December 11th, 2024

Debt bylaw would cover all capital for two years

By COLLIN GALLANT on February 10, 2023.

An omnibus-style borrowing bylaw would total $96 million to cover all capital projects planned by the city over the next two years.--NEWS FILE PHOTO

cgallant@medicinehatnews.com@CollinGallant

City council took the first step this week toward funding its two-year construction plan by introducing a single borrowing bylaw, totalling $97 million that would cover about half the capital plan.

That omnibus format, covering 32 projects, avoids a parade of separate bylaws going to council – 28 separate bylaws came forward in early 2019 to fund the last multi-year capital program.

But the size of package was noted by councillors on Monday as they passed first reading, typically a simple vote to get a bylaw on the table.

“It’s $96 million, and I understand it’s part of the budget process, but I feel it’s important that we get a little verbal background,” said Coun. Darren Hirsch.

The current two-year borrowing schedule asks for $96 million in debt-financing with the city’s $190-million capital projects and purchasing plan, the remainder paid for with grants, reserve cash of working capital.

During discussion, Mayor Linnsie Clark said the city is constantly evaluating whether it is more advantageous to use reserve funds rather than borrowing, depending on borrowing rates and returns in a time of higher interest rates and lower market returns.

“That’s part of ongoing analysis,” said corporate services managing director Dennis Egert. “We do look at our (reserve) investment returns over the life cycle of the investment, so it is dangerous to look at short-term returns.

“It tends to be higher return in investments in a diversified portfolio over the rate you’d borrow from a bank.”

The city budget predicts higher interest rates will cause a 1 per cent increase to borrowing costs this year, then 2 per cent next. The effect would be 3 per cent in 2025 and 2026.

Egert also stated it appears the Bank of Canada may be at the top of a plan to reduce inflation by raising rates. Rates offered to Alberta municipalities also appear to be creeping back down after spiking in late 2022.

At Feb. 1, a 25-year fixed-rate loan was attached to a rate of 4.93 per cent by the Alberta Treasury Board. That is one per cent higher than one year ago, but a half-point less than in November.

The largest item on the list of major projects is $24 million to build a new substation on the south side, and the smallest consists of $540,000 to add public washrooms to the Towne Square development across from city hall.

The new two-year debentures list is $17 million more in borrowing than was approved by late February 2019 to pay for the new three-year capital plan, but it is not being added all at once.

Debt is only taken on when bills come due, however by including previously approved but undrawn amounts from previous years, the city’s total debt load could rise by 10 per cent over two years.

Administrators state the city’s total debt sat at $473.5 million at the end of 2022, and predict it will be $516.3 million at the end of 2023, then $524.8 million for 2024.

The latter amount would put the city at 59 per cent of its debt limit, as prescribed by provincial regulations.

The city’s debt serving level would reach 10 per cent of its limit, paying a total of $45 million in principal and interest in 2024, retiring $28.8 million in debt that year.

About two thirds of the $97 million relates to capital projects in various utility departments.

The electrical distribution system would see the largest share as the city plans to build the MHS11 substation near S. Boundary Road at a stated cost of $22 million for the least expensive of two site options. The plan is still subject to regulatory approval by the Alberta Utilities Commission.

Specific transmission line upgrades would cost $2.2 million this year, and over two ears $4.83 million is needed on general replacements to the city’s overhead and underground power line system.

Another $2.7 million would be spent to upgrade and extend a gas feeder main in Crescent Heights and Riverside.

Water and sanitary sewer departments would each spend $3 million in 2023 and $4.23 million in 2024 on a general maintenance and replacement plan, as well as $1.2 million each to upgrade Third Street downtown.

Another $5.4 million would pay for the next phase of the Brier Park gravity sewer bypass.

A total of $5.25 million will be borrowed for equipment upgrades at the power plant, which pays off debt with profits from power sales, not rates, like in other utility areas.

In the municipal operation sphere, where debt is paid off with tax revenue, borrowing totals $34.5 million.

The largest items are $7.5 million for irrigation upgrades in the parks system and $6.5 million to upgrade roadway on Division Avenue S. Renewal programs for general facilities ($4.5 million) and utilities ($2 million) follow, with new equipment for Big Marble Centre ($1.5 million), Hill Pool ($1.25 million), city hall ($1.25 million) and the public library ($1 million).

Share this story:

28
-27

Comments are closed.