Municipal services corporations in Ontario

A Municipal Services Corporation (MSC) is a corporation whose shares must be owned by a municipality, or a municipality and one or more other public-sector entities (eg. other municipalities, provincial government). It can be used to create a shared service initiative between municipalities. They overseen by a board of directors, with regular reporting to the municipality.

Municipalities can establish corporations for delivering municipal services and facilities to residents including – allowing municipalities to work with partners in the public, private or non-profit sectors, potential to provide municipal services and develop facilities more efficiently, potential to increase capital, pool expenses, expertise and staff resources and better economies of scale.

A MSC can only provide a system, service or thing that the municipality could provide. MSCs are required to receive permission from a municipality to operate in its geographic boundaries.

Municipalities can create municipally-owned corporations

Power to establish corporations
Without limiting sections 9, 10 and 11, those sections authorize a municipality to do the following things in accordance with such conditions and restrictions as may be prescribed:
To establish corporations.
To nominate or authorize a person to act as an incorporator, director, officer or member of a corporation.
To exercise any power as a member of a corporation.
To acquire an interest in or to guarantee such securities issued by a corporation as may be prescribed.
To exercise any power as the holder of such securities issued by a corporation as may be prescribed. 2006, c. 32, Sched. A
Section 203 of the Municipal Act

A municipality may use the power referred to in paragraph 1 of subsection 203 (1) of the Act to establish a corporation only if the municipality by itself, or together with one or more other public sector entities, establishes the corporation and,
(a) the corporation’s purpose is to provide a system, service or thing that the municipality itself could provide; or
(b) the establishment of the corporation is expressly authorized by this Regulation.
Section 3 of O. Reg. 599/06 Municipal Services Corporations

Municipalities must conduct a business case and consult the public

Public consultation as well as a case study and a municipal by-law is required before incorporation.

Ontario Regulation 599/06 requires municipalities to:

Develop a business case study
Consult with the community about the plan to create the proposed MSC
Adopt and maintain policies with respect to the transfer of assets

Some services are prohibited (e.g. Ontario Works)

Business case study

A municipality shall adopt a business case study before it uses the powers referred to in section 3, 4 or 5 to,
(a) establish a corporation either alone or with one or more other public sector entities;
(b) purchase securities in a corporation established by one or more public sector entities other than the municipality;
(c) become a member of a corporation established by one or more public sector entities other than the municipality; or
(d) submit, with respect to a corporation for which a study was undertaken under clause (a), (b) or (c), or cause a corporation for which a study was undertaken under clause (a), (b) or (c) to submit, articles of amendment or any other articles or supplementary letters patent.
Section 6

Public participation

Before establishing a corporation under section 3, a municipality shall consult with the public about the proposal to establish the corporation.
Section 8

Governance

Planning and board decisions separate from municipalities with non-elected (eg. skill-based) board members.
Financial statements may also be separate*.
A water or wastewater municipal services corporation cannot issue any private shares (municipalities sole shareholders)
Shareholders (i.e., municipalities) can appoint board members
Can be for one municipality or cover broad geographic boundaries across municipal borders.
Unlike other utilities (e.g., hydro and gas) water & wastewater does not have an economic regulator.
Has similar investment authority as municipalities and can issue revenue bonds
Can access debt that is not applicable to member municipality Annual Repayment Limits

A MSC provides:

Professional governance and management through skills-based boards of directors whose terms extend beyond the four-year term of elected officials
Increased debt financing flexibility by allowing the municipality to separate services investments from other infrastructure investments
Provides a vehicle for shared-service arrangements with other municipalities

Local board

By default, MSCs are not a local board for the purposes of any Act. This provides the corporation more operational flexibility than a standard municipal committee or board.

(1) A corporation is not a local board for the purposes of any Act.
(2) Despite subsection (1), a corporation shall be deemed to be a local board for purposes of subsection 270 (2) of the Act, and for the purposes of the Environmental Assessment Act, the Municipal Conflict of Interest Act, the Emergency Management and Civil Protection Act, and subsection 56.2 (3) of the Capital Investment Plan Act, 1993.
(3) Despite subsection (1), if a corporation is wholly-owned, it shall be deemed to be a local board for the purposes of the Development Charges Act, 1997. O. Reg. 599/06, s. 21 (3).
Section 21 of O. Reg 599/06 Municipal Services Corporations

Exceptions

MSCs must have the following policies

MSCs are local boards for the purposes of:

Municipal Act: Specifically for Section 270(2), which requires the adoption of policies:

Sale and other disposition of land
Hiring of employees
Procurement of goods and services.

