The Southwest Booster

City plans to convert outstandin­g line of credit amount into debt


High interest rates and slow lot sales have made it necessary for the City of Swift Current to convert a portion of a revolving line of credit for property developmen­t into term debt with a fixed interest rate.

Council members approved a notice of motion during a regular council meeting on Nov. 27 to advise the public of their intention to amend the bylaw that regulates the use of a line of credit for property developmen­t.

City General Manager of Corporate Services Kari Cobler presented a report about the need for this change. She noted there have been significan­t increases in the prime rate since March 2022 and it varied from a low of 2.45 per cent to a high of 7.2 per cent.

“As a result, the City has experience­d an increase in the carrying costs related to the outstandin­g principal amount on the revolving line of credit,” she said. “This, in addition to slowed lot sales since the pandemic, has resulted in the need to convert a portion of the revolving line of credit into a fixed term loan.”

The current borrowing limit on the City’s revolving line of credit at Innovation Federal Credit Union is $24.6 million. The interest rate on this line of credit is currently prime less 0.50 per cent or 6.7 per cent.

The City has been using the revolving line of credit to finance its investment­s in property developmen­t, including the Cypress Point developmen­t at the Elmwood golf course, the Springs Valley commercial servicing agreement, the Saskatchew­an Valley developmen­t, Munro Industrial Park and the former school site concept plans.

The total amount outstandin­g on the revolving line of credit is $20,897,609.01. This amount will be converted into term debt at a fixed interest rate of 6.1 per cent for a term of 12 months. The City will make principal repayments of a minimum of 75 per cent of lot sale proceeds within this time period.

At the same time, the City’s borrowing limit on the revolving line of credit will be reduced to $3,710,000 at an interest rate of prime less 0.50 per cent.

“No draws will be taken on this revolving line of credit unless we are making an investment in property developmen­t,” she said. “If any draws are taken, the outstandin­g amount will be included in the fixed term

facility at the time of annual renewal.”

The City develops industrial, commercial and residentia­l land for resale and all costs are recovered through lot sales. The revolving line of credit has been used by the City to finance the land developmen­t.

“All developmen­t costs are paid by the City in advance of the lots being opened for sale,” she said. “This investment is typically significan­t, given that we’re responsibl­e for land acquisitio­n, planning, engineerin­g, earthworks, deep and shallow utility installati­on, roadways, sidewalks and curbing installati­on as well as the provision of electrical services.”

Funds are used to pay vendors during the developmen­t stage and proceeds from a land sale are used to make a payment against the outstandin­g amount on the revolving line of credit. This approach worked well before, but the situation changed since the pandemic.

“All developed land is priced for resale with the objective of cost plus 10 per cent and all revenues from lot sales remain in the property sales fund,” Cobler explained. “Prior to COVID-19, this pricing strategy had been successful in providing reasonably priced bare land that had attracted continual investment in both industrial and residentia­l developmen­ts. This had provided growth and equity for investors and residents while continuing to move the City forward in meeting strategic goals.”

Local business benefits from City tax concession for renovation­s:

The Landing Studio, a business located in downtown Swift Current, will benefit from the City’s tax concession policy for building improvemen­ts.

Council members approved an assessment exemption for this business at the regular council meeting, Nov. 27. The Landing Studio recently completed interior renovation­s to its building at a total estimated constructi­on cost of $120,000 and it applied for tax concession­s under the City’s Existing Business Expanding incentive policy.

This policy provides assessment exemptions to an existing business for any increased assessed value due to new constructi­on or renovation­s to an existing building as well as for any expansion or new constructi­on on bare land.

There is a two-year exemption of 100 per cent, then a 50 per cent exemption in the third year, a 25 per cent exemption in the fourth year, and then full taxation in the fifth year.

Councillor Pat Friesen commented on the successful tax concession applicatio­n made by The Landing Studio.

“It’s great to see local businesses making improvemen­ts,” she noted. “I’m hoping that other businesses will see this as a little bit of an incentive when they’re doing renovation­s. I see it’s available for new businesses as well. So I’m just hoping that others will take advantage of just a little bit extra incentive to improve their business.”

 ?? MATTHEW LIEBENBERG/SOUTHWEST BOOSTER ?? The developmen­t of land for resale in Munro Industrial Park was done through the City of Swift Current’s property developmen­t line of credit.
MATTHEW LIEBENBERG/SOUTHWEST BOOSTER The developmen­t of land for resale in Munro Industrial Park was done through the City of Swift Current’s property developmen­t line of credit.

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