City Council looking to change strategy away from debt financing to fund operations
Afinancial discussion paper was received by Swift Current City Council at their Dec. 9 meeting opening the topic of exploring an end to the city’s strategy of debt financing in order to keep property taxes low.
Swift Current City Council recently approved a motion to borrow an additional $ 14.99 million to pay for a series of capital investments and make payments to the RM of Swift Current following the Municipal Boundary Committee annexation decision earlier this year. With the City beginning the year owing $61.3 million in outstanding debt, and with $ 3.27 million to be repaid this year, Swift Current’s overall debt level will sit at $ 73 million at the end of the year.
After incurring addition debt, the City is now exploring their current tax minimization model which utilizes debt to fund capital expenditures in order to provide higher service levels in the community.
“That’s the reality even when somebody suggests why does Swift Current have higher debt levels than other communities our size, or why would we. We’re not spending our money any differently. We’re not spending our money frivolously. We’re not investing in things that our community doesn’t need or aren’t essential. For the basic services that our residents require, but also for a high quality of life. We just don’t have the cash- f low that other communities do,” Mayor Jerrod Schafer said during Monday’s Council meeting.
The financial strategy discussion paper looks at increased property taxes as a way to eliminate debt and provide a better revenue stream to fund the amenities, services and equipment necessary in the City.
“We hear from our public that they want no debt, or little debt, or there’s concern about debt. That they want low taxes, and that’s a demand, they don’t want to see their taxes grow. But yet they want a high level of services. So as you can see those are three expectations that we face that create a very challenging environment,” Schafer said. “I can’t emphasize enough how good of a deal our residents are getting in this particular community compared to everywhere else. Now that’s a great thing, and that’s something that we’ve enjoyed for a long time, but it also poses a challenge for us as well.”
“The reality of it is is part of the reason why our residents continue to enjoy such low taxes is because debt has been our tool to rely on to fund many of the capital projects that other communities do simply through cash flow or through their higher revenues.”
All council members weighed in on the topic, voicing their unanimous support of reducing debt levels though higher revenue from property taxes.
Councillor Gord Budd admitted that the prevalent feeling from previous councils even a decade ago was to hold the line on tax increases, as the feeling was that even a one per cent property tax increase would not be acceptable to ratepayers. He admitted that the City has not benefited fully from utilizing the benefits of the Light and Power dividend for growth purposes.
“I feel it’s important that we wean ourselves off the Light and Power dividend by increasing property taxes at a reasonable rate. The profits from Light and Power can be used to fund those projects in our community that not all taxpayers use,” Budd said.
“The bottom line here folks, I believe that we need to see property taxes increase over the next six years to cover off our dependence on Light and Power, but we’re still going to be among the lowest, if not the lowest place in Saskatchewan in terms of property tax.”
And while Budd admits he may receive some criticism, Council does need to set the right direction for the financial future of the community.
“My thinking on this is this is the right thing to do, and we have to do it for today. But not even so much for today, but for the future of our City.”
Councillor Ryan Plewis was concerned that Swift Current residents would read between the lines of the policy paper and wrongly presume that the city is in trouble with debt.
“I’m personally not troubled by our level of debt for the City. It’s financed, it’s funded. It’s quite reasonable actually considering where we’re at from a financial picture in terms of our sources of revenue, but whether we’re going to fund things by debt or whether we’re going to fund things by using the tax revenues,” he said.
“I’m not personally troubled by our level of debt, but I am, and I believe that a number of us on council are concerned about our reliance on the need for using debt to finance the projects that we look at pursuing within this community,” Plewis added.
“I like this report because I think it gives us a strategy or a plan for doing something about that concern that I have about our reliance on financing,” he said. “I think that we need to decrease our reliance on taking debt to fund the things that make us a competitive place or makes Swift Current a great place to live and work and do business.”
plan, long term viability.
“Quite frankly it’s not plausible for us to continue relying on debt financing to fund the things that we need to do that makes Swift Current a great place to live. The Light and Power dividend is, in my mind, the key to readjusting this imbalance that we’re currently experiencing.”
debt or tax funded financing.
“We need to get better at being less reliant on borrowing and to be better at funding things out of our operations in that particular tax year.”
Councillor Denis Perrault highlighted that at the current taxation level, Swift Current residents are getting an impressive array of services ranging from a professional Fire Department, RCMP, parkway, parks, facilities, bus service, 80 kilometres of roads, snow removal, plus other infrastructure.
“Our residents are getting great value, great services, in a great, growing and vibrant city, and we’re going to continue to enjoy these services for a fair and affordable price, long into our future, even with the changes that we’re talking about today.”
“Our Council sat together and we set a strategy that we were not going to rely on the Light and Power dividend for operations any more, but rather use it for capital projects like our exciting Integrated Facility, and I’m very hopeful we’re going to be seeing development on it in the coming years.”
Councillor George Bowditch felt that the City needed to have a stronger plan for the future, and better position the community for growth.
“You’ve got to plan for the future. We’ve got to do it in a responsible way. And one of the ways that we have to do it is to reduce our reliance on debt to fund a lot of these things. Our Light and Power should be used for that.”
Councillor Pat Friesen also expressed that she was not concerned with the city’s level of debt, bur rather the impact high levels of debt and low taxes would have on long term loan repayments.
“It could become quite a burden if you continue to accumulate debt, you have to pay the interest on that debt, and it could become a problem in the years to come.”
She noted that high levels of debt repayment interest would take away from their ability to pay for infrastructure and building better facilities. Instead, the city should kept debt at a reasonable level, and better positioned for growth and replacing infrastructure in the future.
Councillor Ron Toles agreed that Council needs to change the way the city operates. As one of two first- term council members, Toles has a better appreciation of the budgeting and financing of the city than he did before joining council.
“My feeling of debt now is not nearly as frightening as it was maybe before I became more knowledgeable this,” he said.
Toles appreciated the document’s goal of enhancing the city’s ability to gain and maintain a competitive advantage over other communities.
“I think we need to change the way we’ve done things in the past. If we don’t change, we continue to do things the way we are, debt is going to continue to grow. It has to. Or, things have to stop growing. We either have to stop growing or we have to stop borrowing, and I don’t see good in either one of those. So if we don’t make that change now, we’re going to continue to add to our debt. I don’t see how we can stop growing and building. We’re a growing community, a vibrant community.”
“I for one am proud to be a part of a council that’s willing to say we need to change. The time to change is now and we can’t continue to go the way we’re going.”
Mayor Schafer said all council members are hoping to hear directly from municipal taxpayers on the matter in order to have an open discussion on how to proceed as they head into a new city budget year.
“One of the things that this discussion, and that we want to have resonating out in the community is: a) getting to a point were our community knows that the reason why our debt is at a certain level is because we enjoy this incredible tax situation. And one of the things that we’re looking at is simply increasing the amount of tax revenue to get us comparable.”
“We’re not even talking about, and this report doesn’t mention matching other communities, it’s simply talking about ending the reliance of this particular subsidy. That would eliminate a significant amount of debt that we have accumulated.”
“We are in a very enviable position. We’ve got a very strong balance sheet. We’re in very good shape. And I think this is a great discussion to have moving forward.”