Bradford West Gwillimbury Council has recommended approval of new long-term borrowing this year, totalling $48.462 million.
“It’s a large debenture,” noted Deputy Mayor James Leduc – but the amount, amortized over 20 years, actually represents a saving to the municipality, according to a report from the Finance Department, thanks to today’s lower interest rates.
The request for the debenture was presented in Committee of the Whole on Tuesday night. As the report noted, “Town staff have made best efforts to maintain adequate levels of cash flow for the past few years, however the need to have long-term financing in place for some long-term municipal investments is now required.”
Of the $48.462 million total, $11.858 million represents refinancing of the final 10 years of a 20-year debenture undertaken in 2011.
The remaining $36.6 million will be used to cover the costs of new water and wastewater infrastructure, as well as cost overruns on the new Bradford fire station. Nearly 86 percent of the debt will be paid by Development Charges (DCs) levied on new development; only 14.2 percent will be levied through taxes.
Treasurer Ian Goodfellow compared the refinancing of the $11.858 million to a mortgage renewal, noting that calculated at 3.25 percent interest, the borrowing will represent a savings to the town.
The municipality currently pays out just over $3.934 million per year for debt repayment, of which about $1.92 million relates to the 2011 borrowing. Refinancing at the lower rate of interest will cut that annual repayment to about $1.41 million – a saving of over $500,000.
Even with the additional $36.6 million in borrowing, the impact on taxes will be lessened since most of the payments will be covered by DCs, Goodfellow noted.
The Operating Budget currently includes nearly $700,000 for debt repayment; the new debenture is expected to cut that to $577,355 annually – although the savings may be higher.
“The actual rates look like they will come in comfortably below that 3.25 percent,” Goodfellow said, promising to report back on the final borrowing costs. “I do anticipate that I will have even better news.”
Coun. Peter Dykie Jr. asked about the impact on the town’s future borrowing capacity.
Goodfellow explained that the province has capped municipal borrowing at “25 percent of the town’s net revenues… We’re well within that allowance. We’re currently using only a fraction of the debt capacity limit.”
With its current annual revenues, BWG’s debt limit permits debt repayments up to $15.169 million per year. Even with the new $48.462 debenture, the town’s annual repayment will come to $5.95 million per year, the bulk to be paid from DCs – or less than 40 percent of the allowable limit, leaving “quite a bit of room,” said Goodfellow.
Coun. Gary Lamb wanted to know if the development community could ask for a refund on their DCs since interest rates had dropped so substantially. The DC background study was based on the higher rates.
Goodfellow pointed out that while interest rates have declined, the cost of infrastructure and construction has gone up substantially. “Overall, in a large picture scenario, thinking about all the costs… I wouldn’t expect that query to come forward to Council,” he said.
And if any project does come in under budget, that will be carried forward to reduce future DC rates, he noted.
As for the reduction in the town’s Operating Budget, due to lower interest rates on the taxpayer-funded portion of the debt, that will become part of the year-end surplus in 2021. The Operating Budget can then be adjusted, in future years.
“It’s fortunate that rates are quite low at this time. It is an opportune time to borrow,” said Mayor Rob Keffer.
He noted that $3.35 million of the new debenture will cover the cost overrun for the new fire hall on Melbourne, built “for the community that’s growing, the necessity for public safety” – but that neither the new rural works yard nor the Water Operations yard constructed at the same time required any additional borrowing.
Goodfellow agreed, explaining that the town leveraged its own Reserves and Reserve Funds to cover the non-growth portion of those costs.
Over the past 10 years, BWG has seen “lots of growth, lots of buildings we’ve put together, and we’ve only put $14 million on the taxpayer on the debenture side,” said Deputy Mayor Leduc. “That’s minimal.”
“New houses and new development and the people that are moving here are helping to pay for those structures,” through the DCs, said Coun. Lamb. “I think it’s a fair way to do it.”
Council voted unanimously to recommend approval of the debenture.
