Long-term Debt Limits in Saskatchewan - Nipawin

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Manitoba Legislative and Regulatory Environment All borrowing by urban governments in Manitoba is conducted in accordance with the Municipal Board Act, the Municipal Act, the City of Winnipeg Charter Act, and the Debt Management Policy of the City of Winnipeg. The City of Winnipeg Charter Act applies only to that City, while the Municipal Board Act and Municipal Act apply to the remainder of Manitoba’s urban governments. The two provide largely similar methods and requirements regarding municipal borrowing and debt limits. The Municipal Board Act provides the legislative framework for the province’s twenty-five member Municipal Board, and charges it with the duty of reviewing all bylaws that include capital borrowing in municipalities other than Winnipeg. As a quasi-judicial body, the Municipal Board is empowered to reject, amend or accept all proposed capital borrowing bylaws; they do so according to a legislated series of considerations, including “the nature of the work, undertaking or proposed project,” “the necessity or expediency thereof,” and “the financial position of the local authority.” The Board has some scope for discretion and further investigation, and may consider “any other relevant matter” (The Province of Manitoba 2011). In passing judgment, the Municipal Board may conduct public hearings as well as require urban governments to submit five-year capital forecasts. Furthermore, Section 69 of the Municipal Board Act states that the Board may “require the municipality to submit the by-law or contract for the sanction of the voters or ratepayers …” Municipal governments are not bound by the approval of the Municipal Board for any debts that are repayable within the year (Amborski 1998, 19–20). Neither the Municipal Board Act nor the Municipal Act set a statutory limit to debt for urban governments. However, the ratio of debt to municipal assessment is often used by the Board to determine whether taking on additional debt is advisable. Amborski’s qualitative study of the Municipal Board’s actions showed that the Municipal Board often took population trends and economic growth potential into consideration (1998, 20). In of the 33 applications made to the Board in 2008 and 2009, 9 were accepted, 10 dismissed and 14 withdrawn (Tyler 2011, 72). Unless the Board can be shown to be applying the law incorrectly or acting beyond its jurisdiction, its decisions cannot be appealed. The City of Winnipeg Charter Act requires that City to submit its borrowing plans to the Minister of Finance for approval. The Minister may, at his discretion, forward the application to the Municipal Board for review, though the Minister is not bound by the Board’s advice. Like Manitoba’s other urban governments, no statutory limit on debt exists. However, Winnipeg does regulate debt according to the guidelines established in an internal document, the Debt Management Policy; this self-imposed policy was intended to shift the City toward pay-as-you-go financing for tax-supported capital works. In 1996, City Council established an annual debt limit of $61 million on both internally and externallyraised financing for tax-supported capital projects. The Debt Management Policy is the only document that imposes a limit on capital borrowing and reports “no new external borrowing for tax-supported capital expenditures has been approved since 1998” (The City of Winnipeg n.d., 2) The policy also imposes a restriction on the length of financing periods. Under normal circumstances, the repayment period will not exceed the useful life of the asset being financed. All urban governments in Manitoba are free to pursue loans in the private sector. The City of Winnipeg does not have a specific objective to maintaining relationships with rating agencies but does note in the Debt Management Policy that a high rating is desirable as it determines interest rates and may be used as a comparative measure of general wellbeing. Winnipeg is currently rated by Standard and Poor’s and Moody’s. The City of Brandon also maintains a relationship with Moody’s. None of the acts, regulations or policies explicitly mentions utility debt, or any other type of specific debt. Municipal Stakeholder Perspectives City administrators who agreed to be interviewed reported that their ability to grow was not inhibited by the decisions of Manitoba’s Municipal Board. An administrator of one smaller urban government confided that the amount of debt that they had been cleared for exceeded what he deemed to be fiscally responsible. One emerging trend involves financing utility projects through ratepayer or user fees rather than taxes. Though loans are still required, these schemes are based on utility revenue forecasts and allow for increased security for the province, which is ultimately responsible for insolvent municipalities. The administrator who brought this trend to light noted that their upcoming capital project will be funded by taxpayers but that passing the debt on to ratepayers entirely was considered more politically legitimate. The Association of Manitoba Municipalities is currently arguing in favour of development fees – one-time levies on developers to finance the costs associated with development – to fund projects such as extending utility services to new housing projects. Their argument is that it is unfair to burden existing taxpayers with the expenses of municipal expansion. The Association argues instead that development expenses ought to be transferred to buyers of new homes, commercial, and industrial properties (Slack 2011, 40). Alberta Legislative and Regulatory Environment Municipal debt-limits are regulated in Alberta through the Municipal Government Act. The Act outlines how debtlimits are determined, including a basic formula. Alberta is unique in that it has legislation governing debt-limits for regional service commissions – corporate structures that are owned by municipalities and provide utility services on a regional basis. Municipalities in Alberta have established 10
