REGINA — The City of Regina’s debt will have skyrocketed by the end of this year, trampling on many of the municipal government’s own benchmarks. Still, the city’s director of finance calls the debt conservative.
The cost of the new stadium and wastewater treatment plant will propel Regina’s debt to $275 million by year’s end from $79.1 million in December 2013.
The debt is expected to peak at $363 million by the end of 2015, when debt from both projects overlap.
Despite these jumps, the city will remain under its debt limit of $450 million.
“We think the debt that we currently have and that is coming up in the future, based on the two big items, is reasonable and we have the plan to pay them off,” said June Schultz, director of finance. “So we feel it is affordable ...”
The payback periods for the stadium and the wastewater treatment plant are 30 years.
The high cost of these projects will bump the city above three of its four debt ratio benchmarks this year. These are targets set by viewing debt in relation to other financial indicators (like debt payments as a percentage of total expenditures).
Schultz doesn’t see that as cause for concern — at least not yet. She said it is OK for the ratios to be above their targets for a short period of time, which is what the city intends. Only one debt ratio is projected to stay over its benchmark through 2015.
If, however, that over-extension continues, the effects could trickle down to residents.
The city currently boasts a high credit rating, which is central to Schultz’s confidence over Regina’s debt levels. Its major threat right now is the city’s unfunded pension liability.
If the city surpasses its debt ratios longer than expected, that could also impact its credit rating, which in turn influences debt financing and interest rates. The city would then have to figure out how to fund increases in interest rates, through potential tax hikes and reduction in services, for example.
The debt ratios also influence, in part, high-level city council decisions on funding and delivering municipal services and capital projects.
These scenarios are all maybes, and the debt report presented to the Finance and Administration Committee on Tuesday doesn’t alarm Coun. Bob Hawkins.
“I think that people are concerned, rightly, about debt, but if they understand we have streams of revenue that pay for the debt through time and if they understand that the debt is to produce a capital asset which will go on providing facilities through time, it helps to understand that that’s a prudent debt, a wise debt to make,” he said, likening it to a house mortgage.
“I’m also satisfied the city is paying attention to its debt level, is cautious about taking on additional debt, and will continue to be cautious in the future.”
The city is beginning work on its first long-range financial plan, which will encompass a review of its financial and debt management policies to ensure financial sustainability going forward.
The current debt limit is in place until December 2016, when city council must decide to change or maintain it. The $450-million ceiling was arrived at after two hikes, in 2012 and 2013. Before those changes, the debt limit was $200 million.