Progress continues on the construction of Pelham’s new Community Centre. NATE SMELLE PHOTO
Regional Councillor cites potential for Region-wide fallout from Pelham’s inability to service debt
BY DAVID BURKET
A motion has been tabled for the next Niagara Regional Council meeting, to be held this Thursday, calling for greater transparency of the Town of Pelham’s finances, particularly with regard to its financing of the new Community Centre project.
Regional Councillor David Barrick, of Port Colborne, submitted the motion, which he wrote in consultation with staff.
In a lengthy preamble, the motion sets forth Pelham budget data that paints the Town’s recent financial decisions as outside the norm for Ontario municipalities. (The entire motion appears at the end of this article.)
It calls into question whether funding for the Community Centre can be acquired as forecasted by the Town, and notes that the Region is on the hook for a portion of Pelham debt in the form of debentures. Should funding not materialize as predicted by the Town, the knock-on consequences for the Region could be significant, leading to a lowering of its credit rating and an increase in borrowing costs eventually affecting all Niagara municipalities.
Other Regional Council members, speaking on condition of anonymity, support Barrick’s motion.
“Councillors are concerned that Pelham’s debt load could impact our AA-plus rating and end up costing all the citizens of Niagara higher interest costs,” said one. “And if Pelham was engaged in a plan to keep debt off their books in the form of deferred Development Charges or Development Charges credits, that would be problematic for everyone in the Region.”
In fact, in seeking comment for this article, the Voice learned that such Development Charges credits have, in fact, been issued by Pelham. What’s more, these credits have been improperly “resold” at a discount by at least one developer to other developers.
In a scheme to acquire land for credits, rather than cash, in September 2015 the Town of Pelham entered into an agreement with the Allen Group, developer of Fonthill Marketplace. In exchange for land that the Town wanted to use for a park, the Allen Group agreed to be paid in Development Charges credits rather than cash. The Allen group was later discovered to be selling these credits at a discount, a practice that Mayor Augustyn says has since been ended.
“When the Town learned of this, we put a stop to it. Eventually, we set up a receivable account and paid out the balance of the credits at a lesser value, i.e., to the Town’s benefit,” said Augustyn late Monday afternoon. (After press time, Mayor Augustyn stated that these events occurred “last summer” and that Council was informed of them at the time.)
The prospect that such credits are effectively hidden in the books when it comes to determining the Town’s actual debt load is part Barrick’s motivation to bring forth his motion.
“As Budget Chair and Chair of Corporate Services I receive calls from residents all across the Region,” said Barrick. “I get more calls from people living in Pelham than anywhere else. The fact that Pelham’s debt could mean a lower Regional credit rating means higher interest rates and higher property taxes for everyone else in Niagara. This is meant to protect all taxpayers in Niagara.”
Barrick asserts that Pelham’s tax increases and debt trajectory are “off the charts.”
He said that the resolution asks Pelham to have a plan to deal with its debt so as not to impact the Region’s credit rating, “and if they have one already then make it public. That was the rationale behind the staff management response being published.”
Barrick stops short of calling for an independent auditor to step in to examine the Town’s books.
“Other municipalities by the Region’s own figures are in a much better financial situation. I will note that the Corporate Services Committee last year had significant discussion over issuing another debenture on Pelham’s behalf.”
No Regional Councillor reached by the Voice could remember Council ever needing to take such a stance in response to an individual municipality’s fiscal practices.
Mayor Augustyn dismissed the motion as baseless.
“The motion is clearly a politically motivated attack on the Town of Pelham because of Council’s strong stand with other Niagara Municipalities over significant financial and governance concerns with the Niagara Peninsula Conservation Authority, where Mr. Barrick has worked since being hired from that Board in 2013,” said Augustyn. “Further, the motion attempts to distract from the community’s legitimate concerns about the Burgoyne Bridge and the recently revealed $2.8 million Niagara Regional Police deficit for 2016, where Councillor Barrick is a member of the Board.”
Augustyn also disputes the budget figures used in the motion’s preamble. In response, Barrick cites as his source the Town’s own data.
“Information is taken from page four of Pelham’s financial statements. 2015 debt level, $9.2 million. 2013 debt level, $2.3 million,” said Barrick.
“It’s unfortunate that Augustyn’s hallmark has become personal attacks rather than focusing on the issues. It’s disappointing and does not serve his community well. My concern, as Budget Chair for the Region, remains that Pelham’s fiscal situation risks everyone in the Region paying higher interest rates and taxes. He has an opportunity to mitigate this from happening and to also be transparent on Pelham’s true debt by clarifying the questionable land acquisition using a Development Charge credit scheme.”
