Bill 68’s Recent Changes to Municipal Investment Powers

  • June 13, 2017
  • Eric Davis and Brittany Thompson

Bill 68, entitled Modernizing Ontario's Municipal Legislation Act, 2017 (“Bill 68”), received Royal Assent on May 30, 2017. Bill 68 amends, among other things, the Municipal Act, 2001 (the “Act”).

Most of the commentary in relation to Bill 68 has been about how it will increase the accountability and transparency of municipal governments and permit municipal Councillors to participate in meetings electronically, however, those are not the only changes being made.

Bill 68 also amends the provisions of the Act that govern a municipality’s ability to make investments, which are currently governed by section 418. It amends the Act to include a new section - 418.1.

Section 418.1 will not come into force until it is proclaimed by the Lieutenant Governor of Ontario, which will presumably be when the regulations pursuant to section 418.1 are complete.

When section 418.1 comes into force, it will significantly alter a municipality’s ability to make investments.

The Current Statutory Regime

Currently, a municipality’s investment powers are primarily governed by section 418 in Part XIII of the Act and Ontario Regulation 438/97, entitled Eligible Investments and Related Financial Agreements (the “Regulation”).

Section 418 gives a municipality general investment powers. It states that a municipality cannot invest money it immediately requires, but otherwise, may invest in securities prescribed by the Regulation (the Act, s 418(1)).   

The Regulation, on the other hand, lays out the specific procedures, requirements and qualifications that a municipality must follow when it comes to making investments. The Regulation governs things such as:

  1. what qualifies as a prescribed security (the Regulation, s 2);
  2. the process a municipality must follow if it can no longer invest in a prescribed security (the Regulation, s 3);
  3. the minimum ratings each prescribed security must meet to be eligible for municipal investment (the Regulation, s 3, 4.1, 9); 
  4. the procedures a municipality must adhere to before it can make an investment (the Regulation, s 7);
  5. how a municipality is to account for the investments it made in a given year (the Regulation, s 8); and
  6. the process a municipality must follow if it would like to make an investment on a future date (the Regulation, s 10).

The securities a municipality may invest in are those prescribed in section 2, subparagraphs (1) to (12), of the Regulation. This section is particularly important, because a municipality may only invest in a prescribed security (the Regulation, s 1).

The term “security” is not expressly defined in the Act or the Regulation. For the purpose of municipal investments, a security is any type of security prescribed in subparagraphs (1) to (12) in section 2 of the Regulation.

Most prescribed securities consist of a bond, debenture, promissory note, share or other evidence of indebtedness issued by a investee. Some examples of investees include:

  1. a corporation that is incorporated under the Canada Business Corporations Act, RSC, 1985, c. C-44;
  2. the federal government;
  3. a corporation that is incorporated under a provincial Business Corporations Act;
  4. a school board;
  5. a corporation that is incorporated under section 142 of the Electricity Act, 1998, SO 1998, c. 15, Schedule A;
  6. a provincial government;
  7. Ontario universities that are authorized to engage in an activity described in section 3 of the Post-Secondary Education Choice and Excellence Act, 2000, SO, 2000, Chapter 36
  8. Ontario colleges established under the Ontario Colleges of Applied Arts and Technology Act, 2002, SO 2002, Chapter 8 , Schedule F ; and
  9. local housing corporations as defined in section 24 of the Housing Services Act, 2001, SO, 2011, Chapter 6, Schedule 1.

The New Statutory Regime

A municipality’s ability to make investments will change as a result of Bill 68. On May 30, 2017, Bill 68 received Royal Assent.

Bill 68 amends the Act to include section 418.1. However, section 418.1 does not come into force until it is proclaimed by the Lieutenant Governor of Ontario.

Section 418.1 was created to increase municipalities’ flexibility to invest, diversify their investment opportunities and enhance their sustainability.

