Long-term Debt Limits in Saskatchewan - Nipawin

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Debt-Limit is Too Low: Over twenty respondents (out of the 39 responses) reported that the debt-limit is too low to accommodate growth in the municipality. Some reported that even if their debt-limit were increased, they do not have the ability to service and repay increased debt. Of these respondents, many noted that their projects will not proceed if they are unable to access more capital. Moreover, many of these respondents mentioned that they are counting on federal, provincial, or other types of grants to assist with infrastructure costs. In addition to the general need to upgrade out-of-date infrastructure, many municipalities mentioned that increased lot development was creating significant pressure in terms of utilities services. Other Comments: Some municipalities noted that the debt-limits were currently sufficient to accommodate municipal needs. Others were unsure of what their debt limit was. They were also unsure of how debt-limits are calculated, pointing to a lack of policy and process clarity, as well as municipal capacity. Suggested Changes to LTD Policy If you were given the authority to make changes to current legislation, regulation and process relating to the issue of municipal debt limits, what changes would you make? The above question was asked of municipalities to provide them with an opportunity to concisely outline what, in their opinion, should be changed about current long-term debt policies. This section is not meant to serve as a list of formal recommendations. Rather, it serves as a list of possible alternatives given by practitioners in the field of municipal administration, and should form the basis of an informed discussion on how to improve current process and policy according to an important group of municipal stakeholders. Abolish or Limit Role of SMB in Setting Debt Limits: Some municipalities suggested that the SMB should be removed altogether, whereas others suggested that it needed to be reformed. In general, municipalities fell into two camps with regard to the SMB. 1. Local governments are autonomous and accountable to their residents, and thus the function of provincial oversight is not necessary. 2. Municipalities are financially responsible, and should only have to report on their financial status and business plans to the SMB, but should not have to ask for their permission (see above section on constitutional limitations on municipal governments). 8 Distinguish Between Utilities-Related Debt and Other Debt: Many municipal representatives believed that utilities related debt should be separated from general borrowing because utilities are self-funded, and do not actually impact the municipalities’ overall financial capacity if the fee structure is sustainable and does not require subsidization by the municipality. Permit Greater Flexibility One municipality mentioned that permitting municipalities to include income from community-owned businesses would increase debt-capacity. It was believed that this practice would not only make infrastructure selfsustaining, but also profitable in some cases. The Importance of Growth Many respondents mentioned that growth is an important factor in their municipalities, and that there was an immediate need for greater levels of infrastructure grants to ensure that they can move forward and prepare for future growth. Improvements to SMB and Debt Regulation Process Respondents recommended that the SMB be improved in the following ways: 1. Simplify the process: make applications and interactions with the SMB much simpler. 2. Increase the transparency of SMB operations. 3. Clarity: Provide clear explanations of how debt-limits are calculated, as this was unclear for many municipalities. Some municipalities were concerned that the lack of clarity as to how debt-limits are arrived at makes planning difficult. a. Some municipalities find terminology, such as “own source revenue,” unclear. b. Another municipality was confused about whether the ownership of municipal controlled corporations affects municipal debt levels. 4. Capital Expenditures: Some municipalities would like to see the SMB allow capital expenditures to be over the debtlimits and restrict operating borrowing to current legislation and regulations. It was suggested that capital expenditures should be linked to capital asset management, and maintained separately from the operating side of the equation. 5. Turnaround Time Standards: Many respondents reported a lengthy turnaround time, and suggested that the SMB have legislated turn-around times and that the province should increase staffing of the SMB.
6. Maintain Regulation While Increasing Flexibility: While a number of municipalities noted their preference for the SMB to be abolished entirely, others noted a preference for the maintenance of the SMB as an important oversight mechanism. However, these respondents did note that the SMB’s policies and processes need to be changed to permit more discretion for municipalities to increase or decrease debt-limits when necessary. It was also suggested that more flexibility needs to be given to municipalities to allow them to take advantage of short-term borrowing options and lower interest rates. 