“Lower overall cost of finance eases tax and rate pressures for residents (and) businesses,” report says
With a series of major projects on the horizon, city staff are looking to take advantage of historically low interest rates by borrowing $ 115 million now rather than waiting until it’s necessary, which is the typical process.
“In the current climate of low interest rates (…) issuing the debenture before expenditure minimizes the cost of financing and the risk of future increases in interest rates”, indicates a report presented to the committee plenary session on April 6.
“Minimizing the overall cost of financing eases the pressures on taxes and rates for residents (and) businesses. The use of debt enables intergenerational equity when building assets that will provide services for decades to come. “
The projects mentioned in the debenture report for 2021 and 2022 include improvements to the FM Woods water treatment plant ($ 14 million) and the South End Recreation Center ($ 37.5 million), as well. as the new central library ($ 52 million) to be built in the redevelopment of the Baker neighborhood, which includes public spaces ($ 11 million.
The staff recommendation calls for loans “not to exceed $ 115 million” and for terms “not to exceed 20 years.” Debt payments must be funded from the city’s capital reserves.
It is not known what the cost of these loans will be, the report adds, explaining that it will depend on the size and duration of the loans taken out.
Based on 2019 levels, the city is using 21% of the annual debt repayment limit prescribed by the Ministry of Municipal Affairs and Housing. City policies, however, take a “more conservative” approach, the report says, capping loan payments at 10 percent of annual operating revenue.
The forecast for 2022 puts that figure at 4.3%, but the report notes that “the remaining debt capacity is expected to be used by 2026”.
Borrowing money as early as possible is a departure from the standard process, as is the way it is proposed to be done.
“Due to the magnitude of the debenture required, the city’s fundraising agent recommends an alternative approach to previous debenture issues,” the report continued.
Typically, staff would seek approval for a specific amount and duration, after which it would go to market and funding would be provided within 15 to 30 days, he explains.
“For this debenture, staff are seeking approval of a maximum amount and duration, while allowing flexibility in the timing and number of bond issues,” the report said. “The reasons for this approach are that the size and duration of a debenture have an impact both on the interest rate achieved and on the ease of placement (ie sale) in the market. municipal debentures. “