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Governance &
Structure Division
 

Terms & Concepts in the Community Charter: Borrowing & Liability Authority

 

The authority for council to incur liabilities is outlined in Part 6, Division 3 of the Community Charter. The legislation addresses the types of liabilities available to council, the applicable limits, the need for elector approval and, in the case of borrowing, the requirements for issuing securities. Given that procedural requirements are somewhat different for each type of borrowing, Division 3 provides separate authority of each type of borrowing and for other types of liabilities. However, it is important to note that the limits provided under that Division apply to the overall total of both borrowing and other liabilities.
 

Types of Borrowing

Council may undertake three different types of borrowing:
  • Revenue anticipation borrowing is current-year borrowing that council may undertake, in anticipation of sufficient revenues being received, to meet current-year expenditures and/or the municipality's tax remittances to other public bodies. In essence, revenue anticipation borrowing is a tool for managing cash flow. Money is borrowed for expenditures that must be made before the revenues needed to cover the expenditures are received. Once received, the revenues are used to cancel the debt.
  • Short-term capital borrowing may be used to acquire assets or to finance capital projects that are typically modest in scale. Debts incurred under this authority must be repaid within five years from the date of issue, if not sooner.
  • Long-term borrowing is typically undertaken to finance major capital assets and projects. This type of borrowing may also be used for other purposes, however, such as providing assistance to a partner under the terms of an agreement.

Types of Liabilities

In addition to the borrowing noted above, councils may incur other forms of liabilities, under the following authorities:
  • Liabilities under agreement occur when council enters into a contract with another person or public authority which involves a commitment to pay an amount in the future. Leases, public private partnership agreements and most other contractual obligations would be included in this liability authority.
  • Liabilities imposed under prescribed enactments occur when council is obligated to pay a future amount because of a requirement in a statute or regulation. These liabilities are rare, and occur only in the absence of an agreement. The example most often used of these types of liabilities are landfill closure costs, which accrue to the municipality as a result of statutory requirements to remediate landfills, rather than through a contract or agreement.

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Liability Limits

The total debt allowed to be incurred through revenue anticipation borrowing is determined by the amount of tax revenue remaining to be collected by the municipality during the current year, plus the amount of money remaining to be collected from other governments.
 

The maximum amounts allowed through short-term capital borrowing($50/capita), long-term borrowing and liabilities under agreement are subject to a limit established by regulation. The regulation limits annual servicing costs of defined liabilities to 25% of defined municipal revenue.
 

Elector Approval

Revenue anticipation borrowing bylaws and bylaws for short-term capital borrowing do not require elector approval. Most long-term borrowing and liabilities under long-term agreements, however, do require this approval. Although there are some exceptions provided for under the Community Charter and the Municipal Liabilities Regulation.
 

Issuing Securities

As was the case under the Local Government Act, all long-term debenture financing under the Community Charter must be done by the municipality's regional district, through the Municipal Finance Authority. The municipality is not, however, required to adopt a security issuing bylaw in addition to its loan authorization bylaw. Under the Community Charter, the municipality may provide for the issue of securities through council resolution.
 

Please direct questions or comments to Advisory Services Branch.
 

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