Borrowing rates

Province Increases Municipal Borrowing Rates

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Talk about a financial blind spot.

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At the end of 2021, the province changed the capital borrowing rates it offers to municipalities.

The revelation was made public at Strathcona County Council’s Priorities Committee meeting on February 8, as elected officials discussed updating its on-reserve policy more broadly.

District 4 Com. Bill Tonita said the county only received written notice of the major provincial change – a letter sent in the mail. He noted that this provoked a strong reaction among municipal colleagues as he attended an AUMA meeting earlier this month.

“Until very recently, we were getting a preferential rate, but all of a sudden, through some behind-the-scenes work, they just changed that structure, which will cost municipalities a lot more in the future,” Tonita said Tuesday. .

Chief Financial Officer Jennifer Cannon confirmed that Alberta Capital Finance has closed and the Government of Alberta is now overseeing its operations. While still able to take advantage of low fixed lending rates, the change caused lending rates to increase from around 0.50% to 0.75%, which the CFO called disadvantageous.

“While interest rate increases may seem insignificant, when applied to a large capital project, they have a profound impact on the cost of borrowing,” Cannon said. The news.

This increase in the borrowing rate could have a major impact on proposed capital projects that have not yet been approved by council, such as the indoor sports complex or the seniors’ hub.

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“To give some perspective, out of $10 million over a 20-year lifespan, that’s $1.5 million more than we would expect to pay for such a project and about $63,000 more per year. While $63,000 more per year doesn’t seem like a lot, when you look at $90 million installs, $60 million installs, it becomes a lot more to us,” Cannon explained.

Tonita wondered if it would be better to borrow from banks rather than the province, but Cannon noted that municipalities can’t always get a fixed rate for a longer period of time, usually capping at the mark. of the decade.

“(Banks) are also not able to compete with the (provincial) rates, but they are now one percent higher. One of the advantages of opting for the private market is that we can pay it off sooner, if we choose. I would say for sure we won’t rule it out and look at it, but it’s probably going to be beneficial for us to go and borrow from the government – ​​it just won’t be as beneficial as it was before,” Cannon said. Explain.

Minister of Finance: “Economic and fiscal uncertainties during the COVID-19 pandemic have prompted an assessment of the Government of Alberta’s financial risk exposure”

In the brief letter sent by Treasury Board and Provincial Finance, the province said interest rates on new loans to local authorities had been revised to “better reflect the market cost of borrowing for local authorities, using the rates of large municipalities on the bond market”. as an approximation of municipal costs”.

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“Historically, loans have been given to local authorities with low interest rates and other generous terms by the government either directly or through a provincial corporation. Unfortunately, Alberta can no longer afford to continue lending money to local authorities below market rates,” Lowell Epp, assistant deputy minister of finance, wrote in the letter sent to municipalities. “Due to the pandemic and other fiscal and economic impacts over the past several years, Alberta’s debt has increased significantly, and Alberta’s local authority loan program is funded by provincial borrowing. This change will help ensure the sustainability of the program in the future.

Premier Jason Kenney, left, and Finance Minister Travis Toews.  GREG SOUTHAM/Postmedia File
Premier Jason Kenney, left, and Finance Minister Travis Toews. GREG SOUTHAM/Postmedia File

Alberta is one of four provinces that provide capital loans to municipalities. Finance Minister Travis Toews said The news the new loan rates are more comparable to what other municipalities and local authorities in Canada pay their lenders.

“We continue to offer local authorities convenient financing at attractive rates and terms. The new interest rates remain competitive, but also reflect the credit risk the Province assumes when lending to local authorities. Economic and fiscal uncertainties during the COVID-19 pandemic prompted an assessment of the Government of Alberta’s financial risk exposure. This relatively modest change in the approach to lending to municipalities is the result of this assessment,” Toews said in a statement.

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Tonita did not hold back her frustration, noting that this is another example of the province offloading spending onto the backs of municipalities.

“The government just slipped this in. There was no major announcement saying oh by the way you’re going to have to pay more because we’ve changed how we work, we just sent you a letter and your rates just went up up,” Tonita said Tuesday. “Thank you, Jason Kenney, you’re always on our side.”

All capital projects previously approved by the board will not be affected by the rate change, as they are frozen.

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