A $50,000 loan to the Fergus Scottish Festival might be interest free, but there is a string attached.
On March 18, Centre Wellington councillors approved the five-year, interest-free loan following a report from chief financial officer Wes Snarr.
The recommendation was to authorize the mayor and clerk to execute a $50,000 loan agreement with the Fergus Scottish Festival for the purposes of financing the ongoing activities of the festival.
A policy with respect to interest-free loans was approved late last year by council and updated prior to its approval of the loan.
The township policy states the maximum of outstanding loans at any time shall not exceed $200,000. Prior to approval of the festival loan, the outstanding balance of loans made by the municipality was $85,000.
Snarr’s report stated the festival met the qualifications as set out in the policy – including a “general security agreement” (which follows the loan agreement), and the “guarantee and indemnity agreement.”
Snarr said the financial impact on the municipality of extending interest-free loans is the opportunity cost of the foregone bank deposit interest.
Councillor Walt Visser asked what was done to secure the loan.
Snarr said “in a nutshell, the agreements allow the township to appoint a receiver to liquidate the festival assets and to make up any shortfall from a guarantor.”
Councillor Kelly Linton said if the $50,000 interest-free loan is approved it would bring the total outstanding loans issued by the township to $135,000.
Snarr anticipated this was a one-time loan for the festival.
“Essentially, it is helping this organization with its cash flow to get back on its feet financially,” said Snarr.
Councillor Walt Visser said the festival was doing all right until last year, when weather caused low attendance, which was coupled with a tax situation that hit the festival hard.
Last fall president Warren Trask told the Advertiser the festival was “in the hole about $70,000.”
In December 2011, the festival was reviewed by the Canada Revenue Agency, which determined the festival is no longer an amateur athletic event, meaning it is subject to 13% tax on all revenue, retroactive for two fiscal years.
The festival was forced to cough up $78,000.
“It ate up the reserves,” Visser explained.
Mayor Joanne Ross-Zuj noted a $50,000 loan is the maximum any one organization can obtain from the township.
Councillor Steven Vanleeuwen said there is some discomfort in the potential precedent such a council move might have.
“I feel really uncomfortable loaning money out interest free, but at the same time I sense this is such a community event,” he said.
Vanleeuwen added the agreement was likely the best approach to take, having security for taxpayer dollars while providing a timeline to have the money paid back.
“But it definitely sets an uncomfortable feeling.”
Ross-Zuj suggested council made the right decision to update its policy “before heading down this path.”
Council endorsed the loan.
