this response:
- as indicated in the report, regulatory compliance was fully considered prior to making the recommendations contained in the report. You may note in the report that Administration recommended against options which in its view may not have been allowed under the act.
In order to ensure legal compliance, staff from the City Solicitor's office were included as part of the team that made the recommendation. They indicate that the legal authority for the financing can be found in the Municipal Act 2001, section 405(1) and regulation 276. I concur with their opinion. Legal staff from the RFP respondents also considered regulatory matters in making their submissions.
As for your question on explaining why we consider this to be bridge financing, I would offer the following comments. We consider this to be bridge financing as it will bridge the time period from start of construction to the permanent financing at the end of the construction. The permanent financing loan will then be repaid by 2010. The funding for this project follows traditional municipal funding processes. The only unusual facet is that the project will be fully paid by 2010 instead of being funded by 20 or 30 year term debentures. This will save taxpayers millions of dollars in interest costs.
Section 405 and Regulation 276 were the provisions that I thought were applicable as the Treasurer stated. Here are the relevant provisions:
Section 405 (1)
- A municipality may authorize temporary borrowing to meet expenditures made in connection with a work to be financed in whole or in part by the issue of debentures if,
(a) the municipality is an upper-tier municipality, a lower-tier municipality in a county or a single-tier municipality and it has approved the issue of debentures for the work;
- (2) The proceeds obtained under subsection (1) shall be applied to the approved work but the lender is not responsible for ensuring the proceeds are used in this manner.
- 1.In this Regulation,
“bank loan” means a loan made by a bank and includes,
(b) a banker’s acceptance, whether or not it is discounted
- 2 (1) A municipality may enter into a bank loan agreement for the purpose of long-term borrowing.
- 3.This Regulation does not apply to a bank loan agreement entered into by a municipality for the purpose of temporary borrowing under section 405 or section 407 of the Act. O. Reg. 276/02, s. 3.
I had read in some Ministry materials that published in 2002:
- "For the first time, municipalities will be able to borrow money from banks to meet long-term financing needs.
A regulation filed September 27, 2002 under Ontario's Municipal Act, 2001, responds to municipal requests for this new flexibility. Currently municipalities can only undertake long-term borrowing by issuing debentures. Municipalities, particularly smaller ones, believe bank loans would be a lower cost alternative...
This regulation is just one of the new tools to support municipal long-term financing of capital infrastructure."
The purpose of section 405 is to allow for "bridge financing" ie "Bridge financing is a method of financing used to maintain liquidity while waiting for an anticipated and reasonably expected inflow of cash. "(Wikipedia). Section 405 states there can only be "temporary borrowings" if there is a "debenture" issued. There is no debenture to be issued.
Fortunately, Regulation 276, section 7 allows a bank loan agreement to be used instead of a debenture.
So far so good except, is there a "bank loan?" That part of the City's actions has been deferred and may never be needed. We have no idea if TD Bank has even given an acceptable interest rate for the loan. There is only a committment to give one. Nothing has been approved.
Even if it could be said that there is a loan, is it a long-term loan in the nature of a debenture? Can a loan of perhaps a bit more than one year be classified as something that falls under the Act and Regulations notwithstanding what an accountant may say is a long-term loan. Is the City meeting the true purpose of the statute?
Is the bankers' acceptance a violation of the Act since it is entered into as a "temporary borrowing?" Is it a violation since it purports to fall under Section 405, something the regulation does not seem to allow?
Given what 'bridge financing" seems to mean, does the Treasurer's explanation fit within that definition?
Someone one day may have to deal with these issues. Perhaps the Councillors who allowed this matter to go forward on the Consent Agenda as an example. I hope for taxpayers sake, they are answered in a positive manner for the City. If not, then there will be hell to pay and I do NOT mean to a bank.