Region committee establishes guidelines for debt
Niagara Region’s audit committee is recommending the use of a debt management framework when its lower-tier municipalities finance large-scale projects.
Pelham’s financing of a $30million community centre put the issue in the spotlight over the past year.
Some regional politicians questioned the town’s balance sheet and its debt as well as its development practices. Pelham responded with an avalanche of documents and an audit — before its lawyer told the Region to back off, the questions were outside the Region’s jurisdiction and amounted to “interference” in its finances.
The Region acts as a clearinghouse for its 12 lower-tier municipalities when it comes to financing large civic projects. By bundling the debt and taking it to market, the Region gets a better rate for everyone.
“Now that the temperature in the room has come down quite a bit over Pelham’s borrowing, this is an excellent opportunity for a bit of a refresher for myself, and local councillors and regional councillors on the financial borrowing relationship between the Region and the local area municipalities,” St. Catharines Coun. Bruce Timms said.
He said some politicians had lost track of the contract law concept of “full joint and several liability for the repayment of debt.”
The report to the audit committee referenced that phrase —
which means all the municipalities and the Region are on the hook for each other’s debt.
Timms said the concept was one of the founding principles of the Region.
“The funding of major projects was one of the drivers for the province when it put the Region together in the first place,” Timms said. “The question in my mind is does the Region’s questions and concerns amount to interference? Should we be simply rubber stamping, or are we doing due diligence?”
Timms said the report made clear to him that regional council had an obligation to exercise due diligence.
The framework the committee passed included five steps which include identifying and assessing risks and ongoing monitoring. The report said the framework would be used to reassure the lenders that the Region iss exercising its due diligence.
It includes three “tolerance zones” to help the Region understand the debenture requests. Low (or green) would mean the municipality is well within the desired thresholds and no more information is necessary. Medium (or orange) would mean the municipality, although within the desired thresholds, should supply information as requested. High (or red) means the Region or municipality has fallen outside the thresholds, and the Region would request a strategy to mitigate or reverse indicators.
Part of the process also included canvassing the treasurers of lower-tier municipalities for their thoughts. Only four of the 12 municipalities made formal responses to the risk management strategy. Three did not support it or expressed concerns. Only one was in favour.