Staff Report: REVENUE ANTICIPATION BORROWING

REVENUE ANTICIPATION BORROWING

RECOMMENDATION:

THAT the report dated April 8, 2020 from the Manager of Accounting titled “Revenue Anticipation Borrowing” be received.

CHIEF ADMINISTRATIVE OFFICER’S COMMENTS:

I concur with the recommendation.

PURPOSE OF REPORT:

To approve a bylaw authorizing temporary borrowing to meet the Town’s financial obligations enabling short term borrowing to address potential cash flow issues should the need arise.

BACKGROUND DISCUSSION:

The Town receives most of its revenue through property taxes, which are typically due July 2 each year. While the deadline for property taxes in 2020 remains uncertain, the Town must prepare to meet its statutory remittance requirements to other taxing authorities in the interim.

A Council may, by bylaw, provide for the borrowing of money necessary to meet current expenditures in the anticipation of revenue. When collected, revenue from property taxes must be used to repay money borrowed under this bylaw.

BUDGET IMPLICATIONS:

The debt outstanding must not exceed 75% of property taxes imposed for all purposes in the preceding year, which limits the borrowing capacity for View Royal to $13 million.

The total of all payments to other taxing authorities due on or before August 1, 2020 is estimated to be approximately $6 million. In addition, the financial plan anticipates $9 million in municipal tax revenue for 2020. Typically, by July 2 98% of all property taxes have been collected. In these uncertain times, if only half of this amount was received by August 1, 2020, View Royal would need to borrow up to $7 million to meet requisition and other payment obligations.

Revenue anticipation borrowing could be fulfilled by any lending institution; the current variable rate with the Municipal Finance Authority is 1.32% per year. The expectation is that within six months the loan would be repaid, resulting in interest costs of approximately $46,300 if the estimated amount was outstanding for the full six months.

Because unrestricted accumulated operating fund surpluses totaling approximately $4 million are available to fund short-term cash requirements and to the extent that tax collections are closer to normal values, it is possible that revenue anticipation borrowing will not be required or will be limited to a smaller amount. Staff will continuously monitor cash flow needs, and borrow only on an “as needed, when needed” basis.

RECOMMENDATION:

THAT the report dated April 8, 2020 from the Manager of Accounting titled “Revenue Anticipation Borrowing” be received.

SUBMITTED BY: S. Vella, Manager of Accounting

REVIEWED BY: D. Christenson, Director of Finance