The question of whether to add $103 million in municipal debt will be voted on by mayor and council during Tuesday’s finance and administration committee meeting.
The new debt would result in an additional debt repayment expense of $4,498,042 by 2023.
The bulk of the new debt, however, has already been anticipated by the city’s leadership team and has been factored into various public economic reports, including last year’s S&P Global ratings, which reaffirmed the city’s AA credit rating.
“Only if staff believes it will be less cost to the taxpayer by going the debt route would staff ever recommend going the debt route,” said Ward 7 Coun. Mike Jakubo, who also serves as chair of the city’s finance and administration committee. “That’s a very key, key component of our debt policy.”
In some cases, he said that skyrocketing costs can make saving to pay for major projects more expensive than taking on debt and incurring the associated interest payments.
At today’s rates, the city anticipates securing an interest rate of approximately 3.08 per cent. The new debt, to be paid back over a 25-year-term, is broken down as follows:
- 2020 Roads and Bridges Program - $33 million
- 2021 Roads and Bridges Program – $10 million
- Pioneer Manor Bed Redevelopment - $59.9 million
Debt was an approved source of funding for all of these projects, Jakubo said, adding that the debt has yet to be issued. In the case of the 2020 and 2021 programs, which have already been paid for via reserves, the new debt will be used to top up the reserves they borrowed from.
“Our capital reserves are depleting, and we need to make sure we fulfill the commitment from the debt to replenish those reserves,” he said.
The road and bridge work included work on arterial and collector roads and bridges, he said, as well as surface treatment on gravel roads and $3.4 million for the Lively Sewer Treatment Upgrades and $1.5 million for the Frobisher Depot Salt Dome.
The Pioneer Manor Bed Redevelopment project was originally projected to include a debt load of $55 million, but pandemic-related impacts resulted in a revisited cost estimate that increased the project’s total cost from $58.1 million to $63.9 million.
The city’s long-term financial plan model proposed splitting the issuance of $71 million of new debt in 2022 and an additional $28 million in 2023, but staff has recommended shifting the full $103-million in debt (which also includes the revised Pioneer Manor amount) to this year in order to take advantage of low interest rates.
The city’s debt load has increased from $18.98 million in 2014 to approximately $251 million at the end of 2021.
The city’s most significant jump in city debt occurred in 2020, when $200 million was granted for a handful of major projects, including:
- Arena/Events Centre (Kingsway Entertainment District) $90 million
- The Junction $68 million
- Municipal Road 35 $30.8 million
- Bridge and Culverts $6.9 million
- Place des Arts $5 million
- Playground Revitalization $2.3 million
- McNaughton Terrace Treatment Facility $2.2 million
The interest rate secured for this issuance was 2.416 per cent, which results in an annual debt repayment of approximately $9 million per year over 30 years.
In 2017, the city approved a debt limit of 10 per cent of the city’s own-source revenue, which was a jump from the five-per-cent limit approved in 2013, but remained shy of the 25-per-cent limit the province imposed on municipalities.
Using their self-imposed threshold, the city has the ability to borrow a total of $695 million over 30 years at three-per-cent interest. At the province’s limit and a five- to seven-per-cent interest rate amortized over 20 years, the city could borrow a total of $1.1 and $1.3 billion.
The city’s total outstanding debt of approximately $251 million as of Dec. 31, 2021, as listed in the city’s proposed 2022 budget document, included:
- 199 Larch Street: $17.26 million borrowed, $1.75 outstanding
- Pioneer Manor: $10 million borrowed, $2.26 million outstanding
- This debt was secured in 2004 and is unrelated to the current bed redevelopment project, for which debt has yet to be secured
- Purchase of Falconbridge wells from Glencore: $2 million borrowed, $526,000 outstanding
- Purchase of Onaping wells from Glencore: $2.18 million borrowed, $1.1 million outstanding
- 1160 Lorne St.: $14 million borrowed, $10.31 outstanding
- Biosolids Plant: $46.78 million borrowed, $35.31 million outstanding
- Municipal Road 35: $30.8 million borrowed and outstanding
- Bridges and culverts replacement and rehabilitation: $6.9 million borrowed and outstanding
- McNaughton Terrace: $2.1 million borrowed and outstanding
- The Junction: $68 million borrowed and outstanding
- Kingsway Entertainment District: $90 million borrowed and outstanding
- Playground revitalization: $2.2 million borrowed and outstanding
An interview request Sudbury.com submitted with the city earlier this week seeking additional context regarding city debt was denied. Communications manager Maggie Frampton explained that it is against city policy for staff to discuss staff reports before they have been discussed by city council or committees and that the request would be granted following Tuesday’s finance and administration committee meeting.
Tyler Clarke covers city hall and political affairs for Sudbury.com.