The long-term working capital requirements for the Entity to fully launch the business (see Section 3.1.2.1), whether sought from the City and/or private investors, would be contingent upon the final Business Plan.

2.3.4.1 City-Entity Partnership Agreement

The Municipal Risk Assessment for an LIC Energy Retrofit Loan Program (see Appendix G) identified a potential reputational risk for the City should the Entity fail to effectively deliver the retrofit program. Robust due diligence in establishing an agreement between the municipality and the Entity would help mitigate this risk (e.g., performance standards). The agreement would outline the terms and conditions for the municipality making an LIC financing available to homeowners participating in the retrofit program administered by the Entity. The PWT recommends aiming to have the agreement executed in 2021, assuming Council proceeds with the next phase of the project.

2.3.4.2 LIC By-law

The use of Local Improvement Charges (LICs) is a well-known practice in the municipal sector, enabled under the Municipal Act. In 2012, The Municipal Act was amended to allow for the investment in energy efficiency activity on private property. The PWT recommends the City would make LIC financing available to homeowners under the terms and conditions of a City-Entity Partnership Agreement. The potential municipal risks associated with an LIC financing program are summarized in Appendix G – Municipal LIC Risk Assessment. The assessment of potential risks concluded the risks are low and/or can be mitigated. Notably, the establishment of an Entity to serve as the program administrator transfers program-related risk from the municipality to the Entity, including debt management. A special charges By-law would need to be enacted by the City to enable an LIC program. Proposed enactment of the LIC By-law would be in 2021 and inform the execution of the City-Entity Partnership Agreement.

Mortgage Lender Consent

A concern regarding mortgage lender consent was raised during the engagements and was considered extensively during the development of the Municipal LIC Risk Assessment. The final rating of this risk was low, given identified mitigation strategies and ongoing monitoring by the Entity.

The following is an extract from the Municipal LIC Risk Assessment (see Appendix G for the full document:

The Canadian Bankers Association has raised a concern that the LIC could put homeowners/borrowers in an unexpected default position under most lenders’ standard charge term for residential mortgages. Almost all lenders obtain covenants from their borrowers with respect to additional borrowing that could result in charges against the property or that might impair priority of the lender’s charge.

The City of Toronto has addressed this risk by requiring homeowners to seek the consent of their mortgage lender which limited participation. However, there has been limited appetite of traditional mortgage providers to agree to new senior covenants for retrofit loans tied to property tax.

Currently, mortgages insured by the Canadian Mortgage and Housing Corporation (7% of mortgages in Ontario3) would not be approved for LIC financing, regardless of the business case.

3 Dunksy Energy Consulting (2018). Report 7 – Local Improvement Charges, Final Report.

Prepared for the Green Ontario Fund.