Temporary Borrowing Pending Receipt of Tax Revenues

and the Issuance of Debentures During 1999

The Strategic Policies and Priorities Committee recommends the adoption of the Recommendation of the Budget Committee embodied in the following communication (January 21, 1999) from the City Clerk:

Recommendation:

The Budget Committee on January 19, 1999, recommended to Strategic Policies and Priorities Committee, and Council, the adoption of the report (January 14, 1999) from the Chief Financial Officer and Treasurer, wherein it is recommended that:

(1)the temporary borrowing limit to meet 1999 current expenditures, pending receipt of tax levies and other revenues, be established at $1,000,000,000.00;

(2)the temporary borrowing limit for capital purposes for 1999 be established at $500,000,000.00;

(3)authority be granted for the introduction of the necessary Bills in Council to give effect to the foregoing; and

(4)the appropriate City of Toronto officials be authorized to take the necessary actions to give effect thereto.

The Budget Committee reports for the information of the Strategic Policies and Priorities Committee, and Council, having requested the Chief Financial Officer and Treasurer to report back to the Budget Committee on the cash flow of funds that the City collects on behalf of the Board of Education and any costs that the City is incurring borrowing money for that purpose.

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(Report dated January 14, 1999, addressed to the

Budget Committee from the Chief Financial Officer and Treasurer)

Purpose:

To provide authority to temporarily borrow funds, if required, pending the receipt of tax revenues and the issuance and sale of debentures during 1999.

Funding Sources, Financial Implications and Impact Statement:

An estimate of related costs incurred due to temporary borrowing during 1999 will be included in the 1999 Operating Budget.

Recommendations:

It is recommended that:

(1)the temporary borrowing limit to meet 1999 current expenditures, pending receipt of tax levies and other revenues, be established at $1,000,000,000.00;

(2)the temporary borrowing limit for capital purposes for 1999 be established at $500,000,000.00;

(3)authority be granted for the introduction of the necessary Bills in Council to give effect to the foregoing; and

(4)the appropriate City of Toronto officials be authorized to take the necessary actions to give effect thereto.

Background:

Subsection 187(1) of the Municipal Act provides that a municipal council may by by-law authorize the Head of Council and the Treasurer of the municipality to borrow from time to time by way of promissory note or banker's acceptance such sums as the council may deem necessary to meet, until the taxes are collected and other revenues for the current year are received, the current expenditures of the corporation. The City may also undertake temporary borrowing, under individual project approvals, for capital projects pending the issuance of debentures.

Discussion:

The amount of temporary borrowing outstanding at any one time is generally limited by the Municipal Act, unless otherwise approved by the Ontario Municipal Board, to 50 per cent of estimated annual revenues from January 1 to September 30 and to 25 per cent thereafter. Until the current year's estimates are adopted, the limitation may be calculated upon the revenues set forth in the estimates adopted in the previous year. Based upon forecasted current requirements for 1999, it is proposed that a limit of $1,000,000,000.00 be established which is less than the allowable limit under legislation but is projected to be sufficient to provide the necessary flexibility for the operation of the City's cashflow management and temporary borrowing program during 1999.

Furthermore, under Section 188(1) of the Municipal Act, temporary borrowing is allowable pending the issuance of debentures by the City for capital purposes as well as for boards of education. The $500,000,000.00 contained in recommendation (2) of this report is based upon the forecasted 1998 capital financing requirements of the City and the Toronto District School Board (TDSB).

Temporary borrowing costs incurred on behalf of the TDSB are recovered from this organization. During 1998, the City did not engage in any temporary borrowing or issue any promissory notes.

Conclusion:

It is proposed that the City of Toronto's 1999 temporary borrowing limit for current purposes be established at $1,000,000,000.00 and the borrowing limit for capital purposes for 1999 be established at $500,000,000.00. These limits will provide flexibility for the City's cashflow, investment and debt management programs while remaining significantly lower than the requirements of the Municipal Act and the City of Toronto Act, 1997, (No. 2).

Contact Names and Telephone Numbers:

Len Brittain, Director, Treasury and Financial Services 392-5380

Martin Willschick, Manager, Treasury 392-8072