September 25th, 2018

Mayoral candidates discuss debt

By Collin Gallant on September 23, 2017.

The commissioning of Unit 16, the city's new $55-million power plant in the Box Springs Road area, is the largest single contributor to city debt load, officials stated this week. Total city debt is forecast to rise to $350 million in 2018, financial reports state.--NEWS PHOTO EMMA BENNETT


cgallant@medicinehatnews.com
@CollinGallant

Among election issues, public debt tends to rank high in the queue, but most candidates for mayor say the level of city debt is reasonable.

Candidate John Hamill however, says he would “put and immediate cap on everything” until a “clear financial plan” can be drawn up to tackle an operating shortfall, growing debt and operations in the energy division.

“We’ll go through item by item to find out why we’re in the bloody hole we’re in.

“Lethbridge doesn’t have any oil and gas and their way ahead of us.”

Medicine Hat is currently carrying $298 million in debt, mostly for utility work, but that could rise to $350 million next year as construction projects begin or complete.

The largest single item is a final payment on the city’s new north-end power plant, but other general construction adds to the total while retired projects come off the books.

Incumbent mayor Ted Clugston has argued for several years the city is following solid private-sector practice of leveraging debt capacity, rather than expending cash in hand.

“I don’t have a problem with utility-related debt,” he told the News, stating that 87 per cent of the $298 million is related to utility service and paid off through rates.

“It’s the same thing that the Fortis’s are doing.”

Debt related to municipal operations has basically been stagnant or falling for several years as a percentage of total debt.

“I’ve made it clear that I see the next four years as a time to (stop municipal construction projects) and build back up reserves,” said Clugston.

The total balance of the city’s common operating reserves will fall from $183 million to $120.5 million by year end. That’s due to city’s oil exploration and berm construction. About $19 million will also augment tax revenue while the Financially Fit program aims to remove resource revenue from the operating budget.

Those funds are coming directly out of the Electrical Equipment Reserve, which in years past would have paid part or all of power plant construction.

But in an era of low, set interest rates available to the city, council changed its policy to borrow.

Carrying the debt with a set, low interest rate appeals to mayoral candidate Scott Raible, but he said the process must include discipline. The forecast of surpassing the mid-point of a borrowing cap, he said, should be a warning sign.

“It’s obviously concerning and I would encourage ways to bring that down under 50 per cent,” he said, stating that utility debt may be a necessary evil.

“It reinforces that we need to get our debt down but not at the expense of public services.”

The debt limit itself became an issue debated at city council earlier this year when councillors questioned the city’s position in relation to the cap.

At that time though, most councillors said they supported borrowing that is mostly related to utility projects, and reiterated the city’s strong debt-to-income ratio.

Mayoral candidate Tom Fougere said a comparison of borrowing rate and interest earned on reserves provides an easy way to determine which path is better financially.

“I expect that city council would want to make the decision that would maintain the electrical reserve fund at a level that is sustainable,” he told the News.

“There are certainly going to be times when low interest loans will be better than dipping into reserve accounts that can be used for other short-term investments.”

All municipal borrowing in the province goes through the Alberta Capital Finance Authority, a provincial agency, that offers blanket, locked-in rates.

For example, current rates are 2.67 per cent on 10-year loans or 3.30 per cent on 30-year terms.

Recent financial reports state the city’s internally-managed investments of $444 million earned an average of 2.56 per cent at the June 30 mark.

Share this story:

Leave a Reply

You must be logged in to post a comment.