Last year’s regional-municipal saga surrounding the $36 million borrowed by the Region on behalf of the Town of Pelham for Pelham’s new arena, reappeared in an Audit Committee meeting at the Region this week. The loan request of the Region was first made in June of 2016 when the Town asked the Region to agree to grant it borrowing space of up to $36 million for the aforementioned arena. The Town stated they had no intention of borrowing the full amount, because they had a plan to fundraise and engage in land sales to cover at least $15 million of the cost. Several Councillors balked at agreeing to have the Region borrow for the Town fearing the amount was far too much for a town of only 17,000 people, but were led to believe by previous Region staff that their non-approval would be a legal problem. Loans like this by upper tier governments had come to be treated as ‘rubber stamps’. After a deferral was narrowly defeated, the loan space was eventually approved, with only Councillors Bart Maves and Andy Petrowski standing their ground and voting against.
The Town of Pelham and a few other municipalities began to pass motions at their respective Councils condemning perceived Regional government interference in municipal matters. The Region argued that since they were liable for the debt, they had the right and the responsibility to ask for financial information from the Municipalities that would assure the Region that the municipality could actually afford the debt.
Regional staff sought outside opinion in this matter. The professional opinion that came back was that indeed the Region not only had the right to seek as much information as it felt necessary to satisfy itself before agreeing to borrow money for the municipalities, they in fact had a fiduciary responsibility of due diligence to do so.
On the responsibilities of the Region, External Council Weir Foulds advised the Niagara Region Audit Committee last week about its responsibilities for municipal borrowing under the Municipal Act. Under the Act “a lower-tier municipality cannot long-term finance capital works on its own. That can only be done through the region…”. And that “upon issuing the debentures the region assumes full joint and several liability for repayment of the debt created”.
The law firm continued, “it is our view that before agreeing to a lower-tier municipality’s request, the Region would be entitled to any financial information from the lower-tier municipality that would be relevant to assessing whether that municipality would be able to service the debt financing from its own resources without saddling the Region and the other lower-tier municipalities with the obligation to repay the debt…”. And finally, under the Municipal Act, “The imposition of joint and several liabilities on the Region would make little sense without implicitly recognizing that the Region should be entitled to all available information necessary to assess the financial advisability of assuming such responsibilities. Otherwise, the Region would become a mere “rubber stamp” on a financing request from a lower-tier municipality that the Legislature has clearly decided should not be permitted to raise such financing on its own.”
At the Audit meeting, regional legal staff were asked what Council’s fiduciary responsibilities were when agreeing to issue debt on behalf of the corporation.
Head of Region Legal staff, Donna Gibbs, informed the Committee that Council does indeed have fiduciary responsibility to act in good faith, without any conflict and to the best of their ability with the information provided. “The recommendation of staff is certainly to support that and to enhance your ability to do so in terms of obtaining additional information.”
She continued that the staff recommendation for Council to seek additional information from municipalities when issuing debt on the municipalities behalf was supported by regional legal staff and by external legal advice in that getting “additional information would be prudent in order to enable Council to discharge their duty to make a decision prior to issuing debt as sort of a leadership role on behalf of the Region and also on behalf of the lower tier municipalities to ensure borrowing in the future is not unduly encumbered.”
Councillor Bruce Timms of St. Catharines, noting that major borrowing by the Region on behalf of the municipalities brings with it under the Municipal Act joint and several liability said, “It’s very clear that some have lost track of that very fundamental founding principle of the Regional government that joint and several liability or responsibility for funding major borrowing projects was one of the main drivers for putting regions together in the Province in the first place. We have due diligence responsibilities as councillors.”
As a footnote, the Town has indeed come back and borrowed the whole $36 million and in frustration a Pelham group formed Pelham Debt to hold their Town Council accountable. The activities of the group brought to light a questionable land deal wherein the Town asked a developer to purchase land from a resident and then to turn around and sell the land to the Town. The developer bought the land for $200,000 per acre and then flipped it under, what has been described as, a pre-arranged sale to the Town for $1 million per acre.