11/26/2013 Additions to Council ADDITIONS TO COUNCIL, TUESDAY, NOVEMBER 26, 2013
REPORTS
1. F-2013-68 - OLG Update
2. F-2013-50 - Investments Report for 2012
F-2013-68
Niagarafalls November 26, 2013
REPORT TO: Mayor James M. Diodati
and Members of the Municipal Council
City of Niagara Falls, Ontario
SUBMITTED BY: Finance Department
SUBJECT: F-2013-68
OLG Update
RECOMMENDATION
That Council authorize staff to develop a Capital Reserve Fund for the enhanced revenues
generated by the OLG Municipality Contribution Agreement.
EXECUTIVE SUMMARY
The City of Niagara Falls approved a new Municipality Contribution Agreement with the
Ontario Lottery and Gaming Corporation (OLG). This new agreement increases the City's
hosting fees from $3.0M annually to potentially $20.0M annually. Currently, the City is
partially through the initial year of the agreement and is unable to predict with certainty the
total revenues that will be received. As a result, staff has recommended that no spending
commitments be made until the end of the initial year. The initial year of the agreement
will end March 31, 2014. The agreement requires OLG provide a reconciliation after the
year end which staff expect late in April 2014.
This report was requested by Council so as to provide Council an opportunity to provide
input on potential utilization for the enhanced revenues. To facilitate these discussions,
staff has identified opportunities and are seeking Council feedback on these and others
that may be the best use of the funds.
Staff is recommending that Council establish a new OLG Capital Reserve Fund for the
enhanced revenues received under the agreement. This Reserve Fund will provide
Council with enhanced reporting and transparency on the receipts and uses of the hosting
agreement revenues. It should be noted that the enhanced revenues are the incremental
increases above those previously received under earlier agreements. The previous hosting
agreement between the City and OLG resulted in funding of $3.0M which was used as a
levy reduction in the City's Operating Budget. Similarly, the OLG and Niagara Regional
Police Service (NRPS) had a previous agreement on policing costs that was discontinued
with the new hosting agreement. At present, the City is engaged in discussions with the
NRPS in respect to the policing agreement.
November 26, 2013 -2 - F-2013-68
BACKGROUND
In September 2013, Council approved the Municipality Contribution Agreement with the
Ontario Lottery and Gaming Corporation (OLG). This agreement provides a hosting fee
to the municipality for the two casinos located in Niagara Falls. The agreement, while
signed in September 2013, is retroactive to April 2013. The funding period is consistent
with the Province's fiscal year, specifically April 2013 and concluding March 31 , 2014.
Payments, based on a percentage of gaming revenues, are received by the City each
quarter. OLG is required to provide a full reconciliation of the funds at the conclusion of
its fiscal year which will be completed in late April of each year.
Staff recommended that Council defer decisions on the use of funds received under this
agreement until a full year has concluded. Council requested a report outlining staff's
recommendations for the use of the anticipated funds, as well as a reporting framework for
the funds received. The purpose of this report provides Council with an update on these
two requests.
ANALYSIS/RATIONALE
The hosting agreement provides the municipality with a significant revenue increase from
the previous agreement which was established in 1998 when Casino Niagara opened.
Under the previous agreement, the municipality originally received $2.6 million and has,
over time, increased to $3 million annually. In addition, OLG provided the Niagara
Regional Police Service with additional funding of $4.2 million annually for enhanced
policing in the area of the Casino and tourist area.
The new Municipality Contribution Agreement is the same as agreements recently signed
between the OLG and other municipalities that host casino properties, in that the
agreements are only with the local municipality and the OLG. As a consequence, the City
of Niagara Falls has been charged with the responsibility to address policing directly.
Staff was requested to provide guidance to Council in respect to the reporting of the
hosting agreement funds and to provide a list of opportunities for us of the funding.
Discussions with the NRPS continue, as of the writing of this report.
Anticipated Funding Levels
The City does not know, at this time, the total revenue that will be generated in the initial
year by the new agreement. This will be known sometime in April 2014, after OLG
provides a full accounting and reconciliation to the City. Based on the discussions with
OLG and the monies received to date, an estimated total in the range of$19 - $21 million
is reasonable.
November 26, 2013 - 3 - F-2013-68
Opportunities for Use
a) Tax Relief
Council has already committed $3 million to the operating budget. This amount has
been included in the previous year's budget ($2.6 million in 2008 and prior years).
