City council begins the budget process today with a meeting of the Committee of the Whole.--NEWS FILE PHOTO
cgallant@medicinehatnews.com@CollinGallant
Interest rates are a hot topic in the community and within the city’s incoming budget documents, but the nature and time span of city borrowing could shield it from some of the pain of rising rates, say administrators.
Councillors will begin a new budget process this year with a meeting of the Committee of the Whole this afternoon to discuss the draft budget that was presented at Nov. 7’s council meeting.
It suggests cost of borrowing could rise by 1 to 3 percentage points compared to recent years, but remain well below long-term rates from decades-old loans that are now being retired. That could take half the sting out of bringing on new debt at higher rates.
“We’ve seen some loans come off (our books) recently that were five or six per cent,” city corporate service director Dennis Egert said Nov. 4.
He said while not necessarily as good as during extremely low rates in recent years, in an historical sense “it is still advantageous.”
Fixed-rate 10-year loans to municipalities offered through the Alberta government’s Treasury Board are attached to a 4.77 per cent rate according to a schedule updated on Nov. 15. Fixed rates for 15- and 25-year terms, often used by the city, are now 4.99 and 5.25 per cent, respectively.
Even though no new single major projects are in the proposed near-term capital plan, the city will still require about $35 million in borrowing to pay for construction over the next two years.
City councillors will discuss the capital and operating plans at the city’s municipal, utility and business units during a Committee of the Whole process beginning at 4 p.m. this afternoon
The plan moves back to council’s Nov. 21 meeting for potential amendments, and could be passed then or moved over to council’s first meeting in December.
The budget, including utility business plans and rates for 2023 and 24, must be in place by Jan. 1.
Administrators propose a 4 per cent tax increase in both 2023 and 2024 and using more investment income to restore operations at city hall to prepandemic levels.
The current budget plan states that the city will end 2022 with about $474 million in debt. That includes $45 million in undrawn letters of credit held by provincial oil and gas regulators. About 80 per cent of the remaining principal relates to the utility department and is paid via charges on utility bills, not taxes.
The overall debt figure is forecast to rise to $516 million in 2023 based on the proposed budget plan, then to $525 million in 2024 – both figures hovering around 60 per cent of debt limit set by the province.
The municipal budget’s capital plan calls for spending of $40.6 million in 2023 and $46.9 million in 2024, largely on annual road and sewer maintenance replacement programs.
About $34.5 million of the two-year total is covered by borrowing and the rest by government grants ($23.3 million), reserves funded by utility dividends and cash on hand ($23.2 million), and department operating budgets ($6.6 million).
