Long-term Debt Limits in Saskatchewan - Nipawin

Introduction
In Saskatchewan, many municipalities are taking on
debt to finance the costs associated with development
and a growing provincial economy. One issue that has
recently become more important for urban municipalities
in Saskatchewan is the legislation surrounding municipal
long-term debt. At its 107th Annual Convention, SUMA
passed a resolution to work with the Ministry of Municipal
Affairs to initiate a review of the criteria for establishing longterm
debt limits. This report is an analysis of long-term-debt
legislation in Saskatchewan, as well as a stakeholder analysis
of the issues and concerns surrounding this policy. The report
contains four main sections:
1. An analysis of municipal long-term debt legislation in
Saskatchewan: This section examines the legislation governing
municipal long-term debt in the province of Saskatchewan.
2. A stakeholder analysis: To gain an adequate
understanding of the perspective of municipalities on longterm
debt policy, a stakeholder consultation and analysis
was performed utilizing a survey and a number of interviews.
Several urban governments were interviewed, and over 100
were surveyed. The purpose of this section is to construct
a definition of the problems that municipalities are facing
with regard to financial capacity and long-term debt issues.
3. A comparative perspective on long-term debt policy:
This section provides a comparative assessment of
the policies and regulations surrounding municipal longterm
debt in other provinces. The purpose of this section is
to provide examples of alternative policies used elsewhere
that could inform discussions on potential modifications to
Saskatchewan policies.
4. Recommendations: This section provides some
recommendations on how policies and processes might
be improved.
An Overview of Municipal Borrowing
Municipal expenses are generally funded in two ways:
internal and external revenue sources. Internal revenue
sources include: operating revenues; earmarked taxes,
reserves and reserve funds, special charges (improvement
charges or levies, lot levies, and other special fees), and
development charges. External revenue sources fall into
two basic categories: grants and borrowing. Grants are
transfers from the provincial or federal levels of government.
Borrowing is when the municipality accesses capital through
borrowing arrangements, and this practice has become
much more common as municipalities are expected to
deliver a greater level of services (Kitchen 2002, 193–202).
Municipal Borrowing:
Short-term Borrowing:
Short-term borrowing can be used to finance capital
expenditures or cover short-term deficits in general operating
budgets (Kitchen 2002, 202).
Long-term Borrowing:
Long-term borrowing is used for capital expenditures
only, and “is justified if one can reasonably expect the benefits
from the project to fall on future users, so that the financing
term will match the asset’s lifespan. The project is financed
by borrowed funds and the principle and interest charges are
repaid out of future operating revenues. This policy attempts
to make sure that future beneficiaries are also those who
bear the costs” (Kitchen 2002, 202). Borrowing is typically
controlled by provincial regulations. The reason for provincial
limits being placed on municipalities is that “municipalities
are creatures of the province and the provinces do not wish
to be responsible for unlimited municipal borrowing and
possible repayment of municipal debt” (Kitchen 2002, 202).
Borrowing is controlled through regulations such as those
that limit borrowing to:
• n Capital projects
• n Tax payer approved debt
• n Debt approved by provincial regulatory body
• n A specified percentage of revenue for financing debt
• n Limiting borrowing to a provincially controlled
“municipal fund” (Kitchen 2002, 202–203)
Every province, with the exception of Ontario, makes use
of a provincially-organized body that assists municipalities
with undertaking long-term borrowing. In these provinces,
municipalities “apply for funds through the province-wide
authority which totals up all of the requests for local funds
and issues long-term debentures against the authority itself.
. . When the authority receives the proceeds from the sale of
the debentures, it distributes the funds among the requesting
municipalities, usually on the basis of a loan agreement with
the municipality” (Kitchen 2002, 203).
Decisions on financing instruments, whether to borrow
in the short-term or long-term, and whether to take
on debt of any kind are largely made based on the needs
of the municipality, taking into account financial capacity,
interest-rates, level of growth, and other factors. Many
municipalities in Saskatchewan are experiencing growth,
and thus are making large investments in major capital
projects such as recreational facilities, sub-division
expansions, water and sewer, waste disposal, etc.
With relatively low interest rates, coupled with the recent
availability of federal and provincial stimulus funding that
provided matched funding for infrastructure projects,
municipalities in the province have been increasing their
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