Council committee approved a $15,000,000 temporary borrowing bylaw Monday that is meant to help the city deal with any cashflow shortages it may face in the future.
The funds will be available through a line of credit the city has with Toronto Dominion Bank, and any borrowing the city does will be restricted by the Municipal Act.
Per the Act, the city may borrow up to 50 per cent of its total revenue between Jan. 1 and Sept. 1, and up to 25 per cent of its total revenue between Oct. 1 and Dec. 31, as set out in the city’s budget for the year.
If the city wishes to exceed its $15 million line of credit in borrowing in any year, a separate bylaw will need to be passed.
“The city does not anticipate needing the line of credit but will have it in place as a prudent financial measure,” CFO/treasurer John Henry told OrilliaMatters in a statement.
“The line of credit is a temporary borrowing tool and can help in situations where larger than anticipated expenses or a larger than typical volume of expenses are required in advance of property tax or other revenue timing. This is a standard business practice in both the private and public sector.”
Although the city has no immediate need or plans for the line of credit, Henry said it is “prudent to have the line of credit in place before it’s needed.”
“It’s important to note that the line of credit was not put forward to fund any particular project,” Henry said. “It has not been necessary to use the city’s current operating line of credit during the past several years, but this financial tool serves as a prudent protection measure to manage through temporary timing situations or urgent matters where short-term financing is required should they arise.”
As an example, the city might use the line of credit prior to receiving its first installment of property taxes.
“The city may have expenses in January and February, but the first property taxation installment is not received until March,” Henry said. “The city has balances on hand to effectively manage its operations, however, the line of credit is there as a protection measure just in case unexpected expenses pop up.”
The line of credit is continuous and staff intend to present Council with a by-law annually with respect to the temporary borrowing for that fiscal year.
The decision made at Monday’s council committee meeting will need to be ratified at the next council meeting on May 16.
