Long-term Debt Limits in Saskatchewan - Nipawin

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make sense to have debt limits indexed to the municipality’s revenue, so that as revenue increases the debt limit would increase automatically rather than the municipality needing to constantly re-apply for debt limit increases. Municipality C’s respondent mentioned that the SMB had been difficult to work with, as it provides an unwanted layer of redundancy and bureaucracy. This representative mentioned that they have a professional staff for planning and accounting that prepare applications, and although the application was eventually approved, the work the professional staff did to prepare the business plan was sent back multiple times with minute detail changes to ultimately arrive at the same conclusion. This municipality mentioned that the SMB should take into account the larger municipalities’ ability to handle their own affairs, particularly when those municipalities have professional staff capacity. The SMB could then take on more of a partnership or resource role for those able to prepare their own debt plans, while providing additional oversight for municipalities that lack capacity and need more assistance with application preparation. Officials from two of the other municipalities (D and E) were concerned about other levels of government imposing regulations on municipalities, leading to increased costs. For example, the federal government has recently changed water standards, requiring the municipalities to make expensive upgrades. No additional support for municipalities has been provided. One municipality’s representative noted that simpler grants would be greatly appreciated, as the current applications are complex and require either a professional grant writer or multiple rejections and revisions – both of these entail high costs. A number of municipal officials mentioned the concern that utilities-related debt is included in LTD calculations. The general perspective of these municipalities is that utilitiesrelated debt does not impact general financial capacity of municipalities because utilities are paid for by user fees, which rise as costs increase. For example, if a municipality makes upgrades to its water and sewer system, the costs associated with servicing debt and paying for the upgrades is paid for by user fees; the municipality’s ability to service debt for other purposes is not impacted. For this reason, many urban governments would prefer to see the policy around LTD calculation modified to remove utilities-based debt from the formula. In summary, the main themes raised by the municipalities were centred on autonomy, flexibility, and preserving growth. These municipalities raised concerns around the current “one size fits all” policy of SMB oversight, and recommended additional flexibility so that municipalities that have sufficient capacity can be autonomous and those that need more assistance with applications and financial monitoring can receive the support they need. By introducing more flexibility into the current system, the municipalities will have access to the resources they need during times of growth. 6 SMB Response The legislation does not clearly outline a rationale for the inclusion of utility debt in the formula for calculating LTD for municipalities. SMB was able to provide a basic explanation of the practice. First, utility debt is included in the LTD limit calculation as are revenues from the utility. Second, SMB is responsible for approving sewer and water rates, and it is important for them to be able to see that utility debt is supported by utility rates. The perspective of the SMB was that whether utilities are included or excluded from the formula should not be an issue; under the current system, it will not make a difference to the SMB when making a decision about debt extensions. The primary issue for SMB is that the municipality has a business plan for supporting the debt when they are asking for a debt extension. If the business plan for utilities-based debt shows that utilities debt is covered by utility fees, then the SMB will take this into consideration in determining whether to approve a debt limit increase. In response to the issue of lengthy approval times, the representative from the SMB indicated that it does take some time for the SMB to assess applications, in part because of efforts to undertake a comprehensive review that assesses all relevant factors. The SMB representative also noted that, in many cases, the received applications are incomplete and this results in further delays. The SMB works with municipalities to revise applications and repayment plans to ensure they meet all of the regulations. The representative from Municipal Affairs indicated that debt limit calculation is an area that they have flagged as potentially requiring review, and they are quite open to considering potential amendments to the relevant legislation. The representative mentioned that the department has also conducted some comparative work and may be open to sharing some of their research in this area. Survey Findings In order to gain an adequate understanding of the perspective of urban governments on the issues surrounding LTD policy in Saskatchewan, a