Local governments can only engage in long-term
borrowing for items and projects that are considered “capital” in
nature. This means that the item will not be used up during the
course of everyday operations and that the project or asset will
provide a benefit to the local government for more than one
accounting period (year). Typical examples of capital items include
fire trucks, buildings, water mains and roads.
With the exception of the City of Vancouver, long-term borrowing by local governments
must be undertaken through the Municipal Finance Authority
(MFA). Borrowing by the City
of Vancouver is addressed in the Vancouver Charter. The MFA also provides a
leasing program as
another means for local governments to obtain financing.
Through the MFA, local governments borrow together as a group and
guarantee each other’s financing. This is achieved by requiring all
borrowing to be channelled through regional districts. However,
municipalities are responsible for meeting their own debt obligations. This provides
added security against default to potential investors and allows MFA to borrow at a
lower rate of interest than local governments could obtain on their own.
Long-term borrowing by local governments cannot be undertaken without the approval of the Inspector of Municipalities. In addition, elector approval is required in a majority of cases when a local government seeks to engage in a long-term liability. Elector approval can be sought in one of two ways. One way is to receive the approval of electors by holding a referendum. The second option is to hold an “alternative approval process.” However, certain types of borrowing do not require elector approval. They include:
A municipality's approval-free zone is established in the
Municipal Liabilities Regulation. The regulation also
limits the amount a local government can spend on its capital obligations
in a year. Information for local governments when seeking to take on a new
capital obligation can be found in
and Leasing Changes.”
A local government can enter into an agreement to incur a
liability provided that certain conditions are met. Liabilities
under agreement can only occur if the liability is not debenture
debt and it must receive elector approval should the agreement
exceed five years.