City of Greater Sudbury staff want to borrow another $103 million

Better to borrow now, for future capital projects, than wait for interest rates to rise, says report to advisers

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Council will vote next week on a motion to increase the municipality’s growing debt load.

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At next week’s finance committee meeting, the board will vote on whether to borrow more than $100 million to take advantage of low interest rates.

“Long-term interest rates are currently at attractive levels for borrowing and are expected to rise, and the city has approved a number of council-approved financing plans for initiatives and projects approved in the 2020 budgets and 2021 that require debt to fund the project,” reads a motion to be presented at the finance meeting. “Be it resolved that the City of Greater Sudbury delegate to the Executive Director of Finance, Assets and Fleet the authority to guarantee debt in the amount of $103 million, for a term of 25 years, in order to take advantage of the low interest rate environment. to fund capital projects approved by the board.

The motion also says that debt repayment of approximately $3 million could be funded “from the capital holding account reserve for 2022, if necessary.”

Going forward, debt repayment would be added to the annual budget. There would be an impact on the tax levy, notes a staff report.

“The additional debt repayment budget of approximately $4,498,042 (would) be included in the 2023 budget, with a drawdown requirement for 2023 of approximately $1,876,146,” the resolution concludes.

As the staff report notes, interest rates currently hover around 3%. Borrowing now will save the city money in the long run.

In their report, the staff say that financial analysts forecast “that the Bank of Canada rate could rise three or four times throughout 2022. These are mainly the result of rate hikes planned by the Federal Reserve. in the USA. These interest rate increases are necessary to control the rate of inflation.

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Staff say that in late January, the Bank of Canada advised that Canadians should prepare for “a path of rising interest rates over the next two years to control inflation. Interest rates need to rise to get closer to the inflation target of 2% set by the Bank of Canada.

IMF staff expects the overnight lending rate to rise by a quarter of a percent in March.

Securing debt in 2022 rather than 2023 “should lead to lower interest rates, which means a lower cost of borrowing for the municipality,” the report notes.

Because there was no budget line for this debt in the 2022 budget, staff say it could be funded from reserves.

“As the budgeted amount required for this debt is not included in the 2020, 2021 or 2022 budgets, approval of the resolution will result in funding of $3,006,061 from reserves in 2022,” the report states. .

The money would fund several important projects, including nearly $60 million for redevelopment of beds at Pioneer Manor, as well as $43 million for a roads and bridges program.

“As funding strategies for these projects were approved by the Board in previous budgets, staff are seeking direction to secure debt in the first quarter of 2022,” the report noted. “The current interest rate environment provides the City with the opportunity to borrow the necessary funds for these projects to secure a favorable rate, which at current rates is approximately 3.08%.

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It would be the second major debt in as many years. In early 2020, the city issued $200 million in debt to fund a number of projects, including $90 million for the event center; $68 million for The Junction (East and West); nearly $31 million to fund the four-laning of Municipal Road 35; $6.9 million to fund work bridges and culverts; $2.2 million for playground revitalization; and $2.1 million for work at the McNaughton Terrace water treatment facility.

“The guaranteed interest rate at the time of issuance was 2.416%, which translates to an annual debt repayment of approximately $9 million per year from 2020 to 2050. As the costs of the debt decrease as a result of debt repayment, the decrease in annual debt repayments will be offset by a corresponding increase in capital contribution, in accordance with the City’s debt management policy,” the report states. “This allows the capital program to be increased, without impacting the operating budget or the tax levy.”

The finance committee meets on February 15 at 6 p.m. The public is invited to watch the live stream at tinyurl.com/4dtn3b3y.

mkkeown@postmedia.com

Twitter: @marykkeown

Facebook: @mkkeown

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