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Budget 2019: Debt Strategies

Next week Council will be voting on a proposed financial strategy. It has to do with how we manage debt.

Information and a survey can be found by clicking here. Please let us know what you think.

There are two schools of thought when it comes to municipal debt.

Some say “future tax payers should pay for the facilities they use.” This means that debt is paid back over the entire lifetime of the facility it financed. If you pay debt off before the facility comes to end-of-life, then today’s taxpayers are paying more and future taxpayers are paying nothing: some see this as unfair.

Others say “we should pay as little as possible in interest.” This means that debt gets paid off quicker. Today’s taxpayers pay more, but the City itself pays less over the life of a facility.

Which school of thought do you fall into?

The City has often taken out shorter term debt than it needs to. Council has the option to refinance a bunch of loans into a single loan with a 30 year term (the facilities they are attached to all have usable life for at least that long). This loan would have a lower interest rate than most of the loans consolidated. And because it would be over a longer term, its annual cost would be significantly less. This would allow us to have an immediate tax reduction of ~4%. But we would need to pay an upfront penalty from reserves and would need to pay more in interest in the long run.

I’ve got more to learn about this proposal. But one thing is clear to me: we have work to do on the City budget. We need to make sure we are spending money more efficiently and better targeting it at community priorities. And we need to make sure that we are drawing revenue appropriately. This re-financing cannot be our primary financial strategy.

I strongly believe that we can achieve a 0% tax increase while investing more in crime prevention and roads. We can do this without re-financing any debt. I’ll be voting on budget items with this goal in mind. Restructuring our debt might be a good idea. But it cannot be the only way we tackle taxes.

I honestly don’t know where I will land on this. So I look forward to hearing your thoughts. Please comment below. But more importantly, make sure Council as a whole knows your thoughts by filling out this survey.