Sorting out how city debt works
There are several common theories to why Medicine Hat’s approved debt and actual debt are about $200 million apart.
Some council members surmise the amount could be the accumulation of parts of loans not needed when projects are under budget or cancelled.
Also, for 10 years, a standing bylaw gave the city’s energy production company access up to $100 million to buy a new gas field quickly.
Neither may account for the difference however.
A News investigation has found at least half the amount simply hasn’t been borrowed yet, but likely will be over the next two years.
The city’s ability to borrow and repay its debt, now at about half its maximum limit, was raised at Monday’s meeting by Coun. Les Pearson.
Other council members countered that there’s a difference between actual debt and approved debt, and most would not be spent in any account.
In 2017 alone however, council has approved about $90.1 million in borrowing to finance the city’s 2017-2018 construction plan — loans that don’t go through until work proceeds.
Another $40 million could come from projects carried from previous years, and a huge number of unfinished utility projects might make up the difference.
“This is money that we are planning to spend in the next two years,” said Pearson on Tuesday, further adding reserve balances to his concerns.
“Reserves and borrowing capacity are about contingency. Do we have the borrowing capacity or money in reserve to address an emerging crisis? That’s the big question for me.”
The city’s debt is about $307 million, mostly related to utility work, but council has approved bylaws to borrow up to a total of $510 million.
At that higher level, argued Pearson, the city would be at about 80 per cent of a provincially-mandated cap, set at twice its annual revenue.
It has typically hovered between 25 and 35 per cent of the debt limit, which is currently $612 million — down steeply from a high of $865 million in 2013 when power export revenue was high.
If the approved projects go ahead, the city could add $150 million in debt by 2018, while retiring about $50 million over the same time.
The recent 2017-18 city budget plan has a stated goal of keeping the amount of debt below 75 per cent.
City finance officials were researching the issue on Tuesday but confirmed Bylaw 3745, a standing measure for $100 million in gas field financing, expired in late 2016.
Coun. Bill Cocks, chair of the audit committee, said the pressure on revenue is having the greatest effect on the debt compared to the cap, but prudent debt financing is required.
“It’s significant and not to be ignored but I think it’s important to realize that we’re borrowing for the right kinds of projects,” he said.
Those include a vast array of sewer, road and water line upgrades administrators say are badly needed. A $900million, 30-year plan to renew aging infrastructure — some of it dating to the 1920s — was approved in 2013.
Outstanding major projects from the 2015-16 city budget could include half the money to complete the $56million north-end power plant, estimated to total $10.2 million for Veiner Centre redevelopment, and about $4 million in debt for South Railway Street redevelopment.
The most recent utility project summary shows $155 million remaining on a variety of sewers, water, power and gas lines, and landfill projects, which are typically debt financed.
That figure includes carryover projects, where approved loans may not have been accessed yet, but also at least $2.5 million made up when projects were under budget.
A report in 2016 stated that administrators in municipal and energy divisions had cancelled $10 of capital spending for every $1 that any project went over budget.
Mayor Ted Clugston deferred questions Tuesday to finance officials, but said Monday that amounts are still being counted on projects that were under budget or cancelled.
“What we need to do is go through all the borrowing bylaws and start rescinding them,” he said. “The ones that aren’t used, let’s get them off the books.”