Local Government Liabilities Under Agreement
Municipalities and regional districts have the authority to take on liabilities through contracts with another person or public authority that involve a commitment to pay an amount in the future. These liabilities under agreement include leases, public-private partnership agreements and most other contractual obligations.
A local government may incur a liability under agreement provided that the liability is not a debenture debt, and the period of the liability is not longer than the reasonable life expectancy of the service rendered under the agreement.
Types of Liabilities Under Agreement
Local governments may finance capital assets (such as buildings and equipment) under a capital lease agreement. This is a common form of capital financing under agreement. Leasing may be undertaken through either the Municipal Finance Authority or a commercial leasing entity.
Local governments may also enter into operating lease agreements, which generally have no capital component (for example, maintenance contracts).
Local governments may also acquire assets or deliver a service through a partnering agreement with a person or public authority. Under the partnering agreement, the person or public authority agrees to provide a service on behalf of the local government. In some cases, a partnering agreement will include the provision of capital assets, which are financed by one of the parties under the agreement.
Liabilities under agreement may be subject to elector approval requirements if the liability under the agreement is of a capital nature, and the agreement is more than five years, or would be more than five years if a right of renewal or extension were exercised.
There are some exceptions to this general rule for certain types of liabilities, and for municipalities with total liability servicing costs below a municipal liability servicing limit. Learn more about: