Item - 2016.EX20.3

The City Manager gave a presentation to City Council on Items EX20.1, EX20.2 and EX20.3.

The Executive Committee recommends that:

1.  City Council:

a.  provide support for the credit rating and balance sheet strength of Toronto Hydro Corporation in order to restore and enhance dividend capacity by making an equity contribution of approximately $250 million, the details to be subject of a Deputy City Manager and Chief Financial Officer report to Executive Committee in the first quarter of 2017; and

b.  direct the City Manager to initiate a governance review, in consultation with the President and the Board of Directors of Toronto Hydro, to ensure that the Corporation and its Board have the appropriate orientation to optimize fiscal results, and to report to the Executive Committee in the fourth quarter of 2017.

2.  City Council direct the Deputy City Manager and Chief Financial Officer to report to the Budget Committee as part of the 2017 budget process, on the potential for increasing the Toronto Parking Authority's income share rate to the City.

3.  City Council direct the President, Toronto Parking Authority, in consultation with the Deputy City Manager and Chief Financial Officer and the Board of Directors of Toronto Parking Authority, to report to Executive Committee in 2017 on potential measures to support increasing Toronto Parking Authority income including consideration of the Toronto Parking Authority's rate setting process, with a view to a City-wide strategy for increasing the alignment of future parking rates with market prices.

4.  City Council authorize and direct the appropriate City officials to take the necessary action to give effect to these recommendations; and that leave be granted for the introduction of any necessary bills in Council to give effect to Council's decision.

5.  City Council direct that confidential Appendix 1 to the report (November 17, 2016) from the City Manager and the Deputy City Manager and Chief Financial Officer remain confidential in its entirety due to the security of the property of the City and addresses a matter in respect of which City Council or the Toronto Hydro directors may hold a closed meeting under another Act.

The City Manager and the Deputy City Manager and Chief Financial Officer gave a presentation on EX20.1, EX20.2, and EX20.3 - Long-Term Financial Direction Update, Revenue Strategy, and Asset Optimization reports.

As part of the work on the City's updated long-term financial direction, the City is assessing its overall approach to enhancing both revenue and expenses.  City finances are often complex and seemingly abstract, but they are fundamental for achieving Council's collective vision for a growing, diverse and dynamic community, with unique challenges such as congestion, poverty related issues, and social housing burdens that are different from those faced by other municipalities.

The City Manager and the Deputy City Manager and Chief Financial Officer have undertaken an asset optimization study in relation to the City's investments in Toronto Hydro Corporation ("THC") and Toronto Parking Authority ("TPA"), as directed by Council in June 2016.  In order to carry out this work, City staff retained the services of Deloitte LLP. 

The results of the Deloitte study are outlined in this report.  In regard to Toronto Hydro Corporation, the analysis considered the relative benefit in present value financial terms of four main capital restructuring options, each designed to increase dividends or monetize equity.

The conclusion is that if the City is most concerned with maximizing present value and preserving dividend flow, then the best course of action is a direct City investment of approximately million to restore and enhance Toronto Hydro Corporation's capacity to pay dividends.

In the event that the revenue options study fails to identify a revenue strategy to begin to address the City's unfunded capital program, then a monetization of the City's equity in Toronto Hydro Corporation could be considered at a later time. Necessary steps are identified to explore monetization options, including action on a mitigation strategy for the significant transaction tax exposure.

With respect to the City's investment in Toronto Parking Authority (TPA), it is recommended that the City retain its ownership under an enhanced net income scenario, and that the potential for increasing Toronto Parking Authority's payout rate to the City be considered as part of the 2017 budget process.  It is also recommended that Toronto Parking Authority's plans for capital expansion continue to be screened through the City-Wide Real Estate Review process.