City council appears to have been misled about the willingness of the Hamilton Future Fund to loan the city money. Council decided to borrow $15 million from the fund during last spring's budget decisions, but members of the fund's board of governors say they never approved the loan.

"In no way shape or form did we approve or recommend that $15 million be used this year," board member Bill Manson told last week's meeting of the fund governors. But he recalled sitting in on budget meetings "and it was stated by staff, and certainly accepted by council, that we were recommending it" - a fact confirmed by CATCH transcripts of the meetings.

The 17-member board includes Mayor DiIanni and councillors Murray Ferguson, Bill Kelly and Chad Collins. It was established in 2002 to manage $137 million acquired by the city through the mortgaging of the assets of Hamilton Hydro. The board initially allocated $37 million to a list of city 'legacy' projects, and set aside the remaining $100 million as an endowment.

The board's approved plan was to only spend the interest on the fund, and fund new projects every five years. However, in 2003 council decided to use $4 million a year of the interest to reduce business taxes - despite the opposition of the Future Fund board.

The draft 2004 city budget presented in January recommended using $60 million from the fund's remaining capital to top up the city's budget for major projects. A subsquent report presented to council on March 23 stated: " After consultation with the Hamilton Future Fund Board of Governors, their direction was that only $15 million in Hamilton Future Funds be used, for 2004, to be repaid over 15-years, payments starting in 2007 with accrued interest."

But the approval even for $15 million was apparently never given. Manson recalls asking four times if the board was agreeing and being assured four times that the only decision was to ask for more information. Both board co-chair Tom Weisz and Mayor DiIanni agreed that no approval was given.

Weisz said "that wasn't what was recommended, but that's what happened." But DiIanni suggested it would have been eventually approved. "Although we didn't support it officially, I think what we did do was indicate the willingness to look at a report coming back to us for specific use of that $15 million".

The use of the $15 million for capital projects was challenged during the March 26 budget meeting by councillor Sam Merulla, but he was assured by finance staff " that the $15 million has been approved by the Board to be spent". Kelly added that he had personally attended the Future Fund board meeting and "the determination made by the Board at the time was that yes, indeed, the project did fall within the parameters."

When Merulla suggested the loan might require a change in the terms of reference of the Future Fund board, DiIanni reminded councillors that they had previously made the decison to use the fund's interest. "We did that last year without even going through officially the board of governors", he noted. "Unlike last year, we've actually engaged the board in discussion [about the $15 million loan]". The motion to approve the $15 million loan was seconded by Ferguson .

The dispute with the Future Fund board could complicate the city's 2005 budget process. During the 2004 budget, city finance staff said the $15 million loan had only "delayed by one year the capital affordability problems identifed in the 2003 and 2004 budget reports." They recommended that the entire $100 million fund be used to offset "the dramatic 50% decrease in capital funding for regular programs (roads, facilities,.e.t.c.) which would take effect in 2004 due to increased debt attributable to the Red Hill Valley Project and the Solid Waste Management Master Plan."

The extent of the financial crisis revealed in the March 26 budget meeting shocked rookie councillor Brian McHattie. He asked incredulously: "In 2005, if we continue down the road we're on right now, and build the expressway and take the $15 million from the Future Fund, is it correct that we only have $8.6 million in 2005 for other capital projects, fix roads and that sort of thing?" The staff response was brief: "That's correct".

The CATCH report of the March 26 budget meeting can be viewed at
http://www.hamiltoncatch.org/cow/cow_040326.htm.