City’s debt issue as clear as mud
An often confusing picture of the City of Medicine Hat’s debt situation is coming into focus with Mayor Ted Clugston saying a look beyond the numbers is required.
This week, all council members appeared genuinely confused when finance officials said a long-standing but never accessed $100 million debenture for gas field purchasing had expired.
That meant it no longer factored into financial analysis of approved debt (currently $510 million) versus money currently owed ($304 million), which is included in every borrowing bylaw that goes before council.
However, Coun. Les Pearson pointed out that both totals have gone up in recent months, while the space beneath a mandated debt cap had also shrunk.
Finance officials confirmed to the News late Tuesday that $150 million of the $205-million difference is money the city intends to borrow over the next several years to pay for council-approved construction projects.
Clugston, who has often said the difference is mostly money made up of remainders when projects come in under budget, said Wednesday the figure is larger than he expected.
However, he said, most relates to “selfsustaining” utility business units and there is a cost to providing services that provide revenue to the city.
“It’s a lot, but then again if we weren’t running the utilities it would be off our books,” he said. “It’s no different than Atco or Enmax or Fortis.”
“With a regulated utility (like gas, power and water distribution) you get a regulated rate of return,” he said.
“The private sector model is to borrow, then make the money back as a utility, and at low interest rates, it makes sense.”
He also stressed that taxpayer funded debt is relatively small, and that he has recently called for a slowdown on city construction, while reserves recover.
Pearson said he’s concerned that council colleagues have had a misunderstanding of the debt position all along.
“I don’t think anyone wants to talk about it,” said Pearson. “But there are a lot of warning signs on the horizon and it’s troubling to me.”
As for utility versus municipal spending, he said, either way the cost to residents will rise.
“All utility borrowing is self-funded but that means rates will have to meet the expectation of financing those things,” he said.
Corporate services commissioner Brain Mastel said projects are often pushed over to the following budget period. That will likely happen with some items on the current list, he said, and his department actively monitors debt levels to keep them from rising too high.
“We won’t draw the debenture until the work commences and costs are being incurred,” he said. “We believe there is an amount of debt capacity that should be preserved for financial flexibility to respond to unexpected circumstances.”
The city typically borrows money twice per year, in September and December, from the Alberta Capital Finance Authority at fixed rates for whole terms. That system shields municipalities, universities and some quasi public bodies, like irrigation districts, from interest rate swings.
Most of the projects on the list relate to utility spending:
Water — Distribution upgrades and expansions, $25 million; treatment plant updates, $9 million.
Sanitary Sewer — Lift station construction and collector lines, $40 million; treatment plant updates, $3 million. Electric — North-end power plant construction, $20 million; main power plant turbines, $14 million; distribution building consolidation, $6 million; line improvements, $16 million.
Those projects will be amortized and paid for over time through utility rate increases.
Total actual debt related to municipal capital projects is schedule to fall from $62.9 million today to $51.6 million by the end of the 2018 budget year.