City ponders debt financing

Meeting Oct. 30, councillors passed a motion from Ward 8 Coun. Fabio Belli that directs city staff to come up with a report on how debt financing could work, whether it be through municipal bonds or straight borrowing.

Belli said a recent KPMG report found that the city has a $700 million deficit between what it should be spending fixing up its roads and what it’s actually spending. And that figure is expected to increase to more than $1 billion over the next 10 years.

“We’re asking staff to come back to us and give us some options,” Belli said. “Right now, we’re just touching the surface of dealing with our infrastructure issues.”

Belli’s motion asks city staff to come up with debt financing options and where that money could be spent.

Money from the federal and provincial governments has largely dried up over the last few years, in the wake of a massive spending stimulus package the feds created to limit the effect of the 2008 recession. The stimulus contributed to large operating deficits, so the federal government has drastically cut such programs to get spending under control. The province is also struggling with a massive deficit and is reducing the amount of money its giving to towns and cities.

Those realities have stalled many of the city infrastructure plans, especially the Maley Drive extension project. The $120-million roads project would not only allow heavy trucks to bypass downtown, it would also open areas of the city to development.

That’s because it would greatly reduce the amount of traffic on The Kingsway, Lasalle Boulevard and Notre Dame Avenue. Development in those areas has been limited because existing roadways can’t handle more traffic.

“When we talk to residents, it’s the issue of roads” that comes up most often,” Belli said. “And it’s something we have to resolve; it’s something we have to move forward on and fix. With council’s support, hopefully we can proceed with this and get something done in 2013 to rectify the situation.”

Ward 11 Coun. Terry Kett, who chairs the finance and administration committee, supported Belli’s motion with some caveats.

“I want to be very pointed about this – Coun. Belli’s motion reads, ‘to research financing options,’ ” Kett said. “As long as (the report) we’re talking about here includes the consequences of debt, then I’m fine with looking at this.

“If you use debt financing, there are consequences. So if you borrow to do one project, you’re taking money out of the budget, and you’re putting a greater burden on the taxpayer in terms of interest.”

In a recent interview with Northern Life, officials with the Greater Sudbury Taxpayers Association also came out in favour of debt financing.

Considering the billions of dollars the city has in assets and the fact Greater Sudbury is almost debt-free, GSTA executive Brent Edwards said at the time that bond traders would give the city an excellent interest rate.

“When you go out into the financial community to try and float bond like this, they’ll be falling all over themselves to participate,” he said. “Because of the low debt-to-equity ratio, you’re going to have a stellar credit rating.

“We have a need, we have a very favourable financial climate, and we’re entering a period of what most people believe will be a period of unprecedented growth in our community.”

Municipal bonds could deal with both the need for new growth and the massive infrastructure deficit. And local companies the GSTA has talked to say they could easily do $100 million a year in infrastructure work, and increase of about $60 million compared to what’s currently being spent.

“We’re not advocating that they borrow $700 million and go crazy and build 82 arenas,” said GSTA president Dan Melanson. “We’re saying deal with the infrastructure deficit – water, sewer, roads, bridges ... That’s the core services municipal government is there to provide.”
 

At the Oct. 30 city council meeting, the city’s top financial officer, Lorella Hayes, said a report should be ready by spring.

“I believe, based on councillor Belli’s comments, that before April 2013 we’ll have a report ready for the finance and administration committee.”

For his part, Belli said the city needs to seriously consider options to address its infrastructure needs.

“We’re talking about a $1.4 billion deficit,” Belli said.  “We’re hoping staff will come back to us with some options – whether it be borrowing money, municipal bonds – whatever the alternative is. We need a solution so we can … improve our infrastructure and the issues we have throughout this community.”