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.”