City's debt not out of line, finance official says

'I'm not uncomfortable with the current debt level. We're careful about it'

Michele Young / Kamloops Daily News
January 22, 2013 01:00 AM

As City council starts its department-by-department public budget discussions Tuesday night, the municipality's debt sits at $84 million.

That amount is expected to grow to $122 million in 2014 as big projects like the widening of Columbia Street, expansion of Highland Drive and wastewater treatment plant get rolled in.

Debts are being paid off at the same time, but that multimillion-dollar wastewater plant is boosting the total for a few years.

Still, it's an amount that finance director Sally Edwards says is conservative and reasonable.

"I'm not uncomfortable with the current debt level. We're careful about it," she said. The big decisions go to referendum or an alternative approval process, so the public does get its say, she noted.

The City of Kamloops owns $1 billion in assets - mostly land and buildings. Operating costs about $150 million a year.

Edwards likes to keep the cost of debt servicing - interest and paying down principal - at around 8.4 per cent of the operating budget.

In 2012, the City paid $12 million in debt servicing: $5.4 million went to interest and the remainder was principal payments.

A few months ago, Coun. Donovan Cavers suggested the City look at paying more out of taxation and less by borrowing to bring down debt-servicing costs.

The flipside to that argument is that residents taxed years ahead of time to accumulate enough money for a major project - say, a new water plant or a new sports building - might not get to use it by the time it's built.

The City tries not to borrow for repairs and maintenance of its roads, pipes and other infrastructure, but it does look at Municipal Finance Authority loans (which are at lower rates) for big-ticket items like the new wastewater treatment plant, or the Tournament Capital Centre facilities.

"The reason we're borrowing money . . . is these assets have a long life span of 15, 20 or more years," Edwards said.

"We make a conscious decision when we recommend borrowing. We don't make it lightly."

For every one per cent tax hike the City implements, it gains $860,000. A project like the new Aberdeen fire hall building and pumper truck cost $3.9 million - a 4.5 per cent tax increase if it had been funded strictly from taxation.

Victoria does set limits on how much B.C. municipalities can borrow, said Doug Stewart, assistant finance director.

That limit is 25 per cent of what the City takes in revenue - mostly taxes and levies. That amount last year was $145.7 million. One-quarter of that would be $36.5 million in allowed debt servicing. The City is at one-third of that, at $12 million.

That's not to say that Edwards and her staff aren't looking for other ways to fund big projects outside of loans.

For example, the more than $12-million needed to install water meters was "found" by spreading it out over three years and using gas tax money. No taxes, no loans.

The preliminary tax increase proposed for 2013 is 3.91 per cent (not including the supplemental items up for discussion in the three public meetings). Of that amount, Edwards has included a 1.25 per cent jump to start building up more money to pay for capital projects and maintenance.

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