Financing for big ticket items up for consideration

August 7, 2013 · 0 Comments

By Brock Weir

They are some of the biggest capital projects facing Aurora over the next two years, and the multimillion dollar Youth and Joint Operations centres could be financed by loans from Aurora’s Hydro reserves.

Council originally planned to finance the new projects, including the Joint Operations Centre and its $17 million price tag largely through land sales, and relying on municipal reserves. A recommendation before Councillors next week, however, calls for a change of course, financing the projects through debt financing.

If approved, staff will be tasked to devise a program for debt financing, including intergovernmental grant and loan initiatives, and all other resources, including the Province of Ontario’s Green Municipal Fund.

According to Town Treasurer Dan Elliott, Aurora’s reserve accounts have become perilously low, a problem which was highlighted to Council through the 2013 Budget talks.

“Council has been apprised of concerns related to sufficiency of reserve fund balances and on-hand sources of financing for major capital projects,” said Mr. Elliott in his report.

“Staff recently completed a report on reserve fund strategy for reserve fund related directly to the sustainability of existing infrastructure assets and for tax source funding for new and growth capital. The reserve fund strategy report contemplates some debt financing to ensure our reserves will remain healthy.”

Mr. Elliott recommends continuing with financing the projects in part from the sale of municipally owned lands on Leslie Street, and from the sale of lands occupied by the current works department on Scanlon Court. His forecast also includes development charges (DC).

“Both the DC reserves and [Repair and Replacement] reserves will have difficulty accommodating this project at this time,” said Mr. Elliott. “DC reserves are overdrawn while R&R reserves are low. Accordingly, a large part of the project could be financed with debt, with principle and interest payments funded from a combination of future collection of DCs, as well as cash proceeds from the sale of lands.”

When all is said and done, $21.6 million will need to be financed if Council accepts his recommendation – then the next step is figuring out whether to finance it internally or externally. If they look to outside sources to finance the project, whatever is loaned would be subject to interest rates pegged at market rates, fixed payments, and other restrictions. Financing it internally through the Hydro Reserves will give the Town more freedom.

“Formalized internal financing has been done in the past at Aurora for outstanding debt related to the future-sizing of the library building construction,” he said. “Internal debt allows the debt to be fully open, with interest rates fixed or variable. A formal resolution of Council would establish the terms of the internal financing.

“Internally rather than externally financing these two projects will reduce the interest cost to the corporation. Being more flexible than external debt, internal financing will allow repayment to occur as the development charges are collected, and whenever the sales of various parcels of land currently for sale transact.”

The Town, he added, must be “cognizant” of the impact new debt will have on forecasted tax rates.

The future of Aurora’s Hydro Funds have been at the centre of significant debate over the last year, with many ideas coming forward on how to better use the money. Suggestions have included using the money to offset tax increases, creating a new building on Victoria Street to replace the outmoded former homes of the Aurora Public Library and Aurora Seniors’ Centre, and taking about a third of the money to partially finance a proposed heritage park on Yonge Street between Aurora Heights Boulevard and Irwin Avenue.