Long-term Debt Limits in Saskatchewan - Nipawin

Recommendations
Below are potential changes to policy and process that
could be beneficial to urban governments in Canada. These
recommendations have been informed by our understanding
of long-term debt policy in Saskatchewan, in other provinces,
and from surveys and interviews conducted with urban
governments and stakeholders in Saskatchewan. These
recommendations are meant to focus the attention of SUMA
on specific issues and options that, in our view, would address
the issues that we uncovered over the course this project.
Policy Problem 1:
A significant number of municipalities interviewed noted
that their debt capacity is insufficient to accommodate
future needs and growth.
Analysis:
In our discussions with municipalities and municipal
stakeholders, a number of issues arose that are related to
the concern over debt, and that inform our recommendation:
1. SMB in Practice: Under the current system,
municipalities must work with SMB to establish a debt-limit
when the debt-limit exceeds their current limit. The current
practice of the SMB is to work with the municipality to ensure
that a sound business plan is in place to ensure that the
financing of the municipality is sustainable. So long as debt
is sustainable as outlined in the municipality’s business plan,
the SMB will likely grant a debt extension. There were no
examples of municipalities being refused debt extensions
from the interviews and surveys, so this system, while
unpopular with some municipalities, appears to be providing
urban governments with adequate debt capacity on average.
Some municipalities suggested that including utilities-based
debt in the debt-limit formula is inappropriate because
utilities-based debt is funded by user fees, not mill rates, and
by excluding this type of debt, municipalities would have
greater capacity to access debt for non-utilities purposes
without having to approach the SMB for an extension.
a. The SMB approach to regulating debt is very ad hoc.
Municipalities can count on receiving a review of their
debt-management plans, and being granted a debt-level
extension so long as a plan is in place. Thus, the system is
ad hoc and flexible. Some municipalities were comfortable
with this, while others were concerned that the system
is unclear and potentially unpredictable, as they worried
about missing opportunities in the future if the SMB
decided not to grant the municipality an extension.
2. Infrastructure Needs and Additional Debt Capacity:
Concern over insufficient debt-capacity is most often
associated with the need for major infrastructure upgrades for
utilities such as water and sewer. However, in most cases it was
suggested that the municipality would not be able to afford
these upgrades without significant provincial or federal grants.
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3. Responsiveness: Some of the larger municipalities
were of the opinion that the current policy is a “one size
fits all” approach providing the same level of oversight to
larger municipalities with adequate professional staff as to
smaller municipalities without adequate capacity. These
municipalities would like to see the policy and practice of
debt-regulation reformed to recognize the various levels of
capacity among municipalities.
Recommendations:
It does not appear that the current system has reduced
the capacity of municipalities to access sufficient debt. So
long as an adequate business plan is in place, the SMB works
with municipalities to ensure that they can access debt. Thus,
the inclusion of utility debt is more of annoyance for some
municipalities than it is a hindrance to growth. What seems
to be the bigger concern among municipalities is the lack of
clarity around how debt-levels are determined, the rationale
for the inclusion of utility debt, and generally, the policies of
the SMB. Moreover, in cases where debt-levels are insufficient,
the municipality is often unable to service additional debt,
and thus is in need of additional municipal grants for
infrastructure rather than additional debt-capacity.
In order to address the above concerns, SUMA should
consider the following actions:
A. Work with the SMB to Develop Guidelines for
Municipalities: Approach the SMB about developing
a comprehensive guide to municipal debt to provide
municipalities with a thorough explanation of how debt
levels are calculated, application criteria, key terms such
as “own source revenue” and other factors that they should
consider. This could help alleviate some of the concerns that
municipalities have about obtaining adequate debt. Currently
there seems to be a high level of uncertainty among
municipalities about how the SMB works.
B. Request that the Province Develop a More Substantive
Policy: The survey data indicated that there are some
municipalities that are growing and will continue to require
additional debt capacity; they can handle additional debt.
However, there are others that cannot service additional debt.
The current system permits the SMB work with municipalities
in an ad hoc manner to determine if an extension should
be granted. If SUMA would like to advocate on behalf of
municipalities that are frustrated by this process, it should
consider requesting that the province change its policy
to provide greater long-term debt limits to municipalities
that demonstrate a capacity to manage greater debt, and
that are growing. The SMB could utilize a tier system, where
different tiers of municipalities are granted different levels of
debt automatically, and only need to approach the SMB for
maintenance of that status periodically. This system could
preserve the oversight and financial regulation of smaller
municipalities that cannot accommodate greater debt,
while providing greater capacity and flexibility to growing
municipalities. The current policy allows the province to
ensure that small municipalities maintain reasonable levels