ADMINISTRATIVE REPORT

Date: November 27, 2000
Author/Local: K. Bayne / 7223

RTS No. 01768

CC File No. 1611

Council: December 12, 2000

TO:	Vancouver City Council
FROM:	General Manager of Corporate Services / Director of Finance
SUBJECT:	2000 Debenture Borrowing Program

RECOMMENDATION

A. THAT Council approve a debenture issue, to be dated December 13, 2000, in the amount of $1,038,500, utilizing borrowing authorities indicated in this report and with a term of ten years, a face interest rate of 6.1% payable semi-annually, and a Sinking Fund actuarial rate of 5%.

B. THAT Council approve the purchase of these debentures by the Sinking Fund.

C. THAT Council approve the Debenture By-law which is before Council this day.

COUNCIL POLICY

The City plans its capital expenditures over a three year period. Each Capital Plan has an associated financing plan which specifies the source of funding for programs/projects in the plan. Generally, a combination of pay as you go capital - called Capital from Revenue - and debenture authority provide the majority of the City funding. Borrowing authority is approved by Council for sewer and water expenditures under Sections 236 and 242 of the Vancouver Charter. Borrowing authority for all other purposes requires the assent of the electors. In situations where the works funded by borrowing authority received through plebiscite are delayed, the authority must be exercised within seven years of the last date listed in the borrowing question.

In November 1999, the electorate approved borrowing authority totalling $80.4 million for a variety of purposes detailed in the 1991 - 1993 Capital Plan. With the exception of the authority that is the subject of this report, all of this plebiscite borrowing authority hasbeen utilized to fund projects and has been included in previous debenture issues. The authority being exercised pursuant to this report relates to Streets work for which funding has been allocated but for which no borrowing has taken place.

On October 31, 2000, Council authorized the Director of Finance to proceed with the issuance of a debenture issue of up to $80 million, utilizing plebiscite borrowing authorities provided in the 1991-1993, 1994-1996 and 1997-1999 Capital Plans.

PURPOSE

The purpose of this report is to obtain authority for a debenture issue to finance a portion of the City's capital program.

BACKGROUND

Approximately 85% of the City's capital program is funded through the issue of debentures. The timing of debenture issues is tied to the actual pattern of capital expenditures for projects funded by debt. The Vancouver Charter stipulates that the City make full provision in the annual operating budget for the repayment of principal and the payment of interest on its debentures.

DISCUSSION

The 1991 - 1993 Capital Plan included $1,038,500 in borrowing authority for various Streets works that has been utilized to fund specific projects but for which no borrowing has taken place. Unless utilized by December 31, 2000, this authority will lapse. While it had been intended to include this borrowing within a larger issue this fall, that borrowing has been postponed until the new year. As a result, it is necessary to take immediate action to ensure that the borrowing authority is utilized by year-end.

It is recommended that the City issue debentures to the total of $1,038,500 and that the term of the debenture issue be 10 years, with a market rate of interest of 6.0%, payable semi-annually, and a Sinking Fund actuarial rate of 5%. The closing date for the issue is anticipated to be December 14, 2000. It is also proposed that this debenture issue have a 3-day call feature, exercisable only by City Council, should Council ever wish to call and cancel the debentures. This feature provides Council with flexibility that could be important in the future.

It is proposed that the financing for the debenture issue be done internally in the City's Sinking Fund. The Sinking Fund is established to accumulate funds in order to repay the City's Sinking Fund debentures, when they mature. The contributions to the Fund are calculated such that the contributions, plus interest, will match the principal amount of thedebt upon retirement.

The City often "invests" the cash in the Sinking Fund in the City's own debentures, as opposed in investing in other securities. This ensures that Sinking Fund cash is invested in a "risk-free" investment which also bears market interest. In addition, "internal" debenture issues avoid commissions and fees for the City in issuing these debentures. Cash projections of the Sinking Fund indicate that the funds can be invested in the proposed debenture for the 10 year term.

A bylaw authorizing the issuance of this debenture is before Council this day.

FUTURE BORROWING REQUIREMENTS

On October 31, 2000, Council authorized the Director of Finance to proceed with a debenture issue to a maximum of $80 million. However, a review of the cash position of the Capital Fund indicates that this issue can be postponed for up to several months. This delay is supported by a review of the City's borrowing program and its impact on the Operating Budget. In addition, while current market conditions are attractive compared to historic levels, the forecasts suggest that it is unlikely that there will be a significant change in the cost of borrowing if the issue is delayed into the new year. Staff will monitor expenditure patterns, market conditions and interest rate projections and, should conditions suggest an early issue, the existing authority from Council will be utilized. However, should the issue be delayed beyond the next 60 days, a renewal of that authority will be sought.

CONCLUSION

The capital budget includes program expenditures that are funded from plebiscite borrowing authority that expires at the end of 2000. It is therefore recommended that this authority be exercised by the issuance of debentures to a total value of $1,038,500 and that this debenture be purchased by the Sinking Fund.

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(c) 1998 City of Vancouver