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Town of Pelham sending lawyer to Region to ask for cash

Funds depleted, short-term loan sought to finish community centre [Read the related editorial] BY VOICE STAFF The Town of Pelham will send a lawyer to Niagara Regional council on Thursday in an effort to obtain a construction advance—a short term loa
Niagara Region headquarters

Funds depleted, short-term loan sought to finish community centre

The Town of Pelham will send a lawyer to Niagara Regional council on Thursday in an effort to obtain a construction advance—a short term loan—to complete the new community centre currently under construction in East Fonthill.

In November, after former Councillor Marvin Junkin resigned and revealed that the Town’s financial situation was different than previously believed, Regional Council placed a hold on the approval of all “additional debt” provided to Pelham.

Infrastructure Ontario, which provides the loan to the Town by way of the Region, is asking the Region for confirmation that its approval of this loan dating back to 2016—and its willingness to co-sign for it—still stands.

Daniel and Partners LLP’s Donald DeLorenzo, who is slated to address Regional Council on Thursday, provided the Region with a letter last week that is included on Thursday’s agenda.

“The funds to be advanced to Pelham by [Infrastructure Ontario] were approved by Regional Council and a contract with [IO] was executed by the Region prior to the passage of Regional Council’s motion with respect to Pelham’s finances,” writes DeLorenzo, who argues that this means that this is not “new borrowing” in the context of the Region’s motion putting a hold on Pelham debt.

DeLorenzo says that if the Region had not passed that resolution last autumn, “the short-term construction loan funds would have been issued directly to Pelham without the Region’s involvement.”

“Failure of the Region to execute the Acknowledgement will cause financial damage to the Town and will be looked at as a lack of good faith in fulfilling its contractual commitments to [IO] and the Town,” asserts DeLorenzo.

While the construction advance is classified as a short-term loan, and is to be paid within 120 days of substantial completion of the community centre, the loan would be converted to long-term debt if the Town is unable to pay off the entirety of the loan within those 120 days.

“There is no requirement for the Region to approve short-term loans,” said Regional Councillor and Audit Committee Chair Tony Quirk. “And no reason for the Region to be involved, except that the short-term loan from Infrastructure Ontario has the ability to become long term debentures, which we know from the KPMG report pushes [the Town] over its [annual debt limit], which would require the Town to go get approval from the Province. But then they would have to admit they misled us.”

According to information previously released by KPMG, if Pelham had paid for past projects by taking on debt, instead of by draining it cash reserves, the community centre loan as long-term debt could have pushed the Town over its annual debt limit.

Quirk said that there was nothing stopping the Town from accepting the short-term loan from Infrastructure Ontario, and that the fact that Infrastructure Ontario is seeking Regional affirmation shows that the matter is indeed within Regional jurisdiction.

“This proves that the Mayor’s previous claims that this is outside the Region’s jurisdiction are patently false and misleading, and nothing more than an attempt to act the victim,” said Quirk.

Mayor Augustyn did not respond to a request for comment.

One accountancy expert consulted by the Voice said that he was surprised to see that this request for affirmation was not first presented to the Region’s Corporate Services committee.

Committee Chair David Barrick said the he understands it’s “a timing issue of when the Region was notified and when the approval is necessary.”

“I suspect the majority will rubber stamp,” said Barrick of Thursday’s vote. “I however, will not. These last-second 'emergency/urgent' requests are not transparent to the public, I have concerns with that.”

According to a statement made on February 16 by Pelham Public Relations and Marketing Specialist Marc MacDonald, the Town had sufficient loan funds to cover construction costs until the of February.

“Short term financing will be needed for the March construction invoice,” he said.

Last week, Town Treasurer Teresa Quinlin told the Community Centre Oversight Committee during a public meeting that the Town is “working with [Infrastructure Ontario] to take out a construction bridge loan in order to pay for bills over the next few months while waiting for the land to be sold,” referring to East Fonthill acreage that the Town has been attempting to sell since last autumn.