commissions for various reasons: the commission’s debt may be calculated separately from the municipality’s debt, commissions have higher debt-ceilings, and commissions create regional economies of scale because they are owned by several municipalities. Long-term Debt Limits for Municipalities in Alberta Debt-limits for municipalities in Alberta are determined via two basic formulas. For most municipalities, total debt cannot exceed 150% of total municipal revenue, and their debt-service ratio cannot exceed 25% of municipal revenue (The Province of Alberta, sec. 2). The figures applied to Calgary, Edmonton, Medicine Hat, and the Regional Municipality of Wood Buffalo are different, however. The debt of these municipalities cannot exceed 200% of the revenue of the municipality, while their debt-service ratio may not exceed 35% of the same. (See Appendix for outline of formulas). Municipal Stakeholder Perspectives On Municipal Debt Representatives from The City of Calgary suggested that the bulk of impediments to municipal borrowing were selfimposed; they cited the City’s internal debt ceiling, internal debt-service ratio limit and the desire of both elected and bureaucratic officials to maintain the City’s AAA credit rating as examples of such self-imposed financial choke-points (Amborski 1998, 41). This latter goal also influences current behaviour in Saskatchewan, where cities such as Saskatoon want to maintain their AAA credit rating and restrain their borrowing activity accordingly. The Town of Okotoks, a town of approximately 25,000 which is located 20km south of Calgary, is currently debating how to handle its long-term municipal debt. The town was one of the ten fastest growing communities in Canada between 2006 and 2011, and serves as a good comparator to small-and-medium sized Saskatchewan cities because of this sustained growth. The town operates under a selfimposed debt limit that is only 75% of the limit that the town is legally permitted to assume under provincial legislation. Since 2007, municipal debt has risen dramatically and both councillors and residents have been openly asking whether or not Okotoks will change its internal debt-limit to cope with the costs of growth. The current municipal government is committed to remaining fiscally conservative while simultaneously accessing as many grants as possible for infrastructure upgrades, and monitoring whether debt increases are actually tied to growth. In short, the municipality does not find provincial debt limits to be problematic. Rather, the municipality is being challenged by the costs of growth, and is examining whether its own internal fiscal policies are exacerbating this stress (Patterson 2011). Okotoks is not alone in operating under this kind of self-imposed fiscal responsibility. One of the fastest growing municipalities in Canada, the Regional Municipality of Wood Buffalo, has also imposed strict limitations on itself. As noted above, Wood Buffalo – along with the Cities of Edmonton, Calgary, and Medicine Hat – has a total debt-limit of 200% of municipal revenue and a debt-service ratio limit of 35%. However, the RM has chosen to further restrain their debt obligations by setting their municipal debt-limit at 75% of total revenues (Regional Municipality of Wood Buffalo 2012). This limitation is rooted in a belief that each generation should pay into the cost of infrastructure, resulting in a pay-as-you-go approach to building and maintaining infrastructure. There was no evidence that Albertan municipalities would like to see utilities based debt calculated separately from other municipal debt. However, this may have more to do with the common use of alternative regional service delivery mechanisms in Alberta, such as Regional Service Commissions, regional partnerships, or Municipal Controlled Corporations (as is the case in Calgary and Edmonton). The Role of Corporate Structures in Utilities Service Delivery: Regional Service Commissions (RSC) and Other Arrangements In Alberta, many municipalities are utilizing corporate structures to own/operate/maintain infrastructure and to provide municipal services on a regional basis. These entities range from simple inter-municipal partnerships to Regional Services Commissions to municipal-controlled corporations. These more complex structures, such as RSCs, enable municipalities to borrow more money from the Alberta Capital Finance Authority, because the debt limits for these bodies are recorded separately from the municipality and are larger as a percentage of revenue (200% for RSCs vs. 150% for municipalities). Regional Service Commissions play a major role in the delivery of services to municipalities. They lower the cost and/ or increase the quality of utilities services for municipalities by delivering these services on a regional basis through a regional administrative body. The use of RSCs allows Albertan municipalities to increase the quality of drinking water, something that is often a challenge for small urban and rural municipalities. RSCs are very significant in terms of their role in constructing and managing regional water and sewer infrastructure in Alberta. There are 69 RSCs, and the majority of these are in the water/wastewater/waste management service areas. In an interview, an official from the Ministry of Municipal Affairs was not able to provide a precise measure to quantify the significance of RSCs in terms of their role in municipal debt, but the official did note that the majority of debt limit extension approvals made by the province are for RSCs that require start-up capital for the construction of infrastructure for water/waste water utilities. In terms of administration, having utilities managed by a separate entity frees up administrative capacity for other initiatives. Moreover, RSCs have a higher debt-limit ratio as a percentage of revenue. RSCs have become increasingly important in Alberta for the delivery of potable water. Several years ago the government initiated the Water for Life Strategy, which came from a policy that high quality water should be available for all residents of Alberta, no matter where they live in the 11
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 and 10: Table 1.0 Very dissatisfied Somewha
Page 11: 6. Maintain Regulation While Increa
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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