The inclusion of this amount in general revenues of the Annual Operating Budget
has resulted in a benefit to property owners, since the inception of the original
agreement. The use of these revenues, in this manner, has reduced the Annual
Tax Levy each year since its inception. Unfortunately, the new agreement, unlike
the previous one, is not guaranteed for a fixed term. Thus, the inclusion of any
greater amount than the $3 million is exposing the City to potential taxation risk in
future years.
b) Niagara Falls Hospital Reinvestment
The Province has undertaken a review of future hospital locations within the
Southern Tier of the Niagara Peninsula. The preferred site is located in Niagara
Falls. Under Ministry of Health guidelines, the local municipality is required to
provide 10% of the capital costs of the hospital. In most other municipalities, the
municipality creates a special levy for these costs. In the case of Niagara Falls,
there is an opportunity to set aside a percentage of the hosting funds for this use.
It is estimated that the City of Niagara Falls' commitment toward the hospital will be
$20 to $22 million.
c) Capital Asset Reinvestment
City staff has indicated, at numerous times, that the biggest challenge facing the
City is the need for increased funding to replace the City's existing infrastructure.
The additional funding provided in the hosting agreement provides an opportunity
to increase the reinvestment in infrastructures. At the present time, the City is
engaged in finalizing a Capital Asset Management Plan. This plan will provide an
overview of the main infrastructure assets, conditions, and future funding estimates.
It is staff's recommendation that the use of this funding in this area is a priority. This
capital plan will be presented to Council prior to April 2014 and will provide an
improved estimate of the funding required to maintain the City's infrastructure
d) Economic Development Initiatives
Staff recognizes that the new Municipality Contribution Agreement changes the
formula for the City's revenue. In the previous agreement, the funding level was
fixed at$3 million annually. In the new agreement, the funding amount is based on
a percentage of the Casino operation's revenues. This new arrangement provides
the municipality with an incentive to invest in economic development activities that
will grow and maintain revenues at the gaming sights. Increasing the revenues at
the casinos will increase the City's revenue under the agreement. As a result, staff
believes that dedicating a portion of the annual funding amount to economic
development initiatives that will enhance casino revenues should be considered.
November 26, 2013 -4 - F-2013-68
e) Debt Deferral
At present, the municipality approved capital projects in 2012 that require funding
through debt issuance. Normally,the municipalities issue debt in the summer when
the Region of Niagara performs its annual issue for itself and lower tier
municipalities. In 2013, the City deferred borrowing on the projects, amounting to
$3.9 million, pending the settlement of the hosting agreement. In addition, $2.5
million was approved in 2013 Capital projects. Consequently, there are$6.4 million
in debentures scheduled to be issued.
This scheduled borrowing identified above was approved based on the debt
management strategy approved by Council wherein staff initiated a strategy to
replace retiring debt with new debenture issues without any increase to the
operating budget. If Council decides to utilize funds received from OLG to offset the
required funding, as an alternative to debt, then there will be a positive offset to
future operating budgets. However, Council should be aware of a"negative"to this.
Notably,the City's investment in required capital work will not be increased because
using the funding in this manner will be to for completed projects not additional
work.
FINANCIAL/STAFFING/LEGAL IMPLICATIONS
Unlike the previous hosting agreement, the new funding agreement covers the Province's
fiscal year and not the City's fiscal year. As a consequence, staff has recommended and
continue to recommend that Council defer any spending decisions on the enhanced
revenues until a full year of the agreement has elapsed. This ensures Council will have
complete information on the revenues received.
To facilitate this course of action, staff recommends that all enhanced revenues received
during the course of the initial year be transferred to a new reserve fund. This will ensure
that staff can provide a separate account of all transactions for the revenues received
under this agreement. If this course of action is agreed upon, a bylaw establishing the
reserve fund will need to be approved at a future Council meeting.
It should be clarified that the monies transferred to the reserve fund would be considered
enhanced revenues. Enhanced revenues would be defined as the funds received above
the amounts committed under prior agreements. Specifically, the monies identified in the
Operating Budget of $3 million for levy relief and any funds negotiated with the NRPS
would not be included in enhanced revenues. The chart below summarizes the
determination of enhanced revenues.
Capital Reserve Fund
Total Funds received in agreement year (estimated) $ 20,000,000
Less: Operating Budget Levy Relief (3,000,000)
Less: NRP amounts (to be negotiated) (4,200,000) estimate
Estimated Enhanced Revenues $12,800,000
at Year End to be transferred to reserve
November 26, 2013 -5 - F-2013-68
As discussed the enhanced funding would be dedicated to a reserve fund with the
spending to be determined after the annual agreement period is completed. As Council
is aware, staff has received two payments thus far under the new agreement. The Chart
below identifies the funding received to-date and the approved commitments against the
revenues.