“Everything is fine as far as finances are concerned,” Quinlin asserted.

This would not seem to be true if Regional Council doesn’t vote in Pelham’s favour on Thursday. Quinlin made no mention of the Regional vote in her presentation to the committee.

In a report attached to Thursday’s meeting agenda, Regional staff wrote that unless the Region effectively confirms that it remains committed to its 2016 decision to approve Pelham’s loan request, Infrastructure Ontario “will not make any further short term/construction financing available to the Town.”

Regional staff said also that the Town’s request to Infrastructure Ontario was for a total of $13.5 million, with the first draw coming in at $1.3 million.

While Regional staff said that Infrastructure Ontario has confirmed that its position on Pelham’s approval for the project has not changed, this is not necessarily reflective of the Town’s financial position.

“It is the Region’s staff understanding that this may be due to the fact that the Town’s application was approved largely on the strength of the Region’s financial credit worthiness,” says the report.

The report says also that the Town “has indicated that it anticipates having land sold by August 2018.”

It is unclear if by “land” the report refers to all 18.75 acres for sale in East Fonthill. A first effort to sell the land in one block failed.

Currently, 3.4 acres are for sale on their own for $2.38 million. The Town’s realtor website states that two other acres are “conditionally sold.”

In reference to the $3 million dollars that the Town said that it would fundraise, the Region report mentions that 90 percent of this fundraising goal has reportedly been achieved.

However, the Town’s effective fundraising goal is $3.3 million when the fundraiser’s fee is included. It is also unclear when the cash pledged becomes cash received.

In January, Teresa Quinlin said that the Town had less than $400,000 of actual fundraised cash on hand.

Meridian Credit Union, which bought the naming rights to the centre for $1 million, has declined to disclose the terms of its agreement with the Town.

A real estate accounting expert consulted by the Voice speculates that it will take years for the Town to sell the land for the full $12 million, not, as the Town asserts, by August.

“As the land sells over the next few years the loans will decline. When the lands are sold we can reduce the debt and issue new debt to fix our roads. Our taxes are not enough to carry the Town’s annual operating costs and pay for capital projects without borrowing money,” said the expert.

“In the meantime we have very little room to borrow for our basic capital needs, like fixing roads.”

Town staff have also reportedly told the Region that the Town only needs to take on loans of $4.7 million to replenish the depleted reserves, down from an expected $10 million in November 2017, and a possible $17 million in September 2017.

According to the Region report, the Town has said that the difference between the $10 million and $4.7 million will be funded with reserves.

Another accountancy expert who spoke to the Voice said that this implies that the Town will either be using yearly operating funds to replenish the reserves, or that the Town “borrowed again from the development charge and parkland dedication funds in 2017, instead of taking out loans.”

“It is impossible to verify because they did not disclose where all of the reserve fund balances were at the end of 2017,” said the expert.

Breaking with precedent, the Town’s 2018 budget did not include reserve balances.

Town Treasurer Teresa Quinlin has repeatedly ignored questions about why this was done.

“It makes one wonder whether this was the reason—they didn’t want to disclose publicly that they had done even more internal borrowing.  They deferred taking out any further debentures in 2018 because it would have likely put them over the 25 percent annual debt limit,” said the expert.

“The Region should be asking for a detailed accounting of the Town’s 2017 reserves and compare it to the 2017 budget amounts. They should also question whether the fire radio payments in the 2018 capital budget and other capital items to be leased in 2018 have been included in the debt limit calculations, because I think they may have to be.”

The expert asserted that the simplest solution for the Town would have been to go to the Ontario Municipal Board last autumn, after the Region placed a hold on additional Pelham debt.

“Doing that could have avoided this last-minute standoff with the Region, and the need to send their lawyer to argue their case. But maybe they didn’t want the OMB looking into any part of the situation. But again, only they can answer, because it doesn’t look they ever disclosed why, or discussed the matter at any Council meetings that were open to the public.”