Municipal Conflict of Interest Act: Directors and officers are treated as members of a local board to prevent self-dealing.
Environmental Assessment Act: Ensuring the corporation’s projects meet provincial environmental standards.
Emergency Management and Civil Protection Act: Integrating the corporation into municipal emergency planning.
The Capital Investment Plan Act, 1993: Specifically regarding subsection 56.2 (3).

only where a municipality “uses or expects to use” at least one of the enumerated powers in O. Reg. 599/06:

Sections 17 to 22 apply to a corporation only if a municipality uses or expects to use a power referred to in section 3 or subsection 4 (2), (3) or 5 (1) in relation to the corporation.
Section 2 (3) of O. Reg 599/06

Section 3: The municipality established (created) the corporation.
Section 4(2): The municipality acted as the incorporator (the person/entity that filed the paperwork to start it).
Section 4(3): The municipality is a member (has voting rights or ownership).
Section 5(1): The municipality holds securities (owns shares, bonds, or other financial interests).

Rules for MSCs

If a municipality owns, creates, or invests in an MSC, it is held to a higher standard.

If the municipality:

established (created) the corporation (Section 3)
acted as the incorporator (the person/entity that filed the paperwork to start it) (Section 4(2))
is a member (has voting rights or ownership) (Section 4(3))
holds securities (owns shares, bonds, or other financial interests) (Section 5(1))

Then:

MSC directors must disclose conflicts of interest

Directors and officers are legally deemed members for conflict-of-interest purposes, meaning they must disclose pecuniary interests in the same way a City Councillor would.

The directors and officers of a corporation shall be deemed to be members for the purposes of the Municipal Conflict of Interest Act.
Section 19 of O. Reg 599/06 Municipal Services Corporations

MSC is subject to Freedom of Information (FOI) requests

A corporation that is a wholly-owned corporation or a corporation whose business or activities include the provision of administrative services to any municipality, local board, public hospital, university, college or school board is deemed to be an institution for the purposes of the Municipal Freedom of Information and Protection of Privacy Act.
Section 20 of O. Reg 599/06 Municipal Services Corporations

MSC cannot change its fundamental purpose without municipal approval (Section 17).

MSC is deemed a local board for specific laws like the Environmental Assessment Act (Section 21).

This prevents a municipality from “hiding” public business inside a private corporation they control, while still allowing them to participate in community groups without forcing those groups to become “local boards.”

Risks associated with MSCs

Misalignment
Board members have a fiduciary responsibility to the well-being of the utility while councils have a broader mandate to serve their communities. There may be instances where misalignment might arise although municipalities as sole shareholders can appoint or change board members.
Transparency
Corporate board decisions do not have similar visibility as councils (e.g., recorded council proceedings and resolutions versus corporate proceedings). This may be particularly key to setting water rates and may require scoping when establishing an MSC around terms of information sharing and reporting outward.
Accountability & Trust
Because elected municipal members are still liable under the Safe Drinking Water Act it takes time to build trust and willingness to tap into giving a skills-based board autonomy – however in the long-run it can help focus challenging political discussions such as rate setting with long-term sustainability perspectives.
Practicality
While creation of a water & wastewater municipal service corporation does not require a system regulator, depending on the volume of municipalities that are involved in a municipal service corporation it may not be practical to have a large volume of shareholders to help regulate board activity, but this can be dealt with through choosing practical sizes of joint municipal service corporation and board structure.
MFOA

Examples of municipal services corporations

Housing Corporations

Destination Marketing and Management Organization (DMMO)

Visit Kingston
Discover Muskoka – Muskoka Tourism Marketing Agency (MTMA)
Visit Stratford (2007)
Visit The County (2022)

Hamilton Farmers’ Market

Ontario Ombudsman found the Hamilton Farmers’ Market is not a local board but rather a municipal services corporation, and is therefore not subject to open meeting rules. Section 21 of O. Reg 599/06 under the Act states that a municipal services corporation is “not a local board for the purposes of any Act.”

Oro-Medonte’s Environmental Services MSC

Broadband

Water and Wastewater

Over the next 10 years Ontario’s municipalities are planning for between $250 billion to $290 billion in capital investments to support unprecedented growth while dealing with aging assets.

Municipal revenue sources are neither adequate nor appropriate to meet this challenge alone. Municipal services corporations have emerged as one of these tools that has garnered significant interest.

Innisfil’s InnServices is owned by the Town and has a five-member Board that includes the Mayor and CAO, with the Town’s CAO serving as Chair. Operations were structured in a shared-services model with the Town providing certain corporate functions – set out in an agreement.
Frontenac Municipal Services Corporation (FMSC) is wholly owned by the four member Townships in the County (Class A voting shareholders) and the County as a 20% Class B, none voting shareholder. The Corporation’s mandate is to facilitate the efficient construction and operation of de-centralized communal water and wastewater systems within Frontenac County – a largely rural community in Eastern Ontario.
Union Water Supply System Inc. transitioned from a Joint Board of Management. UWSS Inc. has four (4) shareholders which include the Municipality of Leamington, the Town of Kingsville, the Town of Essex, and the Municipality of Lakeshore.

Municipal services corporations in Ontario

Municipalities can create municipally-owned corporations