Long-term Debt Limits in Saskatchewan - Nipawin

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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. 14 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
of debt, while permitting the province the flexibility to increase debt where feasible. If this is too ad hoc for municipalities, then a more precise policy needs to be developed so that municipalities can plan. C. Request that the Province Consider Removing Utilities Debt from Calculation: As mentioned above, Nova Scotia does not include water and electrical utilities debt in debtlimit calculations. Debt for these utilities is still regulated by province. Saskatchewan could do the same, and continue to regulate municipal debt through the SMB, which would ensure oversight maintained. However, this may, in some cases, provide greater flexibility to municipalities. D. Advocate for a Province-wide Solution to Infrastructure Needs: Many municipalities mentioned that they need to make major upgrades to water and sewer system, as per new federal regulations. Many of these municipalities cannot afford to make these upgrades without increasing their debt load, but cannot feasibly service debt at the levels needed to meet the new requirements . Thus, it appears that there is a need for a strategy to assist municipalities with developing sustainable infrastructure. Policy Problem 2: A number of municipalities are facing infrastructure challenges, and cannot afford to replace necessary utilities infrastructure such as water and sewer. Analysis: Our comparative research on Alberta’s RSC models, as well as our discussions with municipal officials in Saskatchewan highlighted the option of regionalized service delivery, which may make replacing infrastructure feasible for some municipalities. This is especially true for smaller municipalities in rural areas where it may not be possible for one municipality to build its own water treatment plant, but where collaboration on a regional scale might be achievable. It may also be easier for municipalities to access grant funding to build regional infrastructure, as was the case with the Sask Landing Regional Water Pipeline Utility. To summarize, the two options we examined are: 1. RSCs: As mentioned, municipalities in Alberta engage in RSCs to deliver services on a regional basis. This is potentially beneficial because it removes some utilities-based debt from the municipality to the RSC, creates efficiencies in service deliver, reduces costs, and allows some municipalities to access grants for service delivery through RSCs. With RSCs the municipality frees up administrative capacity for other activities. 2. Regional Service Delivery in Saskatchewan: One group of municipalities has regionalized the delivery of water purification and transportation. The Sask Landing Regional Water Pipeline Utility, which was created by a group of towns and RMs including the Towns of Kyle and Elrose, will treat and deliver potable water to the Towns of Kyle and Elrose, as well as to the residents of the surrounding RMs, and some major customers such as nearby Hutterite colonies and large farm operations (Infrastructure Canada). The Sask Landing Regional Water Pipeline Utility was set up because water quality was poor, and it was a solution that was recommended by SaskWater. The municipalities were able to develop this because of grant funding available from the federal and provincial governments, and funding costs worked out to roughly 1/3 municipal, 1/3 provincial, and 1/3 federal dollars. In the long run, because the utility is separate from the municipality, and because the costs are recovered on a fee for service basis, this should shift utilities related debt away from the municipalities, freeing debt capacity for other needs. One municipal partner suggested that this type of initiative, while it is innovative and has proved successful, would not have been possible without grant funding. Moreover, the willingness to work together with neighbours and create a third party organization was imperative to the success of this initiative, which is now shovel ready with pipes being laid in some areas. Recommendations: The above two examples are options for Saskatchewan municipalities to consider in addressing infrastructure challenges, especially water and sewer, which appear to be significant challenges in Saskatchewan. In order to address the above concerns, SUMA should consider the following actions: A. Survey Members About Regional Service Delivery: Survey members about their interest in engaging in regional service delivery arrangements. Determine the level of interest, as well as the perspective of members on how such an arrangement ought to be designed. B. Communicate with Municipal Partners: If there is an appetite among members, SARM should be approached to determine if their members have an interest in this. C. Approach Province about Funding: If there is an appetite for this, approach the province and federal government about targeted funding for setting up and implementing regional service delivery groups. It is clear from our research that regional service delivery arrangements require funding to be developed. Process Problem 3: A number of municipalities mentioned that the processes of the SMB could be improved and streamlined to better serve municipalities. Analysis: The municipalities we interviewed mentioned that streamlining and simplifying the application process would improve efficiency. This was also reflected in the survey data. Municipalities suggested that the SMB could be improved in the following areas: 15
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 and 14: commissions for various reasons: th
Page 15: Table 2.0 Comparison with Saskatche
Page 19 and 20: period after calculation time (The

Long-term Debt Limits in Saskatchewan - Nipawin

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