Council is eying changes to the city’s debt management policy that may mean smaller property-tax increases in the long run.
Coun. Sheena Hughes brought forward a motion at the Dec. 12 meeting to change the way the city puts its debts on the books, arguing it would lead to greater transparency.
Currently, when the city takes on debts for capital projects, those debts get repaid through a tax increase. When the debt is paid back in full, those payments typically don’t come off the property-tax bill. Instead, those annual payments are redirected to the city’s capital funding formula to cover the lifecycle maintenance costs of the project and to fund new projects.
Two exceptions to this process in recent years have been Servus Place and Ray Gibbon Drive. Debt was handled differently in those cases to be separate from the funding formula.
But Hughes argued all capital debt should be treated the same way, so as to increase transparency of what the city is doing with tax dollars. Her motion would effectively allow the tax increases to come off the property taxes once the debt has been paid off.
She used the analogy of car payments to make her point, noting the city’s current formula is akin to taking on a debt to pay for a new car, and having the dealership continue to collect the debt payments for the car once the loan itself has been paid off.
“The result is when we do this, we have a permanent tax increase for a temporary debt payment,” she said.
But changing this aspect of the city’s debt policy could have other repercussions. An administrative report notes the city’s capital funding formula currently includes three components: long-term debt, capital asset lifecycle reserves and pay-as-you-go. The last component is basically the money left in the pot after the first two components have been paid for, which council can direct as one-off payments to address various capital needs.
Finance director Diane McMordie said with one of those three items removed from the formula, it raises the questions of whether the other two should be treated separately as well.
“If you really want to do this, it really questions the whole capital funding formula,” she said.
Council unanimously passed Hughes’ motion, directing administration to come back to council with some options for how to achieve the change by the third quarter of 2017.
