FINANCE AND ADMINISTRATIVE COMMITTEE
	TO:	Mayor and Members of Council
	FROM:	Barb Cribbett, Treasurer
	PREPARED BY:	Mark Visser, Senior Investment/Financial Analyst
	DATE OF MEETING:	2003-Sept-8
	SUBJECT:	Town of Markham Leasing Policies and Goals

RECOMMENDATION:

THAT the report dated September 8, 2003 entitled “Town of Markham Leasing Policies and Goals” be received;

THAT the attached Town of Markham Leasing Policies and Goals be approved

AND further that a ‘material’ lease be defined as a lease with annual payments greater than 0.5% of the Town’s annual Debt and Financial Obligation Limit.

PURPOSE:

The purpose of this report is for the Town of Markham to adopt a set of policies and goals with respect to leasing arrangements in order to be aligned with the latest changes in the Municipal Act.

BACKGROUND:

In September 2002, the Province passed legislation under Ontario Regulation 266/02 that requires municipalities to adopt a statement of policies and goals for all leases (financing leases) extending beyond the term of Council, prior to enacting a by-law authorizing the financing lease. The statement of policies and goals must include at a minimum, a discussion of the financial and other risks for the municipality of financing leases. Furthermore, it may provide for a special category of financing leases that would not result in a material impact for the municipality (non-material lease).

The new leasing provisions set out detailed mandatory requirements for standardized lease terms, disclosure, and other reporting and approval requirements for which the treasurer will be responsible. The mandatory requirements are applicable when the financing lease is classified as a “material” lease.

Prior to entering into a material financing lease, the council of the municipality shall:

• Have a report prepared by the treasurer that assesses costs and financial and other risks of the lease and discloses the effective rate of financing.
• Obtain legal and financial advise with respect to the proposed lease.
• Consider if the proposed lease warrants the need for a second legal or financial opinion.
• Advise the regional municipality in writing of the lower tier municipality’s intent to enter into a lease agreement.
• Consider and give its assessment of the report provided by the treasurer, including whether, in its opinion, the financing lease costs are lower than other methods of financing, and whether the risks associated with the financing lease are reasonable.

The regulation provides a mechanism to exclude leases that are deemed not to have a 'material impact’ on the municipality (non-material leases). This threshold will be examined in the Options/Discussion section.

No generalized regulation is being prepared to deal with cross-border leasing transactions at this time, owing to their potential complexity. Instead, the Ministry of Municipal Affairs and Housing has indicated that it will approve these types of leases on a case-by-case basis.

OPTIONS/DISCUSSION:

The new regulations would allow for the Town to be excused from the above noted mandatory requirements as long as the lease in question is deemed to not have a ‘material impact’. This is defined in the regulation as “costs or risks that significantly affect, or would reasonably be expected to have significant effect on, the debt and financial obligation limit prescribed under Ontario Regulation 799/94”.

Under regulation 799/94, the Ministry of Municipal Affairs and Housing determines the Annual Repayment Limit respecting long-term debt and financial obligation limit using a complex formula based on the financial information supplied to the ministry by the Town of Markham. The repayment limit is based on 25% of the municipality’s net own source revenues as reported in the Financial Information Return every year. The Town’s 2003 Debt and Financial Obligation limit is $34.5 million.

It is recommended that the definition of ‘material impact’ for the Town of Markham be any annual payment greater than 0.5% of the current year’s Debt and Financial Obligation limit. Therefore, in 2003, any lease the Town enters into with annual payments greater than $172,500 ($34.5m * 0.5%) would subject to the requirements of the regulation. This limit would be recalculated each year as the Debt and Financial Obligation limit changes.

In comparison, the Region of York set their ‘non-material’ limit at $250,000.

FINANCIAL CONSIDERATIONS:

There are no direct costs associated with this report. However, the changes to the reporting procedures will ensure that the risks and costs associated with leases will be minimized in the future.

ATTACHMENTS:

O. Reg. 226/02 – Leasing Regulations

Town of Markham Leasing Policies and Goals

Town of Markham 2003 Annual Repayment Limit

Barb Cribbett, Treasurer

Andy Taylor, Commissioner, Corporate Services

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