On November 29, 2016, during the Second Reading of Bill 68, Lou Rinaldi, MPP for Northumberland-Quinte West, stated:

Currently, a municipality can only invest their funds in a list of eligible investments. We kind of put them in a straitjacket. The proposed changes, if passed, will provide eligible municipalities the option of investing according to prudent investor standards, just like any other investors (Ontario, Legislative Assembly, Official Report of Debates (Hansard), 41st Parl, 2nd Sess, No 36 (29 November 2016) at 1740 (Lou Rinaldi)).

On February 23, 2017, Peter Z. Milczyn, MPP for Etobicoke-Lakeshore, discussed the benefits of increasing a municipality’s flexibility to invest. He stated:

This legislation is also going to make it easier for municipalities to invest their funds in a variety of ways which might provide better returns, might fit their investment needs better and might be able to provide more resources for their infrastructure needs (Ontario, Legislative Assembly, Official Report of Debates (Hansard), 41st Parl, 2nd Sess, No 45 (29 November 2016) at 1700 (Peter Z. Milczyn)).

In order for section 418.1 to apply, a municipality will have to pass an irrevocable by-law (the Act, s 418.1(2), (5)). Section 418.1 will become effective on the date the by-law passes (the Act, s 418.1(4)).

Once a by-law is passed, a municipality will only be able to invest pursuant to section 418.1. It will not be able to make an investment pursuant to section 418 (the Act, s. 418(1.1)). If a by-law is not passed, section 418(1) will continue to apply (the Act, s 418(1.1)).

Section 418.1 will govern a municipality’s ability to invest. It states:

A municipality may, in accordance with this section and the regulations, invest money that it does not require immediately in any security.

When making an investment under section 418.1, a municipality will be under a duty to invest as a prudent investor would. This includes obtaining any advice a prudent investor would. Section 418.1(8) states:

In investing money under this section, a municipality must exercise the care, skill, diligence and judgment that a prudent investor would exercise in making such an investment.

Section 418.1(10) states that before a municipality can invest, they will be required to consider a list of criteria, including:

(a)          general economic conditions;

(b)          the effect of inflation or deflation;

(c)          how the investment fits within the municipality’s investment portfolio;

(d)          the expected total return from income and the appreciation of capital;

(e)          the need for liquidity;

(f)           regularity of income; and

(g)          preservation or appreciation of capital.

Many of these criteria go beyond the considerations required by section 418 of the Act and the Regulation.

Section 418.1 is significant for two main reasons.

Firstly, it will allow a municipality to invest in any security subject to future regulations. Section 418.1 will remove the restrictions placed on municipalities to invest in prescribed securities under section 2 of the Regulation. This will provide greater flexibility to municipalities to diversify their investments.

Secondly, section 418.1 will impose a prudent investor standard on municipalities. When making an investment, a municipality will have to exercise the care, skill, diligence and judgment that a prudent investor would. This is significant because it will give municipalities a broad range of investment opportunities, while still ensuring public funds are invested sensibly and cautiously.

However, section 418.1 will be subject to future regulations, which could affect the implementation in unforeseen ways. It will be interesting to review any future regulations to determine whether there are any restrictions placed on a municipality’s ability to invest under section 418.1 of the Act.


Bill 68 created a number of notable amendments to the Act, among them, provisions that will alter a municipality’s investment powers.

Section 418.1, once in force, will permit a municipality to invest as a prudent investor would, subject to any future regulations. This is significant, because it increases a municipality’s flexibility to invest in a broad range of securities.

Expanding the variety of securities a municipality may invest in is beneficial because it permits a municipality to make investments that best suit their individual needs. Ultimately, flexible investment powers may help a municipality become more self-sustaining, and create funds that can go towards local services, projects and infrastructure.

About the authors

Eric Davis is a partner at Miller Thomson’s Waterloo Office. He is a Certified Specialist in Municipal Law: Local Government/Land Use Planning and Development and an Executive Member of the Ontario Bar Association’s Municipal Law Section.
Brittany Thompson is a Summer Student at Miller Thomson’s Waterloo Office. She is completing her JD studies at the University of Western Ontario.


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