Establishing an appetite for debt, Greater Sudbury city council has increased municipal debt from approximately $19 million in 2014 to an estimated $327 million by next year.
The majority of this debt - $200 million - was approved in 2019 and secured the following year as a means of taking advantage of historically low interest rates and has been earmarked 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
“I do understand that some people have a general aversion to debt, but there are enough financially versed individuals around the table to know when it is a good idea and when it is not and we have only made smart debt decisions thus far,” city finance chair and Ward 7 Coun. Mike Jakubo said in emailed correspondence to Sudbury.com.
“Now is a good time to take on debt because we can get more work done sooner and at historically low interest rates, which we have the ability to lock in for 25-30 years. If we did this work on a year-to-year, pay-as-you-go basis as was done in the past, council would never be able to get ahead on the asset revitalization required to keep our assets in good usable condition.”
Ed Stankiewicz, the city’s executive director of finance, assets and fleet, said the timing of city council’s decision to take on debt was ideal.
“If you look at the $200 million we secured, that was the lowest rate for a municipality in all of Canada for a 30-year term,” he said. “Council got a rate of 2.416 per cent, which is extremely low.”
Since that time, he said interest rates have gone up a bit, and given the way things are going he anticipates a continued spike in rates for the next few years.
“Right now would be a great time to borrow, even probably until the early part of next year, but beyond 2022 the rates will be going up.”
Debt is already poised to become a topic of debate during 2022 budget deliberations, which are set to begin on Nov. 29.
During the city’s finance and administration meeting on Oct. 5, Ward 8 Coun. Al Sizer argued against the city taking on additional debt.
At the time, the city’s elected officials were debating whether to forward a handful of business cases to budget deliberations, ultimately deciding to include all of them for future debate.
Included in these business cases were proposed funding formulas that would require the city to take on additional debt to help fund a $69-million Municipal Road 55/Lorne Street renewal project and a $29.2-million twin pad multipurpose sports complex in Hanmer.
Factoring into next year’s $327-million debt estimate reported by Standards & Poor’s Global Ratings report on the municipality is almost $100 million in debt council approved during the past couple of budget cycles which the city has yet to secure.
Stankiewicz clarified to Sudbury.com that this includes $43 million for roads and bridge work approved in 2020 and $55 million toward the bed redevelopment at Pioneer Manor.
Greater Sudbury city council’s record for debt
Much of the current incarnation of Greater Sudbury city council was elected in 2014, a year that ended with a debt burden of approximately $19 million.
The makeup of city council remained pretty much unchanged in the 2018 election, when Ward 4 Coun. Geoff McCausland and Ward 11 Coun. Bill Leduc were introduced to council chambers.
City debt jumped by $60.8 million in 2015, when $46.8 million was financed for a biosolids management facility and $14 million was financed for the fleet/transit garage.
The city’s debt burden went on a downward trajectory for the next few years until the $200 million was secured in 2020. The following is the City of Greater Sudbury’s year-end debt totals:
- 2014: $18.98 million
- 2015: $76.93 million
- 2016: $73.13 million
- 2017: $69.14 million
- 2018: $64.97 million
- 2019: $61 million
- 2020: $256.57 million
- 2022: $327 million (Approximate)
In 2020, the City of Greater Sudbury paid approximately $6.3 million in interest on its debts, which was $3.67 million more than the city paid the previous year.
However, part of the rationale city council considered when approving the $200-million loan in 2019 was the assurance it would earn interest during whatever time it spends in a holding account, which would factor against whatever interest is paid.
Although the city didn’t have a figure available for interest earned on this sum of money in isolation, the city’s overall interest revenue in 2020 was $8.5 million, which is $3.97 million more than it earned the previous year.
Approximately $165 million of the $200-million loan remained invested as of this week, Stankiewicz said.
The City of Greater Sudbury is far from alone in debt
Municipalities are in a “fiscal imbalance” when compared with other levels of government, Laurentian University economist David Robinson said.
“Municipalities are providing the everyday nuts and bolts of people’s lives … but people don’t actually want to pay for them,” he said, adding that this results in infrastructure deficits that in some estimates total in the billions.
A couple of months ago, a City of Greater Sudbury report presented to mayor and council clarified that to maintain city assets in their current condition, the city would have to spend an additional $100 million per year.
“Rather than dealing with the immediate needs in terms of infrastructure, they’ve postponed it to the next council,” Robinson said, lobbing additional criticism at city council’s decision to move forward with the Kingsway Entertainment District instead of renovating the Sudbury Community Arena downtown.
The downtown project “would have done double duty” and resulted in the restoration of a historic building along with all of its associated infrastructure.
Instead, he said, “they’re building way out in the sticks and the result is they have to put in new sewer and water mains and so on, and they still have to repair the downtown infrastructure.”
Debt is not a sustainable tool in the long term, Robinson said.
“There is potentially a disaster coming for Sudbury if we stay on the path we’re on, and the disaster will creep up on us because what will happen is we’ll have less and less money for maintenance, you’ll get cutback for garbage service, you’ll get roads not being repaired, people will have to get used to worse roads.”
According to BMA Management Consulting Inc.’s latest municipal study for 2020, the City of Greater Sudbury’s debt situation is average among municipalities in its class.
Debt charges as a percentage of own-source revenue averaged 5.2 per cent among Ontario municipalities in the City of Greater Sudbury’s class in 2019.
At the time, Greater Sudbury sat at approximately two per cent, but Stankiewicz said the city currently hovers around the five per cent average.
As for taxation, the City of Greater Sudbury’s net municipal levy per capita was $1,707 in 2020, which the report considers on the high end of the “mid” range and greater than the average of $1,661.
More debt on the horizon for the City of Greater Sudbury?
In August 2013, city council of the day set a limit for annual debt repayment at five per cent of the city’s own-source revenue.
This amount was bumped up to 10 per cent by city council in 2017, which the city’s 2018 budget overview document clarifies is still well below the provincial limit of 25 per cent.
At the council-approved threshold, the city has the ability to borrow $695 million over 30 years at three per cent and remain within its policy guidelines, according to a report by city administration.
At the province’s limit of 25 per cent and a five to seven per cent interest rate amortized over 20 years, city administration estimates the city could borrow between $1.1 and $1.3 billion.
But, future decisions regarding debt will remain up to city council.