By Thia James

City moving ahead with $30M debt limit increase

Nov 13, 2014 | 11:18 AM

The City of Prince Albert will move forward with its plans to pursue a $30 million debt limit increase.

The current debt limit stands at $40 million, but the City has an opportunity to renew its debt limit with the Saskatchewan Municipal Board (SMB) at the current amount or seek a higher amount. This year, the City wants to raise the debt limit to $70 million. On Monday, council agreed to the plan to make the request.

Mayor Greg Dionne said the debt limit is a sort of safety net, and it’s not something the City plans to use today. He’s also emphasizing the City’s currently carrying a lower debt that when he was first elected to council.

Dionne said that when he started out on council, the City had about $22 million in outstanding debt. As of the end of 2013, the City had more than $14 million in outstanding debt.

“We continue to pay the debt down, and our focus is, of course, to pay the debt off,” he said.

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“But we also need to be prepared, if something major happens and that if we have to do a major project or something that, we have the ability to get the funds.”

If the City did need to add to its debt, Dionne said there’s a process in place in order to be able to use the funds. It’s not as simple as just writing a cheque, he said.

And the first step in the process to raise the debt limit involves making a formal request to the SMB. The SMB is a provincial agency that monitors municipalities’ financial responsibility. The agency requires municipalities to have an approved debt limit.

The SMB asked the City to renew its approved debt limit, along with other cities in the province, according to director of financial services Joe Day. The last time the City raised its debt limit was in 2008, when it went up by $5 million to $40 million.

“For a municipality our size and with the type of revenues we generate and the typical type of debts that a city of our size has, $70 million dollars is basically the benchmark that we should be at. It’s not over and above anything that a city of our size should have. It’s actually closer to what is a reasonable level for a city our size,” he said.

The City is raising the debt limit now to put it in a position to be able to be able to build any larger facility – should it need to. Day said a debt limit in the $70 million dollar range should be enough. He said that in the $40 million range, if the City needed to build any such facility, the cost would have easily exceeded its debt ceiling.

Day said that the City was carrying more than $20 million in long-term debt a few years ago, leaving about $20 million until it reached the debt ceiling. He pointed out that at that time, the City constructed the Alfred Jenkins Field House at a cost of about $18 million.

The $40 million debt limit left the City with little comfort room, Day said.

“But it was appropriate for us to get it to a more reasonable level.”

The City has taken on debt for projects such as the $24 million revitalization of the water treatment plant.  Dionne explained that the City has to pay the bills first – to the contractors for their work and supplies – and then send the funding request to the federal government. When the City does get the funds, it then puts it towards the debt.

“We have to pay those bills and then we go and collect the money from the feds, even though they committed to give us the funds, there’s still a process to go through that process.”

The City is carrying debt for the work on the water treatment plant, for work in the West Hill on 10th Avenue to have it meet up with 28th Street East.

The City has taken out loans in the last 10 years that haven’t  been fully paid down yet,  Day added, and said this where most of the existing debt is resulting from.

The City could tap the debt limit down the road if it were to start construction on a new hospital or second bridge, according to Dionne. But right now, the City has no plans to add to the debt.

It does, however, have money in the budget for debt repayment and it makes monthly payments.  If the City does see a surplus of any sort, Dionne said that surplus money would go towards repaying the debt.

Funds used to repay debt generated by water and sewer-related work have come from usage charges on water and sewer utility bills, and debt from the West Hill infrastructure is being paid back through land sales.

In this year’s budget, the City plans to set aside $216,750 for principal payments on loans in 2015. It is also projecting that the interest on long-term debt in 2015 will be $42,840.

However, having the SMB approve the debt limit increase will not have budget implications, Day said.

The SMB could take up to six weeks to grant its approval for the debt limit increase.

tjames@panow.com

On Twitter: @thiajames