A municipality or a regional district can incorporate or invest shares in a corporation to provide/support regional/community economic development that private corporations may otherwise be unable or unwilling to provide.
What to Consider
Ventures that may not attract the private sector because of insufficient profit margins can be attractive to communities at low rates of return because they may produce other, non-monetary benefits. Local government corporations have the ability to joint venture with the private sector. The private sector can provide expertise and capital to assist local government. Municipalities or regional districts have the opportunity to provide regional/community economic development while limiting legal liability, protecting the local government from financial risk, engaging external expertise, freeing council and board time, achieving economies of scale and using an operating model distinct from a local government department. Regional districts would have to first establish an economic development service (see Designing Regional Service Arrangements: An Introduction).
Limitations include liability, financial risk, potential income, tax implications, potential conflict of interest, challenges around communication and relationship building, and possible difficulties establsihing performance metrics.
How to Proceed
- When council or regional boards and staff begin to explore the subject of launching and maintaining a local government corporation, they will find numerous issues to consider throughout the process of forming a corporation—before, during and after. Consideration will need to be given to what they want to achieve and why, the relative merits of different arrangements, the interests of other parties and the additional responsibilities involved. These key factors will help decide whether to proceed and, if so, how.
- At all stages—consideration, creation and continued compliance—expert business, legal and financial specialists can assist local government staff, council or board to make effective decisions, avoid pitfalls, ensure goals are met and protect investments.
- If after an initial exploratory period, council or the board decides to proceed with forming a business corporation, it must choose a business name, determine ownership structure, select directors and officers, capitalize / finance the corporation and prepare articles.
- When incorporating a corporation, council or a regional board is required to proceed through a public process and get approval from the Inspector of Municipalities.
- See Section 185 Ownership of corporations in the Community Charter for municipalities or Section 195 of the Local Government Act for regional districts.
- Throughout the various phases in the life of a corporation, its board of directors and local government will need to ensure compliance with a variety of statutes and regulations. Some regulatory issues are complex and time-consuming. Legal, business and financial specialists can help sort through the complexity, clarify issues and ensure that the corporation complies with all applicable statutes and regulations.
- Local governments conduct risk management activities to protect assets and objectives, as well as its employees, volunteers and citizens. They should also engage in risk management activities specific to their corporation. Well-managed risk management plans and practices reassure all stakeholders—whether shareholders, citizens, employees or others—that the corporation is effectively managed and subject to appropriate political control. An active commitment to risk management can also ensure the corporation’s compliance with corporate governance requirements.
In 2005 the City of Revelstoke incorporated the Revelstoke Community Energy Corporation (RCEC). This Neighbourhood Energy Utility is a low temperature community energy system that delivers heat to local industry and other customers, including a local high school, community centre, aquatic centre and couple of hotels. The system is comprised of a biomass fired 1.6 MW boiler with 1.76 MW back-up.
In terms of economic benefit, RCEC helps reduce the amount of money that flows out of the community (leakage) through purchase of power. The City of Revelstoke also has more local control over the price of power, as the power source is locally controlled. By using waste wood from the local mill to provide heat to local buildings, the city reduced the amount of money being used to transport the waste wood to other communities for disposal or other uses. This provides more money for other purposes, such as investment.
For more information, see Natural Resources Canada, CanmetENERGY: Leadership in ecoInnovation (Spring 2009).
- Province of British Columbia: Launching and Maintaining a Local Government Corporation: A Guide for Local Officials 2006.
- Province of British Columbia: Local Government Corporations.