Long-term Debt Limits in Saskatchewan - Nipawin

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long-term debt to take advantage of these opportunities. Municipalities are also having to deal with aging infrastructure and are looking for additional financial capacity to maintain and upgrade their infrastructure. Constitutional Background A few points of constitutional background are important for framing the relationship between municipalities and the federal and provincial governments. The municipalities are “creatures” of the provinces; all municipal powers are conferred by provincial legislation. This has two important implications: • n Firstly, municipal powers cannot exceed those of the provinces, an issue that has become more pressing as certain large, metropolitan cities’ populations have far exceeded that of the smaller provinces. • n Secondly, municipalities cannot introduce bylaws that intrude into areas of exclusive federal jurisdiction (Stefaniuk 2007, 54). A further important point, now contained in the Interpretation Act, is that federal and provincial governments are not bound to comply with municipal bylaws, although they will generally make efforts to do so as a means of ensuring positive relations. Municipalities, however, are bound to comply with all federal and provincial legislation (Stefaniuk 2007). Municipalities are in the difficult position of having to provide basic services to urban residents, without having the autonomy to do a number of things, such as increase their debt thresholds without permission from the province. Urban governments vary in size and capacity, and some of these governments in Saskatchewan have voiced concerns that the current policy is not meeting their needs. It is not plausible, nor constitutionally possible, for the province to stop regulating municipal debt, and so it is essential that the policies and processes around debt-limits be designed to meet the needs of municipalities within these jurisdictional restrictions. Current Saskatchewan Policy Summary Debt limits in Saskatchewan are regulated by both legislation, and by an administrative body called the Saskatchewan Municipal Board (SMB). While debt limits in Saskatchewan are legislated, municipalities are expected to work very closely with the SMB to establish debt-limits consistent with their operational plans. Thus, many of the decisions around debt-limits are ad hoc and depend upon the ability of the municipality to work with the SMB to establish adequate financial plans. 4 Legislation and Regulations In Saskatchewan, three pieces of legislation and the Saskatchewan Municipal Board form the legislative foundation for long-term debt limits. Municipalities in Saskatchewan are governed by one of three pieces of legislation, depending on the municipality’s particular characteristics: 1. The Cities Act: governs municipalities with populations greater than 5,000. 2. The Municipalities Act: governs towns, villages, and rural municipalities. Populations range from: • n Towns: generally range from 500 to 5,000. • n Villages and resort villages: populations under 500. • n Rural municipalities: established on the basis of area, not population, and include any unincorporated communities (hamlets and organized hamlets) that fall within their boundaries. 3. The Northern Municipalities Act, 2010: governs towns, villages, and hamlets and other unincorporated northern settlements located in northern Saskatchewan. These pieces of legislation also spell out the requirements for long-term debt limits. For the purposes of this report, we will focus on urban governments regulated by the Cities Act and the Municipalities Act. Under the Cities Act, debt limits are determined by the Saskatchewan Municipal Board (The Province of Saskatchewan 2002). The board is responsible for reviewing applications and establishing the debt limits for cities, which are renewed every three years. If a city wishes to have a debt limit established, or its current limit exceeded, the SMB requires a resolution or bylaw be passed by city council indicating the size of the debt limit desired, or the amount of excess borrowing. As per the Municipalities Act, a municipality’s debt limit is equal to the total amount of own-source revenue for the previous year (The Province of Saskatchewan 2005). Determining debt limits falls under the jurisdiction of the Saskatchewan Municipal Board, which was established on October 1st, 1988. The SMB’s mandate is to decide on regulatory and judicial issues surrounding local authorities, including municipalities and school boards. The regulatory function of the SMB is to review debt obligations and provide oversight, particularly with respect to the financial health of municipalities. The Board’s judicial function is to adjudicate, at the provincial level, appeals from the general public in municipal matters relating to property tax, assessments, planning and development issues, and municipal orders (for example, property maintenance orders). Specific to municipal debt, the SMB reviews local authorities’ long term debt applications, which are subject to approval. This review process is intended to ensure the municipality’s financial stability, which provides assurance to taxpayers and lenders (Saskatchewan Municipal Board).