Another Regional Councillor, speaking not for attribution, said that the Development Charges scheme raised eyebrows. “I know there will need to be a greater look at the D.C. scheme to determine if it was allowable under the Development Charges Act. It also looks like the debt would not have shown up on Pelham’s books. The finance people have to be involved.”
The Voice reached out to all Pelham Town Council members for comment, as well as CAO Darren Ottaway. Only Councillors Rybiak and Durley responded. Rybiak deferred to the Mayor. Durley stated, “I find it difficult to comprehend what would motivate a Councillor elected by the City of Port Colborne electorate to take such an interest in matters that do not touch Port Colborne in the least.”
CAO Ottaway, having initially said that he would respond, did not provide comment by press time.
The motion as tabled:
In accordance with the notice and submission deadline requirements of Sections 18.1 (b) and 11.3, respectively, of Niagara Region’s Procedural By-law, the Regional Clerk received from Councillor Barrick a motion to be brought forward for consideration at the March 30, 2017 Council meeting respecting Regional Taxpayer Affordability Guidelines.
Whereas the Town of Pelham’s operating levy increase since its 2015 budget is approximately 20% (2015 – 3.46%, 2016 – 9.69%, 2017 – 6.61% compounded) which is cause for concern;
Whereas the Town of Pelham’s most recent three published financial statements from 2013 – 2015 outline annual budget shortfalls totalling almost $1.0 million which is cause for concern;
Whereas the Town of Pelham’s most recent three published financial statements highlight a 402% increase in net debt from $2.3 million in 2013 to $9.2 million in 2015; Whereas the statutory annual repayment limit for municipalities is 25% of own source revenues;
Whereas the Town of Pelham approved an additional $21.2 million in further debt in 2016 attributable to a single municipal project that increases Pelham’s annual repayable limit to 18.1% and represents a 1326% increase in debt since 2013 which is a cause for taxpayer concern;
Whereas should the other funding sources fail to materialize for the aforementioned municipal project, $36.2 million would need to be borrowed placing Pelham’s annual debt repayment at 23.2% and will represent a 1980% increase in debt since 2013 which is cause for concern;
Whereas the Town of Pelham conducted a land transaction using a development charge scheme that does not accurately reflect its true debt levels in a transparent manner;
Whereas the current fiscal situation has resulted in a loss of public trust in the Town of Pelham’s ability to manage taxpayers’ money;
Whereas property taxes are a key consideration for first time home buyers and existing property owners when balancing household budgets;
Whereas Niagara’s Local Area Municipalities are fiscally prudent with their annual repayment limit circumstance (as of Q2 2016) such as Lincoln (2.82%), Thorold (2.15%), Wainfleet (1.10%), West Lincoln (4.41%), Niagara on the Lake (3.96%), Grimsby (3.78%) and others;
Whereas a portion of Niagara Region’s debt load consists of debentures issued on behalf of the Town of Pelham and thus has an interest in their corporate financial wellbeing;
Whereas the 2017 Standard & Poor’s report highlights a potential for the Niagara Region to receive a negative credit rating action if debt levels reach an identified threshold;
Whereas the Niagara Region recognizes and supports prudent fiscal planning, strong financial management, and fairness with respect to taxpayer affordability;
Whereas a key performance indicator of the 2015-2018 Niagara Regional Strategic Plan measures taxation in Niagara;
Whereas the Town of Pelham’s taxpayers are also Niagara Regional taxpayers; NOW THEREFORE BE IT RESOLVED:
That the Niagara Region REAFFIRM its support for the current Regional Taxpayer Affordability Guidelines requiring operating levy increases to be at or below the rate of inflation;
That the Niagara Region REQUESTS the Town of Pelham to publicly disclose its 2015 annual audited financial statement along with the corresponding management letter with staff responses as well as the same documents for fiscal years 2016 and 2017, once published;
That the Niagara Region REQUESTS the Town of Pelham develop a taxpayer affordability guideline that includes an evening public meeting to ensure Pelham’s operating levy remains below 25% compounded for the 2015-2018 term and its annual repayment limit does not increase above 20%; and
That this motion BE CIRCULATED to Niagara’s local area municipalities, the MPP for Niagara West-Glanbrook, the Minister of Municipal Affairs and Housing, Standard & Poor’s Ratings Agency, the Auditor General of Ontario, the Premier of Ontario, the Canadian Taxpayers Federation, all local Chambers’ of Commerce in Niagara, the Ontario Chamber of Commerce, Canadian Federation of Independent Business, the Pelham Business Association, the Niagara Industrial Association and the Niagara Homebuilder’s Association.