Greater Sudbury’s skyrocketing debt burden in recent years is not something to ignore. Between 2014 and 2022, the city’s debt rose from $18.98 million to $355 million. That is a more than 1,700-per-cent increase.
Naturally, this has people sweating. The municipality’s rationale for adding so much new debt in such a short time to fund a variety of capital projects (including the Kingsway Entertainment District, roads and bridges and other projects) is to take advantage of low interest rates.
This makes logical sense, but emotionally, psychologically, $355 million is an enormous and scary number.
Whether the projects that have saddled us with so much new debt are worthwhile is not a question we will be tackling today. In fact, that question may be impossible to answer concretely until the numerous large capital projects the city has taken on are actually operating and we can see some real-world data.
No, today we are talking about the city’s massive new debt and whether that debt itself is a problem. Because debt, common wisdom tells us, is bad. We should not spend more than we make, make purchases we cannot afford or owe more than we can cover.
Stumping politicians, particularly those of a conservative bent, know this and they let the debt bogeyman out of the bag in every election cycle.
Their go-to method to do this is to compare governments to households. Their basic argument: the more debt a household takes on, the less financial flexibility the homeowner has to cover their cost of living. Paying more interest on more and more debt means cutting back in some other area — it means some level of austerity must be endured until the balance between debt and revenue returns to a more manageable level.
This makes sense, of course. It is very easy for individuals to take on debt; it is much harder for individuals to find new revenue sources. Households have very few ways to boost their earnings in any significant fashion.
And while this analogy between government debt and household debt might seem apt on the surface, it fails in one fundamental way: governments are not households.
With that in mind, city hall reporter Tyler Clarke reached out to respected Lakehead University economist Liveo di Matteo to get some context on what that debt means. We were somewhat surprised Di Matteo’s answer was the amount of debt raises no red flags with him, though the speed at which that debt grew, while not a cause for concern, is something to watch, he said.
The economist’s opinion is based, at least in part, on the fact the amount Greater Sudbury has borrowed is far below the city’s self-imposed debt limit of $695 million and even lower still than our provincially mandated debt limit of approximately $1.3 billion.
Even with taking on more than $300 million in debt, the city has ample wiggle room.
What’s more, global credit rating agency Standard & Poors has consistently given the city a high credit rating, most recently a AA rating in 2021, stating the economic outlook for the Nickel City is stable.
Further, S&P cited the city’s robust resource sector and “stabilizing” public sector as factors in its determination, and stated that despite the municipality’s ambitious capital plan, the debt burden is “very” manageable and liquidity will remain “very strong.”
S&P did not just pull its rating out of thin air. This is their business. And it is not solely the city’s debt that is factored into that credit rating, but also the city’s ability to pay it off. The city’s rating would have been downgraded if S&P saw a cause for concern, but neither the amount nor the city’s ability to pay impacted our rating. This is significant.
Di Matteo addressed the city’s ability to pay as well. Using data from the latest BMA Management Consulting Inc. municipal study, he pointed out the city’s ability to service its debt is best represented by the percentage of its total annual revenue the city must spend to cover what it owes. For Greater Sudbury, that percentage is 3.2, which is nearly a full two percentage points below the Ontario average of 5.1.
So, even taking on all this new debt, the Nickel City is still well-below the provincial average and well within its ability to pay.
As we stated earlier, governments are not households. They do not have the same limitations as households. Governments have an ability to earn or even to create revenue households do not, and governments can reallocate spending in ways households simply cannot.
Bottom-line, governments are not hampered by debt in the same way individuals are.
So while the public may be worried and politicians and columnists will use the debt as a cudgel with which to beat the government of the day, the people who actually understand economics and debt — the people who are actually experts in this area — tell us it is not as simple as “debt is bad.”
This does not mean we should not be concerned about the debt or about how our local elected officials are choosing to spend tax money, nor does it mean the capital projects we borrowed for are necessarily a good use of that money (some are, some we are not so sure about).
But it also does not mean that just because the number is big the sky is falling. Greater Sudbury can cover its debts. Whether we should have taken on that debt in the first place is another matter entirely.
Sudbury.com's editorial opinion is determined by an editorial board made up of senior staff.