7. Problem is larger than LTD: There was the general sense that the smaller municipalities are able to borrow more money than what they can afford to pay back, which is not enough to cover their infrastructure needs – thus, increasing debt-limits is not viewed as the answer, but rather increasing revenue streams and improving sustainability of infrastructure. Comparative Policies In addition to interviews and the survey, we conducted a comparative analysis of policies in Nova Scotia, Manitoba, and Alberta to gain a better understanding of how other provinces have approached municipal governance and long-term debt calculations. These provinces were chosen for a number of reasons: Nova Scotia does not include utility debt in long-term debt calculations, Manitoba has a similar population, and Alberta has led growth and implemented some interesting policies to cope with regional growth. The section to follow describes the current policy environment in these three provinces, and provides an overview of potential lessons to be drawn from them. Nova Scotia Legislative and Regulatory Environment Rules surrounding municipal borrowing in Nova Scotia are the responsibility of three bodies and one piece of legislation: the Minister of Housing and Municipal Affairs; Service Nova Scotia and Municipal Relations (SNSMR); the Nova Scotia Municipal Finance Corporation (NSMFC); and the Municipal Governance Act, 1998. The roles of each of these entities and how they interact with one another will be discussed in turn. The Minister of Housing and Municipal Affairs has control over whether or not a municipality is allowed to borrow for capital projects. Section 86 of the Municipal Governance Act, 1998 gives the Minister the power to establish borrowing limits for each municipality; Section 87 prevents him from setting such limits or approving any borrowing if the municipality has not filed its annual capital budget with SNSMR; and Section 88 gives him the power of final approval over a municipality’s borrowing request (The Province of Nova Scotia 1998). Service Nova Scotia and Municipal Relations (SNSMR) is the line department responsible for enforcing the borrowing limits set by the Minister and reviewing the municipal capital budgets required under the Municipal Governance Act. At present, the policy of SNSMR is that municipalities should not have a debt service ratio in excess of 30% (Service Nova Scotia and Municipal Relations 2010, sec. 3.5) . Two points ought to be made about this rate. First, it is a flat rate which applies to every municipality without modification, regardless of its specific financial context. While the Municipal Governance Act does allow the Minister to set rates on a case-by-case basis, this power is apparently not exercised in Nova Scotia. Second, SNSMR’s 30% debt service ratio does not include the debt carried by municipalities which are attributable to water and electrical utilities, including transmission infrastructure. Ministerial approval is still required when municipalities attempt to borrow for utility capital projects, as well as approval from the province’s Utility and Review Board. The Nova Scotia Municipal Finance Corporation (NSMFC) is responsible for issuing debentures on behalf of municipalities; two issues are produced per year. The Corporation also reviews the borrowing plans produced by municipalities – suggesting some administrative overlap with SNSMR – and uses a 15% debt service ratio as a benchmark to evaluate each municipality’s fiscal situation. This 15% does not have the same standing in policy as SNSMR’s 30% ratio, but nor does it include debt attributable to water and electrical utilities. The Corporation provides additional services to municipalities, including financial training for municipal employees involved in the borrowing process, assistance with long-term financial planning and a short-term borrowing program for municipalities which have received approval to borrow but are still awaiting the next debenture issue(Service Nova Scotia and Municipal Relations 2010, sec. 3.4). Finally, the Corporation monitors its own performance with annual satisfaction surveys of the municipalities which participated in the borrowing process that year (Nova Scotia Municipal Finance Corporation 2011). Finally, the role of the Municipal Governance Act, 1998 has been mentioned, but two more sections ought to be highlighted. First, Section 91 gives municipalities the right to set rates, repayment schedules and issue debentures on their own, without going through the NSMFC. To date, no municipality in Nova Scotia has taken advantage of this option, suggesting that the quality of service and administrative savings offered by the NSMFC are significant. Second, Section 99 grants that municipalities may borrow from their own capital reserve funds to pay for capital projects at the same interest rate the municipality would pay if it accessed outside sources of funding. Interestingly, this borrowing may be done by resolution of the council alone, and does not require the approval of the Minister (The Province of Nova Scotia 1998). Finally, while the Regional Municipality of Halifax does have its own Charter, similar to Ontario’s City of Toronto Act, its sections on municipal borrowing are lifted verbatim from the Municipal Governance Act, 1998 and contain no special provisions or processes (Government of Nova Scotia 2008). 9
Page 1 and 2: THE POLICY SHOP Long-term Debt Limi
Page 3 and 4: Executive Summary This report expla
Page 5 and 6: Introduction In Saskatchewan, many
Page 7 and 8: Within the SMB, the Local Governmen
Page 9: Table 1.0 Very dissatisfied Somewha
Page 13 and 14: commissions for various reasons: th
Page 15 and 16: Table 2.0 Comparison with Saskatche
Page 17 and 18: of debt, while permitting the provi
Page 19 and 20: period after calculation time (The

Long-term Debt Limits in Saskatchewan - Nipawin

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