With a series of big ticket projects on the horizon, city staff is looking to take advantage of historically low interest rates by borrowing $115 million now rather than waiting until it’s needed, which is the typical process.
“In the current low interest rate climate ... issuing the debenture in advance of spending minimizes cost of financing and risk of future interest rate escalations,” states a report heading to council’s committee of the whole meeting on April 6.
“Minimizing the overall cost of financing eases the pressures on taxes and rates for residents (and) businesses. The use of debt allows for intergenerational equity when constructing assets that will provide services for decades to come.”
Projects noted in the debenture report for 2021 and 2022 include upgrades to the F.M. Woods Water Treatment Plant ($14 million) and the South End Recreation Centre ($37.5 million), as well as the new central library ($52 million) to be built within the Baker District redevelopment, which includes public areas ($11 million.
The staff recommendation calls for loans “not greater than $115 million” and for terms “not exceeding 20 years.” Debt payments are to be funded from the city’s capital reserves.
It’s not known what the cost of those loans will be, the report adds, explaining that will depend on the size and duration of loans taken out.
Based on 2019 levels, the city is using 21 per cent of the annual debt repayment limit prescribed by the Ministry of Municipal Affairs and Housing. City policies, however, have a “more conservative” approach, the report states, capping loan payments at 10 per cent of annual operating revenue.
The forecast for 2022 puts that figure at 4.3 per cent, but the report notes the “remaining debt capacity is forecasted to be used by 2026.”
To borrow the money sooner rather than later is a break with the standard process, as is the way it’s proposed to be done.
“Due to the magnitude of the debenture required, the city’s financing agent is recommending an alternative approach from previous debenture issues,” the report continues.
Typically, staff would seek approval of a specific amount and term, after which it would be put on the market and funding would be provided within 15 to 30 days, it explains.
“For this debenture, staff are seeking approval of a maximum amount and term, while allowing flexibility in timing and number of debenture issuances,” the report states. “The reasons for this approach are that the size and term of a debenture impact both the rate of interest achieved and also the ease of placing (i.e., selling) on the municipal debenture market.”
