Town staff recommend investing $3.9 million proceeds from Waterloo sale

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It isn’t sexy, but it is responsible.

When the Waterloo Summit Centre for the Environment was sold earlier this year to De Novo Trust Fund—a deal that closes on July 6, 2018—a staff report recommended that the $3,905,000 from the sale (less any costs associated with the sale of the property like legal fees and survey costs) be placed in a reserve account until staff could return with options for those funds.

At the May 30 General Committee meeting, the Town’s Manager of Finance/Treasurer, Julia McKenzie, outlined staff’s recommendation: that the funds be invested and that the investment income be used to offset the increased costs associated with maintaining the municipality’s assets.

“The Association of Municipalities of Ontario (AMO) as well as the Federal and Ontario government along with other organization representing municipalities have been challenging Municipalities to consider their long term financial strategies while addressing asset management planning,” notes the staff report. “This includes ensuring that funds set aside for asset replacement are earning an adequate rate of return to help bridge the infrastructure funding gap. Ensuring that funds are being invested to increase rate of return while managing the risk as well as creating on-going income sources will assist Huntsville in creating a long term financial strategy, while reducing the impact on the tax payers.”

McKenzie noted that the Town is currently financing its capital asset management plans through property taxes (reserves), federal and provincial grants and development charges. If the current budgeted contributions to the Town’s reserves are maintained year over year, there will be a shortfall of $22 million in contributions to those reserves over the next 10 years.

The staff report included potential investment return scenarios for the funds using a three per cent and seven per cent average interest rate as illustration (see below), assuming the full principal amount remains intact:

Because there are existing regulations in place for how municipalities can invest funds, and with the province allowing for municipal use of the prudent investor standard as of January 1, 2019, staff are investigating the most appropriate investment options for the future while recommending a mix of tools to be used in the meantime, including a high interest savings account (HISA), GICs, and the One Investment Program, which is designed specifically for municipalities and the public sector.

Other options included in the staff report but not recommended by staff were to:

  • Transfer the funds to the Working Capital Reserve account to be used at council’s discretion for emergencies like natural disasters, unanticipated economic downturns, or one-time opportunities not included in the budget;
  • Transfer the funds to the Working Capital Reserve account to potentially offset the annual tax levy until the funds are depleted;
  • Transfer the funds to Public Works/Transportation capital for roads and bridges;
  • Transfer funds to individual reserve accounts for municipal assets to address deficits in those accounts; or
  • Fund the Town’s capital asset replacement and rehabilitation plan to help offset any future tax increases.

But McKenzie said staff’s recommended option would provide sustainable funding and reduce the infrastructure gap, while strengthening the Town’s financial health and managing risk.

Councillors had other ideas.

Councillor Jonathan Wiebe wondered if municipalities can own housing as an investment product. McKenzie said that the Town has owned housing in the past and hasn’t earned great returns on it due to the operational costs associated with it, and that “housing in general would be more of a District responsibility.”

Councillor Bob Stone wanted to address the downtown parking issue with the funds. “Previous councils rarely had an opportunity to fix (the parking problem). If we use some of these funds to build a parking garage on our present lot behind the Royal Bank we could solve our parking issues downtown permanently and perhaps get the parking out of River Mill Park. I think that would be a good spend,” he said.

Deputy Mayor Karin Terziano favoured investing the funds and compounding the interest until council decides what to do with the funds, but that the investment shouldn’t be long-term. “I caution that I don’t think it will be long—we just had two ideas.I just don’t think we should create an income fund that might not last long. I like the idea of investing it.”

Councillor Nancy Alcock concurred, but wanted to ensure that whatever investment is selected, it’s flexible enough that the money can be used if a project arises that council wants to spend it on.

Councillor Dan Armour noted that with an election looming, investment is the best choice, and that for several years they’ve been discussing expansion of council chambers and adding more office space for staff. “That could be something that’s also on the table.”

Councillor Jason FitzGerald said that after all of the discussion, “maybe a short-term investment is the answer until we agree on what we should do.”

In the end, councillors amended the motion to simply place the funds in a reserve account to be later invested, without the stipulation that the funds be used to offset asset management costs.

The matter will again be discussed at the council’s regular meeting on June 25.

Note: This story has been updated to reflect an extension of the closing date of the sale of the Waterloo Summit Centre for the Environment from June 20, 2018 to July 6, 2018.

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9 Comments

  1. Bonnie Branton on

    If 9 out of 10 locals & visitors complain about our parking, we might be wise to “listen”.

    In future, A PARKING GARAGE could provide 2 sources of income:

    Parking fees and,

    Rental fees from small, built in stalls
    (facing the park?), that the plethora of Artisans that cannot afford studios, would welcome.

    This ‘Artists Walk’ would also placate those who can only imagine a parking garage as unattractive. A unique cultural asset instead of a polarizing source of complaint.

      • Bonnie Branton on

        I always walk, usually from East of the bridge. The elderly, those with bad knees, hips, stroke victims etc. don’t have that privilege. Let’s truly strive to be kind & ‘inclusive’.

  2. Apparently, there is no appreciable budget for the streetscaping of Main Street from Lorne Street to the Main Street Bridge. Also, at least one new bus and some improvements in route signage, which will not be covered by a minimal fare increase is in the offing. As mentioned, setting monies aside for asset replacement is a priority for maintaining the Town’s credit rating.
    .
    The extent of the first item (and its consequent budget) will be determined soon: the actual project will be completed in 2019, after the District replaces its underground infrastructure. The second item is already required, but will Hammond Bus Lines continue to supply our buses? With Trump’s tariff on metals, the returns may not be worth the cost.
    .
    Unfortunately, a parking garage would have to be part of a large, non-municipal development; as even 50 additional parking spaces would cost in the neighbourhood of $3 M (which is too expensive a neighbourhood for Huntsville).

  3. Bonnie Branton on

    We’ve just agreed to an even lower return from this sale.
    Huntsville has agreed to pay for another months costs to maintain the Centre, to allow buyer to delay closing.

    Did we ask buyer for our additional costs?

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