News file photo of city hall from 2021. NEWS FILE PHOTO
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A provincial promise to reduce borrowing rates for cities may not add up to much in Medicine Hat initially, but could build over time if it is maintained, say city finance officials.
Last week, Premier Danielle Smith told municipal politicians gathered from across Alberta that she will eliminate a premium charged on money borrowed through the province to fund capital construction programs.
That would provide a half-point discount on debt repayments for debentures passed next year, compared to rates now afforded to municipalities.
In Medicine Hat, the effect could be muted by lower debt levels.
The City’s debt has been dropping for three years, but city’s are required to engage fixed-rates for entire terms that are often 20 or more years long.
That means the discount would only be applied to any new debt added next year, when the changes take effect in the 2025-26 provincial budget.
But it would potentially stand in place for decades as the city plans to take on more debt in the next two years.
“Every bit helps, but it could be significant over time,” City Managing Director of Corporate Services Dennis Egert told the News, citing a 0.5 to 0.7 percentage point equals $50,000 to $70,000 on $10 million dollars annually.
At April 30, the city’s total long-term debt sat at $385 million at an average fixed interest rate of 3.48 per cent, according to the most recent financial statements.
The current 25-year lending rate available from the province was 4.92 per cent.
Mayor Linnsie Clark attended the Alberta Municipal conference in Red Deer where province’s lending changes were announced.
“We’ll have to see how much that will benefit us,” Clark told the News.
“It’s a welcome announcement, but how it will impact us at this point, we don’t know.”
City council members were set to meet in closed-session on Tuesday night to discuss “fiscal capacity” ahead of budget meetings later this fall.
Last year, city finance officials delayed projects or used reserve funds as an alternate funding source to avoid higher interest rates in general.
No new debt was added in 2023, according to financial statements, and total debt fell by $5 million as principal was paid off and $13 million in financing charges were recorded.
In 2024, the Bank of Canada has announced two interest rates cuts, said Egert, and institutional lenders – like those who take Government of Alberta bonds that supplied money for municipal borrowing – should follow.
“We’ve had two announcements (from the Bank of Canada) and are hoping for more,” said Egert.
Over five years, debt linked to non-utility municipal borrowing has fallen by one-quarter, to $28 million. That debt is paid off via tax revenue, while the larger utility-related debt of nearly $360 million is paid for from utility income and rates.
The province estimates the change in the 2025-26 budget will save municipalities a total of $7 million across the province in the 2025-26 fiscal year and $12 million in the year after.
The province said that since its debt has decreased, it is passing along the benefit to municipalities.
“Alberta has lowered our cost of borrowing, and now we are passing that savings on to municipalities,” said Finance Minister Nate Horner. “They are our partners in providing services to Albertans, and by working together we can ensure that investments can be made with a minimum cost to service debt.”
That benefit would be spread out over more than 300 municipalities in the province, along with quasi-public bodies, like irrigation districts, hospitals, and some municipal corporations, like airports.
Until 2020, those bodies were required to use financing from the Alberta Capital Financing Authority Board, which was wound down and its duties taken over by the treasury board.
City Debt
Municipal Utility Total
2023 $28.3 $361.3 $389.6
2022 $31.8 $386.8 $418.6
2021 $34.4 $371.9 $405.3
2020 $36.9 $339.1 $376.0
2019 $38.8 $314.9 $353.7
Source: City of Medicine Hat Annual Reports.
