To borrow or not to borrow, that is the question (apologies to Shakespeare).
Councillors are faced with a difficult decision. There are many opinions, not only on the wisdom of going into debt, but for what purpose.
Those of us who are financial advisers caution our clients as to the pitfalls of debt, and on the difference between bad and good debt.
The question of which is which can be difficult because emotions, and in the case of government, politics often cloud decisions. There are essentials which can be described as “needs” and others not so essential we call “wants”. Often these two get confused.
Currently in Sudbury, we hear that we “need” a new entertainment/event centre and other facilities, which have been identified by council, such as a new library and art gallery and new and widened roads.
Many might considered these to be actually “wants,” as they are not absolutely essential, regardless of what proponents might suggest, and there is limited evidence that they might generate a positive return on investment compared to other more essential “needs,” such as repair of our roads and other crumbling infrastructure or improvement and access to recreational services and existing facilities such as parks and playgrounds.
An argument we hear frequently is that we can do both – to “have our cake and eat it, too,” — by simply borrowing, especially since the cost of using loaned bank money is so low. However, even if the interest rate is zero, you still have to pay back the principle. Just because our federal and provincial governments are deeply in debt is no reason for us to follow suit.
How about making use of reserves? Sounds good, but the reserves are there for a purpose, like we have just seen with the snow removal going over budget and reserves having to be used to make up the shortfall. It is the reason we suggest that everyone should have an emergency fund, and not just a line of credit, another form of borrowing and debt that benefits only the bank. There is only so much money to go around, whether an individual or government, and creative accounting can only go so far as eventually “the piper must be paid.”
We are also told that some of our “legacy” projects, such as a new library and art gallery, will make our city more attractive for potential new residents, but we are provided little evidence. Job opportunities are what can build population and not likely to be created by new municipal buildings.
Before any decisions are made it would be prudent to determine what people really “want” and feel we actually “need” and not those suggested by special interest groups whether they be private or public organizations or city management and staff.
It is suggested that every councillor hold well publicized ward meetings to determine what the citizens feel before any decisions are made. Our city is in a no-growth situation, and we must be responsible with the resources we have and with whatever money we feel may be necessary to borrow to achieve the quality of life for the majority of our taxpayers throughout the entire City of Greater Sudbury. The time to act is now so we may not regret later.
John Lindsay
partner, Financial Decisions Inc.