The following is a digital transcript of Lac Ste. Anne County Administration's presentation delivered by Chief Financial Officer Robert Osmond at the beginning of the Public Hearing regarding Establishment of Municipally Controlled Corporation - Legacy Municipal Land Corporation.
The idea of a Municipally Controlled Corporation for development projects that hold significant community value, but with low or no financial benefits, was first discussed at the strategic planning level in 2015. The idea was those private developers being financially motivated to determine the suitability of a project based on its financial return on their investment. Projects with low return on investment hold little attraction to a private developer even when the non-financial benefits of the same project might be significant for a community. The most common example is Low Income Housing in large cities. Both the City of Edmonton and the City of Calgary have Municipally Controlled Corporations for the low-income housing because despite having tremendous social and community benefits, private developers chose high return on investment projects like Single Family Housing Developments and Luxury Condominium developments. There is no fault here, simply private business pursuing profit. Lac Ste. Anne County was interested in creating a Municipally Controlled Corporations, for development projects of this kind, similar to that of larger communities. This development corporation would allow them to pursue priorities of Council and advance the economic development goals of the region, meeting the increasing social demands of our communities.
Early in 2019, the ORMC Board needing to expand the medical facility to continue the financial independent operations of the Clinic, approached the County after having reviewed a number of other options. Expanding into a leased facility presented the risk that once the significant leasehold improvements (renovations) were completed the Landlord could increase rates at the renewal of the contract leaving the ORMC in a position where they would be forced to pay unsustainable rates or abandon the leasehold investment. This could result in a situation where the financial independence of the Clinic could not be maintained. The purchase of an existing facility was also considered; however, the available possible facilities were mixed-use buildings with other tenants requiring to the ORMC to become a landlord in its own right, further reducing the likelihood the Clinic could be transferred to a local physician in the future. The other issue with purchasing a building was the significant retrofitting (e.g. plumbing) required to repurpose the building.
Having considered these options, the County reviewed the potential of building a new medical Clinic facility for the ORMC as the first project of a Municipally Controlled Corporation for development. The funding plan for the ORMC project was that the County would borrow $1 million from ACFA and loan the funds to the Legacy MLC at the exact rate at which it was borrowed. Legacy MLC would then hire a firm to design and construct the building and collect lease payments from ORMC at a rate 2% higher than the rate at which they would repay the loan from the County. Over the course of the 25-year loan, the County would be made completely whole, having only provided access to the credit required to initiate the project. The outcome would result in the ORMC leasing a facility that meets their space requirements with confidence that lease rates remain stable and the Legacy MLC would have, after operating expenses, built a small reserve from the proceeds of this project that could be reinvested in other projects beneficial to the communities and aligned with Council priorities.
Some Items of Clarification
Interests Rates on the Borrowing and Lending Bylaws
Bylaw 11-2019 authorizing the borrowing of up to $1 million establishes in clause #3 that the interest on the loan will be the rate fixed by the Alberta Capital Finance Authority on the date the funds are borrowed. Bylaw 12-2019 authorizing the loaning of up to $1 million dollars to Legacy MLC establishes in clause #3 that the interest owed will be the same at which the County borrows the funds. The exact wording is captured in the following quotes:
“calculated at a rate not exceeding the interest rate fixed by the Alberta Capital Finance Authority or another authorized financial institution on the date of the borrowing,”
“rate of interest on the loan to the MCC shall be that of Alberta Capital Finance Authority or another authorized financial institution on the date of the borrowing is completed by the County, for a twenty-five (25) year debenture,”
Following those statements is a legislative statement to reflect that the interest rate will not exceed a specific percent. The fact that the specified maximum rate is not identical does not invalidate the clause that the rate of the borrowing and the rate of the loan be identical. The typographical error in the specified maximum interest rate Clause is amended for clarity in the bylaw drafts submitted for 2nd and 3rd readings.
There are certainly cost associated with the process of establishing a Municipally Controlled Corporation, and even costs associated with considering the establishment of a Municipally Controlled Corporation. At this stage, the legal preparations and advertising costs to engaging the public are being incurred. All plans to begin design and determine the location of a facility has been delayed. To lower cost, a design-build approach is being considered and so beginning the design of the building before tendering the construction is not possible. To date, there has been no acquisition of land, nor architects, building contractors or any design work other than what can be completed with staff resources.
The following summarizes the public engagement and information sharing undertaken: February 13, 2019 Motions released to the public in the minutes of the meeting to proceed with the process to establish a Municipally Controlled Corporations to provide property development and facility management services desirable to the municipality and to manage and operate the Onoway Regional Medical Clinic so it may continue to provide medical services
• 14 Bulletin Articles and Notices over the course of six weeks
• Cross-posting on www.lsac.ca, www.onowaymedical.ca, and www.legacymunicipal.ca
• LSAC Facebook – 6 posts reaching 9,000 with 1,000 engagements
• ORMC Facebook – 3 posts reaching 3,800 with 1,000 engagements
Other Questions & Answers
Why does Lac Ste. Anne County need the Legacy MLC MCC?
The purpose of Legacy Municipal Land Corporation (Legacy MLC) is to engage in development projects beneficial to our communities using innovative strategies that allow the community benefits of projects based on their larger community impacts rather than simply on their return on investment or profitability analysis.
What obligations would the Legacy MLC MCC place on taxpayers?
Legacy Municipal Land Corporation (Legacy MLC) is borrowing money from the County with which it will build a valuable community resource and generate sufficient revenues via payments from ORMC to repay the loan and develop a reserve for future projects. The most significant risk that exists is in the event that the County (as the controlling partner in ORMC) decides to remove support from the Clinic and shut the facility down. Such a decision that would be against the self-interests of the County and Council, given the County’s nearly ten years of supporting the Clinic with a subsidy, and the new facility investment.
Where would the new Clinic be located?
The new Clinic facility will be located within the Town of Onoway however, the exact location has not yet been finalized.