When all the legal battles are done, Greater Sudbury will have the money to build a new arena, as well as the other big projects after the finance committee approved borrowing $205 million Tuesday morning.
While the projects are some ways away from being shovel ready, city finance director Ed Stankiewicz told councillors that 30-year bond rates are so low, it would cost very little to hold that money in an account.
Tuesday's 30-year bond rate was 2.63 per cent, Stankiewicz said, and the city would earn 2.6 per cent in interest on the money while it's in the holding account.
At those rates, the city would be paying just $30,000 a year in interest for each $100 million they borrow.
By borrowing the money now, he said, the city would protect themselves from the risk of rates rising and the big projects costing taxpayers millions more over the 30-year repayment term.
“Currently, short term (interest) rates are lower than the 30-year rate,” Stankiewicz said.
That is unusual, he said, and analysts expect long term rates to “correct” themselves and rise.
“Capital markets can change quite quickly,” he said.
Stankiewicz cited the example of borrowing for the biosolids and other projects a few years ago, when delays in getting approval saw rates rise and cost the city an extra $1 million.
When budget estimates were made for financing the new arena, he said the rate was estimated at 4 per cent, with a $5.2 million repayment each year for 30 years. But at 2.63 per cent, it would drop to $4.4 million, saving $800,000 a year – or $24 million over 30 years.
In response to a question from Ward 6 Coun. Rene Lapierre, city CAO Ed Archer said the money can be used for other projects, should council decide to change their plans.
Ward 11 Coun. Bill Leduc suggested increasing the amount to $350 million to take advantage of the low interest rates to allow them to do more road and other work, as well as buy a pothole repair machine and more snow plows.
“I’d like to see us borrow more money at this low interest rate,” Leduc said. “Then we’d have the money to manoeuvre.”
And Ward 1 Coun. Mark Signoretti suggested waiting to see if rates will go even lower. Stankiewicz told councillors that the rate had dropped since he wrote the report to 2.60 per cent. Why not wait to see if they drop more, Signoretti said.
“With our credit rating that we have ... you don’t see rates going even lower?”
Stankiewicz said it's possible, but economists are predicting a higher rate is coming for the 30-year bonds, and there was more of a risk of an increase than a decrease.
“We're getting 2.63 on a 30-year mortgage? I’ve never seen rates like this,” said Ward 5 Coun. Bob Kirwan. “There is a danger they will go higher, but I don’t think there’s much of a danger they will go lower.”
But Kirwan wasn't willing to increase amount, as Leduc suggested, since they haven't made the decision to move ahead with other projects yet.
Ward 2 Coun. Michael Vagnini wondered whether the borrowing is still affordable for taxpayers, considering major spending cuts expected from the provincial government in 2020.
“Next year, with the provincial cuts, are we looking at that?” Vagnini asked.
Archer said staff is working on plans on how to absorb the expected cuts, and some work has already been done because cities were first told the spending cuts were coming in 2019.
“Those will be choices you make during budget considerations,” he said.
If councillors want to move ahead with the projects, as they have voted to at the council table, this is staff's recommendation on how best to move forward, Archer added.
And Ward 7 Coun. Jakubo said the 2.63 or 2.60 rate is the one Infrastructure Ontario is offering. When the city puts out a tender, financial institutions will bid on the debt and the city will hopefully receive an even lower rate.
And Mayor Brian Bigger said interest rates haven't been this low for bonds in recent memory.
“These are some of the lowest rates we’ve ever seen, for projects we’ve already approved by council,” said Bigger.
The real risk is in delaying the projects, he said. Whatever interest rates do, construction costs are rising at double digit rates – the price of asphalt has risen 49 per cent alone since plans to build the Kingsway Entertainment District was approved, he said.
In the end, Leduc's plan to borrow $350 million was defeated, with the $205 million bond easily approved.
Only Signoretti and Vagnini voted no. Ward 3 Coun. Gerry Montpellier and Ward 12 Coun. Jocelyne Landry-Altmann were both absent.
The $205 million breaks down this way:
- Arena/Events Centre $90.0 million
- The Junction $68.0 million
- Municipal Road 35 $30.8 million
- Bridge & Culverts $6.9 million
- Place des Arts $5.0 million
- Playground Revitalization $2.3 million
- McNaughton Terrace Treatment Facility $2.2 million