survey was conducted. The survey was sent to all urban governments in Saskatchewan that had not already been interviewed or surveyed by other means. The survey highlighted further issues and challenges. The majority (127 of 135) of respondents represented towns and villages. Moreover, a majority of respondents represented communities of less than 1000 residents. A number of interviews were conducted with larger urban centers, and thus the number of small urban municipalities that responded to the survey was helpful in providing the research team with a better understanding of the issues facing urban governments of all sizes. Of the 135 urban governments surveyed, 91 reported that their population had been increasing. Growth rates were varied with 31.8% of respondents reporting a growth rate of less than 10%, 27.4% reporting growth of 10-24%, and 4.4%
Table 1.0 Very dissatisfied Somewhat dissatisfied Neither satisfied or dissatisfied Somewhat satisfied Very satisfied Responsiveness to your needs 11% (6) 6% (3) 15% (8) 20% (11) 48% (26) Timely service 11% (6) 20% (11) 17% (9) 20% (11) 31% (17) Clear communication 7% (4) 9% (5) 17% (9) 22% (12) 44% (24) Understandable decision-making process 9% (5) 6% (3) 15% (8) 28% (15) 43% (23) Simplicity of applications 9% (5) 20% (11) 17% (9) 28% (15) 26% (14) reporting a growth rate of 25-50%. Growth is a common factor among the urban governments in this province. Policy Clarity During the interviews, responsiveness to municipal requests for debt-limit re-calculations and clarity of rationale for debt-allocation were reported as challenges in the process for obtaining debt approval through the SMB. To gain a better understanding of the urban government perspective on the SMB, respondents were asked to rate their satisfaction with the SMB based on past experiences: As can be seen in Table 1.0, no apparent trends emerged, with respondents reporting a mixed level of satisfaction. On average it should be noted that more respondents were satisfied than were dissatisfied, which suggests that the interactions between the SMB and urban governments are generally positive. However, the mixed level of satisfaction does suggest that there are areas for improvement according to urban governments interviewed. For example, timely service and clear communication were two areas where urban governments would like to see the SMB improve. Perspectives on Utilities Debt The issue of utilities debt has been mentioned as problematic by some municipalities. To better appreciate the level of utilities-related debt in urban governments in Saskatchewan, respondents were asked to provide a rough estimate on the level of municipal debt currently used for utilities purposes. Over 58% or respondents reported that less than 25% of debt is currently associated with utilities. Utilities-related debt does appear to play a significant role in the debt of urban governments in Saskatchewan, but it does not comprise total debt capacity for the majority of urban governments: only 27% of respondents reporting utilities related debt of 50% or greater. However, 20% of respondents did note that utilities-related debt accounted for nearly 100%. In some cases, utilities debt does appear to be a significant factor, and this warrants closer investigation into the reasons behind these abnormally high utilities debt levels. Debt Capacity and Growth Respondents were asked the following question: Based on your expectations for growth, and any planned projects that you know about, do you believe that the current debt limit formula for your urban government is sufficient to meet borrowing needs over the next five years? A number of important issues and challenges arose from this question. Reliance on Grants: Many smaller communities are not eligible for loans to increase major infrastructure because they cannot service the debt. These small communities are heavily dependent upon infrastructure grants to make any improvements to infrastructure. Some of these municipalities are experiencing declining populations, or have already seen their populations shrink considerably. Infrastructure: Water, Sewer, Roads, and Recreation The most significant infrastructure need reported is water and sewer infrastructure. Most respondents raised the concern that water and sewer upgrades were very costly, and would far exceed their municipality’s current debt threshold. Most of these municipalities would not be able to proceed with necessary upgrades without increased debt, grant funding, or both. The second largest infrastructure challenge is the maintenance of roads, followed by recreational infrastructure. Both are a challenge, especially for smaller municipalities. The Challenges of Growth: Some municipalities reported that growth in population and size of the municipality has placed pressure on the municipal governments to increase capacity in utilities such as water and sewer. One municipality was experiencing growth of over 400 lots, and needed to upgrade infrastructure to accommodate; entailing a debt increase beyond current limits. 7
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: Within the SMB, the Local Governmen
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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