Hosting Revenues Received To Date
First Quarter: July 2013 $ 6,433,923
Second Quarter: October 2013 5,596,501
Revenues received to Date $12,030,424
Less: Operating Budget Commitment (3,000,000)
Less: NRP Commitment ( under review) (4,200,000)
Enhanced Revenues received to Date $ 4,830,424
Pre Engineering Commitment (F-2013-54) (2,217,275)
Available for Reserve Fund $ 2,613,149
as of November 15, 2013
As this latter chart illustrates, after two quarters the municipality has uncommitted funds
of $2,613,149. Additional funding will be received in the first year of this agreement in
January 2014 and April 2014.
CITY'S STRATEGIC COMMITMENT
Financial Sustainability
Investment and Sustainability of City Infrastructure
Recommended by:
Todd Harrison, Director of Finance
Respectfully submitted:
Ke Todd, Chief Administrative Officer
F-2013-50
Niagarafalls November 26, 2013
REPORT TO: Mayor James M. Diodati
and Members of the Municipal Council
City of Niagara Falls
SUBMITTED BY: Finance Department
SUBJECT: F-2013-50
Investments Report for 2012
RECOMMENDATION
That staff request Expressions of Interest from qualified financial institutions for short term
investment services and report back to Council.
EXECUTIVE SUMMARY
All municipalities are required to conform to the Legislative requirements of Section 418
of the Municipal Act 2001. This report is being provided to update Council on the
investment activities of the Corporation for 2012
During 2012, the annual investment income generated was 3.54% for the reserve funds,
while the annual return on the trust funds was 5.94%. These investments are managed
by Scotia Asset Management and conform to the guidelines and regulations governing
these investments.
Staff has received many enquires from financial institutions regarding the provision of
investment services. Staff is recommending that the City release an Expression of Interest
for the investment services of short-term investments. This action will facilitate the
municipality's ability to maximize investment income on its working capital and is consistent
with Council's direction to provide additional competition for the municipality's portfolio.
BACKGROUND
Staff is providing financial information for the previous year's performance concerning the
investment of the City's Reserve Funds and Trust Funds. Scotia Asset Management
Group is engaged by the City to manage the two investment accounts.
With the emergence of new sources of funding, the municipality finds itself in a position
that staff wish to invest surplus working capital in short term investments. By this action,
staff believes that this will assist in increasing the City's investment income. To facilitate
this opportunity, staff wants to provide qualified financial institutions an opportunity to have
a competitive process.
ANALYSIS/RATIONALE
The City's current investment strategy relates to long term investments. The City does not
currently have a formalized process for short term investments. The following is a highlight
of the City's performance for each investment.
November 26, 2013 -2 - F-2013-50
Reserve Funds
On January 1, 2012, the opening balance in this investment account was $21,992,708.
In accordance with the City's investment policy, the funds were invested in Government
treasury bills, Government and Canadian Corporate issues of bonds, bankers'acceptance,
term deposits and similar investments.
During 2012, the investment income was $865,673. Management fees of $87,655 were
paid to Scotia Cassels for their services. As at December 31, 2012, the closing balance in
this investment account was $22,770,727. The annualized rate of return for 2012 was
3.54%.
Trust Funds
On January 1, 2012, the opening balance in this investment account was $2,882,966. In
accordance with the City's investment policy, the funds were invested in Government
treasury bills, Government and Canadian Corporate issues of bonds, bankers'acceptance,
term deposits and similar investments.
During 2012, the investment income was $183,568. Management fees of $12,232 were
paid to Scotia Cassels for their services. As at December 31, 2012, the closing balance in
this investment account was $3,054,302. The annualized rate of return for 2012 was
5.94%.
More information, such as the investment portfolio report or the City's investment policy,
is available for inspection in the Finance Division Office.
FINANCIAL/STAFFING/LEGAL IMPLICATIONS
The primary objective of all municipal activities is to adhere to statutory requirements while
preserving capital; ensuring liquidity; and maximizing yields. The City has provided
investment objectives for the management of trust funds and reserve funds. It is staff's
objective to review the management of these portfolios in 2014.
The issue that has emerged for staff is the opportunity to invest working capital during the
fiscal year in short term investments. Staff believes that a process wherein qualified
institutions are afforded an opportunity to participate in a competitive process for these
investments will result in enhanced investment returns. Staff receives numerous requests
from financial institutions for the opportunity to invest on the City's behalf. Staff believes,
in light of recent funding arrangements, the City will be in a position to seek these
opportunities and wish to pursue,through an expression of interest, options for maximizing
returns while pursuing capital and ensuring liquidity.
•
Recommended by:
Todd H 'rison, Director o Finance
Respectfully submitted:
Ken odd, Chief Administrative Officer