Long-term Debt Limits in Saskatchewan - Nipawin

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province (Government of Alberta). The province has been providing up to 90% grants to municipalities to set-up RSCs to deliver water on a regional basis because this increases the quality and reduces the costs of infrastructure for municipalities, thereby reducing demand on the province for infrastructure dollars. Although costs for the municipality have been reduced, municipal residents have seen their water costs rise because they are now paying the true cost of water. This has been somewhat problematic in that some residents are upset with cost increases. In some cases, water bills may have increased by as much as 500%, which is incredibly difficult for those customers that were not prepared for the increase, nor given time to adjust their water consumption habits. However, in the long-term, the municipalities and residents will benefit in that infrastructure will be sustainable and consumption will be curbed. RSCs are not just used for water services. They are also utilized for the delivery of sewer, waste management (recycling and solid waste), community planning, and even public transportation. Wherever there is a public service that a number of municipalities within a region perceive as a benefit, and where these municipalities are interested in working together, an RSC may be utilized. Water, sewer, and waste management are the most common forms of RSC. Why are Regional Service Commissions so Common in Alberta? Government grants have incentivized the development of RSCs. The official with Alberta Municipal Affairs noted that many of the RSCs would probably not have been created if it were not for significant provincial grants to assist with setup costs. For example, the Water For Life Strategy included up to 90% grants for the set-up of water service delivery RSCs. Other grants have been made available for sewer, and waste management infrastructure. Organizing the delivery of services in this way has made possible for some fairly significant achievements in terms of service delivery. For example, one major infrastructure project involves the piping of water from Edmonton, several hundred kilometres away to Vermillion, servicing many jurisdictions along the way through a modernized web of service commissions. However, it is important to note that these would not likely have taken place without major provincial support. Benefits and Challenges of Regional Arrangements When asked about whether regional bodies such as RSCs, or other such regional partnerships for the delivery of utilities services in Saskatchewan would be beneficial, one official with the Ministry of Municipal Affairs in Alberta noted that some kind of regional service mechanism is likely a good idea, but the key is to provide an incentive, such as covering start-up costs, to develop them regionally and to make them competitive. This official thought that it was quite likely that many municipalities would fear the loss of control over regional entities, as well as the loss of jobs within their community, or even the idea that water or some other service 12 would potentially come from a facility in another community. These challenges would need to be overcome before a regional service delivery option could be feasible. This official suggested that regardless of the challenges and hurdles, the benefits far outweigh the costs for smaller municipalities that would be able to access higher quality services for their residents, and reduce infrastructure costs through some form of regionalized service delivery mechanism. This official emphasized that though RSCs are a useful tool, they should only be one tool in the arsenal of municipalities experiencing growth, and that there are other options. The key point is that municipalities need to build capacity. RSCs provide for greater utility debt flexibility in the longterm because they have a larger debt threshold. Alberta’s legislation says that RSCs are entitled to a debt limit of 200% of revenue. But since RSCs do not have revenue when they begin operating, they require provincial approval of a debt-limit extension to give them time to set-up and begin delivering services to earn revenue. Only those municipalities that have the capacity to set up an RSC with a solid business plan, including 5 year projections on operating a capital budgets, will be granted base-extensions for up to five years to get them operational. Thus, the ability of municipalities to take advantage of this type of mechanism largely contingent upon financial and development capacity. Regardless of what the debt-limit is in legislation, the government of Alberta works with municipalities and RSCs to ensure that they have solid business plans and organizational capacity. The Alberta Government is examining options to give municipalities more autonomy, such as greater debt limits, but would likely increase reporting requirements, such as quarterly reporting. An important feature of this method of service delivery is increased operational capacity. Many of the RSCs have their own dedicated staff including a chief administrative officer (CAO). It was noted by one official that these RSCs were the most effective because they had the management capacity to operate as an effective business. Another regional mechanism that may become more common as growth pressures increase is the Municipal Controlled Corporation. Many municipalities would like to convert their RSCs into municipal controlled corporations. RSCs are not permitted to make a profit, whereas Municipal Controlled Corporations are. Examples of this are Enmax in Calgary. Municipal Controlled Corporations are over 50% owned by a municipality. Although regulated, these corporations can raise funds, and sell-stocks, so long as the municipality maintains control of them. This could be problematic for the province if a significant number of municipalities created municipal controlled corporations, and if those corporations experienced significant financial hardships, as the province could potentially be liable for any losses. The province has much better capacity to regulate the use of RSCs than it does Municipal Controlled Corporations.
Table 2.0 Comparison with Saskatchewan Who approves borrowing What are the restrictions on borrowing? What is the turnaround time on applications to borrow? Province Minister Board Restrictions Turnaround Nova Scotia Yes 1 n/a • n 30% debt-service limit • n 15% debt-service limit used as a benchmark by NSMFC • n utilities debt not included in calculation 2-4 weeks Manitoba Yes 2 Yes 3 $61 million in debt on tax-funded capital expenditures, and is presently moving • n Winnipeg may carry no more than to pay-as-you-go financing 10-30 days Alberta Yes 4 n/a Saskatchewan No Yes • n Calgary, Edmonton, Medicine Hat & RM of Wood Buffalo: maximum debt load of 2 times municipal revenues; debt service ratio of 35% • n all other municipal governments: maximum debt load of 1.5 times municipal revenues; debt service ratio of 25% • n Municipalities: 100 % of previous years revenue • n Cities: Determined in consultation with SMB and expressed as a percentage of revenue (very ad hoc in nature). 1-4 weeks Varies Notes 1) Save for borrowing from capital reserve fund 2) For the City of Winnipeg 3) For all other urban areas 4) For debt limits that exceed legislated limits. Summary of Alternative Service Delivery Arrangements: An Alberta Perspective The use of alternative service delivery arrangements in Alberta has proved useful to both municipalities and for the province. For the province it has created a venue through which to standardize the delivery of certain services, including potable water, among municipalities. It has also created service delivery capacity among municipalities, which could potentially reduce the demand for grants in the future, especially among self-sustaining RSCs. For municipalities, the adoption of RSCs has improved the quality of some services, reduced infrastructure costs for the municipalities, and created regional economies of scale. Success in this area was only possible because of a willingness on behalf of municipalities to work together, as well as leadership and support from the province in the provision of grants for the creation of RSCs. Some RSCs have been challenged by financial capacity, administrative capacity, and other issues. Others have been hugely successful, and some have even created an administrative identity that has become separate from that of the municipality. It is important to note that RSCs are only useful insofar as municipalities are committed to investing in their administrative capacity, and if the province is willing to support their development. They may be a potential opportunity for reducing utilities-related costs for municipalities in Saskatchewan, but they will only be part of the solution. Comparison with Saskatchewan The table above compares municipal debt policy in Saskatchewan with the three comparator provinces. It is interesting to note that a municipal board that regulates municipal debt is only present in Saskatchewan and Manitoba. In Nova Scotia debt is regulated by the Ministry responsible for municipal government, and in Alberta, only municipalities seeking debt-level extensions above legislated limits require ministerial approval. Each province differs on their debt-limit calculation formula. Nova Scotia is the only province we analyzed where utility debt differentiated from other municipal debt. As well, in Nova Scotia, debt-limits are regulated largely by a service limit as a percentage of revenues, rather than by a total debt limit as a percentage of revenue as is the case in the other provinces. 13
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 and 12: 6. Maintain Regulation While Increa
Page 13: commissions for various reasons: th
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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