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Lease-in lease-out deal a topic during tax levy debate

It may have been forgotten by many, but not by city council.
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It may have been forgotten by many, but not by city council.

Seventeen years ago, the City signed a deal with what was then known as Terasen Gas and now FortisBC that could generate a large nest egg depending on which direction the parties take this fall.

To make a long, complicated story short, in June 2004, voters approved via referendum borrowing $58.6 million which in turn paved the way for the agreement to be signed in November the same year.

The deal is a form of lease-in, lease-out agreement and plenty of ink could be spilled to explain how the arrangement works but in essence the City has entered into 35-year capital and 17-year operating leases.

The operating lease is due to end on Oct. 31 this year and, by that point, FortisBC has the option of terminating the agreement with the City and make a lump sum payment estimated at $25 million or negotiate a new 18-year operating lease and continue to make semi-annual lease payments.

Whether the city will actually reap a full $25 million, if FortisBC goes ahead with the lump sum payment, remains to be seen. The number comes from the 2021 Budget and Finance Reference Guide but, according to information provided at the time of the referendum, of that total, $15.3 million would be in the form of a legacy fund realized at the end of the term, while the rest would come in the form of annual payments of $550,000, adding up to a further $9.35 million over those 17 years. That money, in turn, was to be used for road rehabilitation.

Either way, the deal was mentioned more than once when council debated Feb. 8 whether to hold off on increasing the tax levy for a year. In the end, council voted 6-3 to keep a lid on the levy and use half of a $6.1-million grant the City received from province to cover rising costs.

While the grant has been treated as a temporary lifeline, council members who spoke about the agreement with FortisBC made it clear they don't intend on going on a spending spree once the money is in hand nor use it to forego future increases to the levy .

Coun. Garth Frizzell got the ball rolling when, while speaking in favour of a one-per-cent hike to the levy, warned that if council did decide to use the cash from the FortisBC deal to keep a cap on the tax levy, the chickens will eventually come home to roost.

"What we could do is we could borrow against the Terasen money that's coming and for the next six years, councils could have zero-per-cent increases and spend through the Safe Restart money and spend through that $25 million and at the end those percentages would still add up and the council of that day would have to have a 13 or a 16 or depending on inflation, maybe a 23 per cent increase. The percentages don't go away."

Coun. Murry Krause, who supported a zero-per-cent boost to the levy said he hopes council is "not just counting on that to spend it away.

"That was never the intent of that fund and when we start talking about spending that money, I would like us to go back and look at what the intent was of all the people who put it forward and all the people who voted on it because that's what happened," Krause said.

"The community voted on that and it was to build legacies and do all those kinds of things, not just fritter it away. Well maybe people may think 'covering my taxes isn't frittering it away,' but people voted on it because they thought there would be some kind of legacy left by it."

Coun. Kyle Sampson, perhaps the most outspoken of those in support of the zero-per-cent hike, took a similar view.

"When it comes to the Fortis money, we would have to be in pretty dire straits to have to use those moneys for alleviating the tax increase ever," Sampson said.

"My impression of those funds is to be used for something that is tangible to the city, to benefit in the long run so I really would not want to go to that degree."

In getting the last word before council voted on the issue at hand, Mayor Lyn Hall made it clear he won't go there.

"Never did I consider the Terasen Gas dollars being used for this. This was a commitment by residents of this city some two decades ago to use these dollars for certain things in our community and that commitment is still there from my perspective," Hall said.

All of this could end up being a moot point if FortisBC opts for negotiating a new 18-year operating lease and continue to make semi-annual lease payments. In turn, that could trigger another referendum.