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Changes proposed to St. Albert's debt management policy

City should be 'debt astute' rather than 'debt averse,' councillor says.

City of St. Albert administration has proposed significant changes to the policy dictating how the city manages its debt, in an effort to avoid swings in property tax rates for residents.

It comes more than a year after council held a special committee of the whole meeting to discuss the city's use of debt to fund projects.

Coun. Mike Killick said council and administration's debt discussion this term has been the “right direction” for the city to take.

“We can be 'debt averse' versus 'debt astute,' and I think this has kind of helped us shift our mind to that astute side of the equation,” he said. “It's all about timing and being able to use it and plan ahead.”

“We've got some really key things on our to do list that we really need to get after ... [and] this policy will help guide us in that direction.”

On Tuesday, council's committee of the whole heard the first of two proposed major changes is the creation of a new internally set limit on how much annual debt payments can be budgeted for each year. No such limit exists in the policy now, but the proposed limit for debt servicing (payments) “shall not exceed 18 per cent of the city's consolidated operating expense budget.” 

However, a report to council written by city financial manager Suzanne Findlay and senior business analyst Stephen Graham, says the 18 per cent limit “excludes any amount budgeted for existing debt servicing,” which means the debt servicing limit every year would be 18 per cent of the total arrived at after subtracting planned debt servicing payments from annual operating expenses. For example, the city's 2024 operating expenses total $254.3 million, and debt payments make up about $12.4 million of that amount, so an 18 per cent debt servicing limit for 2024 would be roughly $43.5 million based on a total operating expense of $241.9 million.

The 18 per cent limit is for all debt servicing payments, while tax-supported debt servicing payments will be limited to 12 per cent of the city's annual operating expenses minus already budgeted debt payments.

“The new limits ensure that not too much of our budget is allocated to fixed debt payments to position the city to be financially resilient and able to respond to external factors and emergencies,” Findlay and Graham wrote.

The other major policy change change presented to the committee of the whole on June 11 was the city will continue to budget annually for debt payments even after a tax-supported debenture (project) is paid off, rather than property taxes being reduced accordingly, and those funds will just be added to the city's tax base moving forward.

This means that, for example, if the $901,000 the city will pay this year to service the debt of Fire Hall No. 4 was the last payment the city needed to make before the debt was fully paid off, the city's annual budget in 2025 wouldn't be $901,000 less, as the city would continue to collect the $901,000 in property taxes and use those funds towards debt servicing requirements for a new project the city is just beginning to pay back.

This change, according to Findlay and Graham's report, is “to mitigate tax swings.” 

“To mitigate tax swings as a result of debt retiring or new debt, any 'savings' due to the retirement of a debenture will not be used to reduce the tax levy; instead the budgeted funds will be transferred to [the city's capital reserve] until such time as new debt is added,” the report reads.

“[Those funds] will then be used to offset the new debt servicing so only the difference between the old and new debt servicing will impact the tax base.”

Diane McMordie, the city's chief financial officer, told the committee this change also facilitates the concept of “debt laddering,” which is the idea of the city aiming to take on new debt shortly after older debt is paid off to limit the impact on property taxes.

Coun. Sheena Hughes said during the meeting she supported the policy changes because they take into consideration the impact that long-term debt has on property taxes.

“This [considers] how it's actually going to affect the people that are paying for it, and it's also trying to decrease our risk once we take on additional debt,” Hughes said. “I think this has actually been thought through very carefully from that lens, which I really appreciate.”

“Ultimately the people who have to pay for it want to make sure that what's being handled is not going to have unexpected surprises.”

Likewise, Coun. Natalie Joly said the changes were “excellent.”

McMordie did say the policy changes won't solve the issue facing the city where many of the major infrastructure and recreation projects planned for the next 10 to 20 years may need to hold, as the city likely can't take out the necessary debt to fund all of the projects at the same time.

The changes were approved unanimously by the committee of the whole, and will need to be approved again in an upcoming council meeting.

Jack Farrell

About the Author: Jack Farrell

Jack Farrell joined the St. Albert Gazette in May, 2022.
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