Borrowing plan not due to possible AIMCo. losses, city says

As if watching personal investments circle the drain last month wasn’t enough of a drain, Albertans and especially Medicine Hatters were presented with some more substantial figures this week.

The province’s investment agency, AIMCo., reportedly lost $4 billion by continuing to play high-risk strategy last month to grow the value of a $118-billion pile of public pensions and government funds, it was revealed by the Globe an Mail.

The City of Medicine Hat began the process to borrow $80 million to fund two thirds of its well cleanup program. That’s to manage cash against low interest rates and preserve an abandonment fund that is sitting with AIMCo.

So, there’s a certain amount of speculation that borrowing is needed because the city’s money went up in smoke last month as global financial markets spun around, fell down and lit on fire.

Not true, says city top finance official Dennis Egert, who said the balance of the AIMCo account sits above the amount invested but he city since 2017.

He likened the borrowing plan to a traditional sinking fund, whereby interest earned on held investments lowers the cost of borrowing, and in certain circumstances, can produce revenue.

“We had considered liquidating (the AIMCo. fund) to cover the costs,” Egert told the News this week.

“We believe the better alternative is to maintain it … and use income from the fund to service the debt.”

For years, we’ve heard public officials defend the advantages of borrowing , but here’s a great big, honest to goodness test of it.

We’ll find out for sure in 2030 whether it worked, but on April 15, the Alberta Capital Finance Authority, where Alberta cities must borrow money, posted a fixed rate 10-year term as 1.873 per cent interest.

Three years ago the city invested $134 million set aside over the years to deal with the well liability and has seen an average return of 6 per cent annually since then.

If that keeps up — and note the “if” considering two stock market crashes and one recovery so far in the last 30 months — the difference would be about $25 million in the city’s favour over the first five years. During that time the city would only have to manage interest payments, but then face payments of about $18 million per year for the next five years to extinguish the principal.

That would come from reserves that would be drawn as needed, according to city finance officials, and (hopefully) be scheduled with the market cycle to get the biggest return).

For the record, the plan also involves $45 million in working capital — money on hand, not in investments — over the decade to pay for 2,000 abandonments. And it’s only a “10year plan” on paper. Actual certifying a well reclaimed can take five to seven years, during which some operating costs, like surface lease payments, persist, but accountants like to have such bases covered.

Heard a good joke

A common thought is that a Baby Boom may result nine months down the road considering pandemic response to basically stay home. A good punchline however, is that it will be entirely comprised of first-time parents.

A look ahead

Some dribbles of a COVID relief plan from Medicine Hat city hall will come out this week ahead of a full rollout on May 4. Mayor Ted Clugston described the raft of measures as “potentially the most generous of any municipality in Canada.”

Collin Gallant covers city politics and a variety of topics (no kidding!) for the News. Reach him at 403-528-5664 or via email at cgallant@medicinehatnews.com