Municipal Legislation Review: Highlights of proposed municipal

finance provisions

December 2016

Municipal Legislation Review

• The province is required to initiate a review of the Municipal Act every five years.

• Consultations on the Municipal Act, the City of Toronto Act, and the Municipal Conflict of Interest Act took place from June to October 2015.

• We heard from the public, many municipalities, municipal associations, community groups and other stakeholders on three key themes: – Municipal Financial Sustainability – Accountability and Transparency – Responsive and Flexible Municipal Government

• Modernizing Ontario’s Municipal Legislation Act, 2016 (Bill 68) was introduced on November 16, 2016.

– http://www.ontla.on.ca/bills/bills-files/41_Parliament/Session2/b068.pdf

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Municipal Financial Sustainability: Proposed Key Changes

During the consultation, the ministry received a number of proposals from stakeholders, including submissions from municipalities and Ontario Municipal Tax and Revenue Association (OMTRA) for technical and policy changes to improve the effectiveness and efficiency of:

• The tax sale process

• Property tax collection and administration

• Municipal investment powers

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Escheated and Forfeited Corporate Properties

As part of the MOI (formerly MEDEI) led review on modernizing and revitalizing the forfeited corporate property framework, changes were approved to improve the process for municipalities to undertake tax sale of forfeited corporate realty. As the tax sale provisions reside in the Municipal Act, 2001 and the City of Toronto Act, 2006, the changes are being considered as part of the municipal legislation review to:

• Provide municipalities with the option to initiate an expedited tax sale process for properties that have vested in the Crown because of the dissolution of a corporation.

• Deem amounts that municipalities impose after a property has forfeited to the Crown to be treated in the same manner as taxes to allow municipalities to recover such amounts in a tax sale.

• Clarify municipalities’ ability to use the tax sale process to collect unpaid property taxes on property that becomes the property of the Crown as a result of the death of an individual who did not have any lawful heirs.

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Other Tax Sale Proposals

• Reduce the time that property taxes on a property have to be owing before a municipality can start a tax sale of the property, from 3 years to 2 years.

• Provide municipalities with alternative methods to advertise a tax sale. Alternatives could include option for smaller newspaper advertisement coupled with advertising on municipality’s website.

• Change the payment out of court provisions to eliminate the one year wait for a court to make a determination of entitlement to proceeds of a tax sale that is paid into court, and follow how courts currently operate. Those with an interest in the property would have ten years to apply to court for payment. Excess proceeds remaining in court after the tenth year are deemed to be forfeited to the Crown.

• Remove the requirement for council to pass a by-law to authorize individual extension agreements.

• Clarify flexibility for a municipality to enter into an extension agreement with any of the owners of property that is the subject of tax sale proceedings.

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Property Tax Collection and Administration Proposals

• Where a municipal service is provided to a property, permit the addition of the fees and charges to the tax roll of the property.

• Allow the province or a body responsible for making a payment in lieu of taxes to apply to a municipality for relief similar to the authority that currently allows property owners to apply for property tax relief for example when a building has been damaged or razed by fire.

• Add Post Roll Amended Notices (PRANs) to assessment changes that currently trigger the recalculation of charitable rebates and other tax relief amounts.

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Property Tax Collection and Administration Proposals

• Update the legislation to make it explicit that a property tax bill can be sent electronically.

• Clarify that local municipalities can apply tax refunds to outstanding tax liabilities (set-off).

• Allow treasurer to make an application for the municipality to cancel, reduce or refund taxes which relate to overcharges caused by a gross or manifest error that is clerical or factual in nature, in the preparation of the assessment roll.

• Allow application to cancel, reduce or refund overcharges caused by a gross or manifest error in supplementary and omitted assessment information.

• Other housekeeping changes.

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Eligible Investments - MLR

• In general, municipalities outside the City of Toronto invest funds not immediately needed per regulations under the Municipal Act, 2001.

• O. Reg. 438/97 “Eligible Investments and Related Financial Agreements”, sets out the rules that apply to municipal investment activities and a list of the kinds of securities in which municipalities may legally invest.

• The Ministry of Municipal Affairs is proposing legislative and regulatory amendments to the Municipal Act to broaden municipal investment authorities.

• Proposal is to provide municipalities with a path to invest according to the prudent investor standard (similar to the City of Toronto). • Eligibility to invest according to the prudent investor standard would be

subject to certain duties, requirements, and criteria. • Additional proposals include enhancing the flexibility of the current

municipal eligible investment regime to support municipalities that may not be able to avail themselves of the prudent investor standard option.

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Municipal Sources of Revenue

• As part of the review of the Municipal Act, we heard a diversity of opinions on the issue of new sources of revenue, including the opinion that one size does not fit all.

• At the AMO conference, the Premier stated that while the government continues to be open to having a discussion with municipalities about potential new revenue tools, it is important for the sector to determine what is required to make municipalities of all types and sizes financially sustainable in the future.

• The government is not considering expanding revenue generation authority to municipalities at this time.

• We are encouraging our municipal partners to have local, public discussions about what they need to be fiscally sustainable moving forward.

• We will continue this conversation and hope to hear, broadly speaking, some agreement across municipalities on the issue.

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Next Steps

• Some of the proposed changes to eligible investments and tax sales will require regulatory amendments to implement. We expect to conduct further consultation with the sector in developing the regulations.

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MUNICIPAL FINANCE RESOURCES

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Minister’s Action Group

• The Municipal Budgeting and Financial Planning Action Group is an outcome of the Budget Matters regulation review. • In 2012 and 2013, the Ministry reviewed the regulation with municipal

stakeholders. • The review revealed that there are opportunities to strengthen municipal

budgeting and long-term financial planning practices and that municipalities want to be part of the advancing these processes

• The Ministry was directed by the Minister to establish an Action Group to engage with municipal stakeholders to develop new tools to support municipal budgeting and long-term financial planning.

Mandate

• The purpose of the Action Group is to establish a forum where municipal stakeholders can collaborate on practical and actionable ideas that will assist municipalities strengthen budgeting, asset management and long-term financial planning practices.

• The Action Group seeks to promote: • Accountability • Flexibility • Streamlined reporting • Transparency • Fiscal sustainability

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Common Language Guide to Municipal Financial Statements

• Provides examples of a municipality’s annual audited financial statements

• Explains key concepts, including: • Legislative requirements and

reporting standards for municipal budgets

• The four main components of municipal financial statements

• Supplementary schedules and notes to the financial statements

Municipal Budget Planning

•Surplus and Deficit

•Provides insight into the internal budget planning process for municipalities, including information on: • Budget planning methods • Types of budgets • Financial statements vs. budgets • Surplus and deficit and their

relationship to budget planning and long-term financial planning

•Unfunded Liabilities

•Explains how unfunded liabilities apply to municipal budgeting and why they are important to financial planning.

Understanding the Financial Indicators Thresholds

• Municipalities’ fiscal pressures are assessed by the Ministry annually through the Financial Indicator Review.

• Using plain language, this guide provides clarification on what your municipality’s results mean.

•Example:

FITs Terminology Common Language Terms

Net Financial Assets or Net Debt as % of Own Purpose Taxation Plus User Fees

Revenue Available (or Needed) to Pay for Future Transactions

Total Reserves and Discretionary Reserve Funds as a % of Operating

Expenditures/Expenses Reserve Levels