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Land Tribunal decision gives County flexibility to respond to infrastructure needs

July 7, 2023

The Ontario Land Tribunal (OLT) has approved the County of Prince Edward’s request that the debt from two major infrastructure projects be exempt from the municipality’s Annual Repayment Limit (ARL).

The ARL is the maximum amount that an Ontario municipality can pay in principal and interest payments in the year for new long-term debt and in annual payments for other financial commitments. Like most Ontario municipalities, the County’s ARL is set at 25 per cent of its “own-source revenue” such as property taxes, user fees and investment income. The rule prevents municipalities from overextending themselves financially unless an application is made to the OLT.

In an application to the OLT, the County argued that the Municipal Act is unfair to small, rural municipalities such as Prince Edward County, and that calculating debt limits this way may be equal, but not equitable. Small communities do not have the same capacity to raise revenue as larger cities but still face high costs associated with building and maintaining roads, water and wastewater systems and other necessary infrastructure.

The OLT agreed with the County that the construction grant from the Ministry of Long-term Care that is paid out annually over 25 years that supports new long-term care developments should also be exempt from the ARL as the province’s commitment to continue to this multi-year obligation is not a financial risk for the municipality.

The County also argued that the ARL as calculated acts as an unfair barrier to the municipality because it included two items that pose no real financial risk to the County’s ability to pay its debts.  The Tribunal agreed with the County that the debt for the portion of Wellington infrastructure improvements that are financed by upfront financing agreements with developers should be exempt as it is supported by financial securities as part of legal agreements.

“We are committed to fiscal responsibility and borrowing within our means. That’s why we requested that debt paid from other sources not count towards our ARL,” says Amanda Carter, Director of Finance and IT, County of Prince Edward. “The OLT decision ensures our ARL calculation more accurately reflects the actual debt we must cover through our own-source revenue and give us some flexibility in our borrowing capacity to meet our community’s infrastructure demands.”

Responsible, long-term borrowing is one of the tools municipalities can use to fund essential infrastructure projects. The OLT decision could help other small, rural municipalities facing similar circumstances as Prince Edward County.

“The ARL has a much greater impact on small, rural municipalities because of our limited ability to generate revenue compared to larger, more urban jurisdictions. Having a more accurate reflection of our debt obligation will certainly help,” says Marcia Wallace, Chief Administrative Officer, County of Prince Edward. “This appeal was a rarely used mechanism to address the inequity built into this calculation, and we hope the Ministry will consider this decision in future amendments to the Municipal Act.”

Click here to read the full OLT decision. Learn more about the County’s upfront financing agreements.

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