Delta city hall. (Grace Kennedy photo)

Delta council approves plan to borrow up to $35 million in case of delayed tax revenues

Funds can be accessed to cover operating expenses as needed only until property tax revenue comes in

Delta council has approved a bylaw allowing the city to borrow up to $35 million to cover any delays in property tax revenue caused by the COVID-19 pandemic.

At a special meeting on Tuesday afternoon (April 14), council unanimously approved the measure as a means of covering its operating expenses should the need arise.

The bylaw authorizes the city to temporary borrow up to $35 million to “meet corporate cash flow requirements, if necessary,” pending receipt of 2020 tax revenues. That authorization does not automatically mean Delta is borrowing the funds however; it simply allows the city to apply for short-term financing with the Municipal Finance Authority.

“I think the easiest way to look at it is as a giant line of credit,” city manager Sean McGill explained during Tuesday’s council meeting. “We are not in debt right off the bat … It’s just something to have in place in case of cash flow [issues], so if we have a delay in collecting some of our anticipated revenues, this fills that gap.”

“This is a very prudent financial thing to do as far as it’s a safety net for us in the City of Delta.”

Any draws from the financing will first be brought to council for approval.

According to a city staff report, the current COVID-19 pandemic has raised concerns about possible reduced cash flows over the coming months, saying “it is anticipated that many of the city’s budgeted revenues are vulnerable to decline or significant collection delay.”

The report says there has been discussion with the province and other municipalities about extending the due date for property taxes from July 2 to Sept. 2, 2020, adding that there’s the potential many tax payers will be still be unable to afford to pay come the fall.

As well, there are a number of remittances from Delta to other taxing authorities, such as Metro Vancouver, that may still be due in August, which could put significant pressure on the city’s cash flow.

“Currently, baseline modeling shows that with capital project holds and the temporary layoff of our auxiliary workforce, Delta has the cash to fund services through the fall without the need to use revenue anticipation borrowing,” the report states.

“However, there are significant uncertainties regarding the duration of the pandemic measures, and projections based on scenarios with severely delayed property tax collection make it prudent to consider now the possibility that some borrowing may be required to maintain liquidity through the pandemic crisis.”

McGill told council it’s very very difficult for staff to determine the exact percentage of the overall property tax collection the city can expect to receive.

“About 80 per cent of our revenue comes from property taxes and utilities and a portion of that is in jeopardy, but we’re not sure [how big a a portion] and we’re not sure how much it’s delayed by, so that’s why we’re before you today with this,” he said.

“I think that’s the challenge we’ve had … to try and anticipate when will that revenue come in and what percentage of it won’t come in, and that’s a real unknown at this point. But we’re trying to do what we can to work with residents and to make it easier on them, knowing the challenge.”

The report notes Delta has a robust investment portfolio worth approximately $200 million as of March 31 and “very limited outstanding borrowing,” but not all of the city’s investments mature in 2020. Further, in many instances it would be more economical for the city to borrow instead of paying a penalty for early liquidation of those investments.

Under Section 177 of the Community Charter, the city can pass a bylaw allowing the borrowing of funds to cover current-year operating expenditures included in Delta’s five-year financial plan. However, the money can’t be used to cover long-term borrowing needs or capital financing, and the borrowed funds must be repaid as soon as tax revenue comes in.

This form of borrowing is highly restrictive and cannot be used for any purpose other than bridging the delay between the property tax due date and the actual collection of property taxes.

It cannot be used to provide long-term tax relief or tax deferrals to tax payers.

The report says if the borrowing takes place before the adoption of the current year tax bylaw, then borrowing is limited to 75 per cent of the preceding year’s tax levy.

As the City has not adopted its 2020 tax rate bylaw, the city’s revenue anticipation borrowing limit is $110.6 million, 75 per cent of the 2019 tax levy of $147.4 million.

The $35 million approved by council on Tuesday afternoon represents just over 31.5 per cent of the total amount Delta can borrow based on its 2019 tax levy.

McGill said staff will be bringing a new budget to council at its next meeting on Monday, April 27 at 4 p.m. that addresses the change in the fiscal landscape caused by the COVID-19 pandemic, adding staff will be recommending to council a change in either the collection date or the penalty date for property tax collection.

SEE ALSO: Delta asks province to allow local police, bylaw officers to enforce COVID-19 orders (April 14, 2020)

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