Within the SMB, the Local Government Committee is responsible for the review and approval of a number specific issues. Borrowing by a town, village, resort village, or rural municipality must be approved if it: • n causes the municipality to exceed its debt limit; • n is not repayable within a three year term; or • n is secured by a debenture issue. Also subject to approval are cases where the above municipal governments: • n lend money or guarantee a loan in an amount that causes the municipality to exceed its debt limit; • n enter into an agreement to purchase or lease capital property, if the term exceed five years; or • n share in the operating losses of a service, facility or project, if the term exceeds five years. In addition to this, the SMB is also responsible for approving: • n water and sewer utility rates for towns, villages, resort villages, rural municipalities and northern municipalities; • n investments made by the above local governments in certain securities not listed in the Municipalities Act; and • n local improvement projects pursuant to the Local Improvements Act, 1993. Finally, the SMB has the general authority to inquire into the financial, and other, affairs of a city, urban, or rural municipality when the local authority’s financial position warrants such an action. Challenges and Concerns To identify challenges and areas of concern among urban governments regarding Long-Term Debt (LTD) policy, a number of interviews were conducted with six municipalities, which will be identified here as Municipalities A, B, C, D, E and F, a representative from the SMB, and representatives from Municipal Affairs. The first municipality, Municipality A, indicated that a previous provincial government program, the Saskatchewan Infrastructure Growth Initiative, was very helpful for municipalities experiencing infrastructure needs related to growth. This municipality was experiencing increased costs due to a growing population, but was limiting risk by building smaller subdivisions to account for peaks and valleys in growth. A larger city, Municipality B, specifically mentioned cash-flow issues due to high growth in four sectors around the city all at once. However, this municipality indicated that they would not be interested in borrowing beyond the debt limit because of credit rating concerns. Specifically, the representatives mentioned developing innovative opportunities for revenue to lessen the need for additional debt. In particular, this municipality mentioned focusing on mill rate supported debt, rather than debt supported by federal gas taxes or utility rates, since mill rate supported debt is the prime concern for the city’s taxpayers. Municipality C noted that they were experiencing exceptional growth in both population and business, and that debt limits had held back their potential for growth. This municipality’s debt has increased significantly in the last ten years, in part due to a lack of provincial funding. Two projects have contributed to the debt limit cap: a water treatment plant and a health centre, even though these projects are both fully funded through own-source revenues. The water treatment plant is funded through utility rates and the health centre from the leases paid by medical professionals, such as dentists and optometrists. One recommendation from this municipality was to remove projects funded through own-source revenues from the debt limit calculation. This recommendation was also echoed by Municipality F; these officials felt that the current system is limiting, and would appreciate more clarity from the province as to how ownsource revenue is currently used in calculations. The final municipality we interviewed, Municipality F, is experiencing major resource related growth. This municipality has seen its debt level double in recent years. The municipal officials were most concerned about the potential for debtlimits to constrain future growth. Currently, the municipality is able to access sufficient capital through debt arrangements approved by the SMB. However, there is a concern that the SMB could inhibit growth by not permitting extensions in the future. The municipality expressed an explicit desire to be treated more autonomously and given more flexibility. For example, in the future there will likely be more infrastructure spending programs from the federal government, and the municipality needs to be ready to match those funds when they come available, otherwise it might miss out on an important opportunity. This point was also reflected by Municipality A. In terms of utility-related debt, it was suggested that perhaps the SMB should classify utility debt separately from regular debt; this would give the municipality more flexibility to grow. Utility debt can be larger since it is paid by service fees. All municipalities mentioned their dealings with the SMB. One representative noted that dealings with the SMB had been overwhelmingly positive, and that their administrators had received help making a debt plan and felt well-supported. One other representative noted that the municipality had not dealt with the SMB during her tenure. Three of the six noted that the time taken to complete debt limit increases was longer than expected. Representatives from the largest municipality, Municipality B, indicated that, since they had planned in advance, this delay was not a problem and that the whole process seemed quite smooth. Officials from Municipality A expressed that the time delay was a concern that could result in lost opportunities for growth. A potential policy recommendation mentioned by those from the larger municipality was that it would 5
Page 1 and 2: THE POLICY SHOP Long-term Debt Limi
Page 3 and 4: Executive Summary This report expla
Page 5: Introduction In Saskatchewan, many
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 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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