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No red flags with Greater Sudbury debt, economist says, but rate of growth is unusual

With city council approving a municipal debt increase of $103 million last week, Sudbury.com reached out to Lakehead University economist Livio Di Matteo for an arm’s-length professional perspective

There are no red flags inherent within the city’s anticipated $355-million debt load, but it is unusual how quickly city council has ramped up municipal borrowing.

So described Lakehead University economist Livio Di Matteo upon reviewing the city’s plan to borrow another $103 million, which city council approved last week. 

While the city’s total debt load isn’t terribly alarming given its broader context, he cautioned, “what would raise eyebrows is just how quickly they ramped up debt from 2014 to 2022.”

During this timeframe, the city’s total debt load increased from $18.98 million to what is now an anticipated $355 million once the latest round of debt is secured this year.

Although the city has the ability to borrow a total of approximately $695 million under their self-imposed debt threshold and as much as $1.3 billion at the province’s limit, Di Matteo said that further borrowing should come with caution. 

“I guess you could, but the question then is, you’re treating it almost as free money and that’s a bit of a problem because that tends to distort investment decisions,” he said.

“When interest rates are high you tend to do a better job of deciding what the benefit of a project is and what the cost is and what its contribution to your community is going to be.”

The low interest rates of recent years has been a key point city staff have used to justify borrowing at this time, which is in keeping with a city policy for staff to only recommend debt in situations where the cost of taking on debt is less than the cost of saving up money in a reserve fund and undertaking the project years down the road.

“The argument that if you want to build infrastructure now’s a good time tomorrow, it’s not a bad argument to be making,” Di Matteo said. 

“At the same time, by having so many large projects all at once coming into the Sudbury area, probably any savings coming from lower interest rates relative to borrowing later will probably be eaten up by higher costs of construction and labour as those prices are bid up by the additional demand in the region.”

Major projects include the Kingsway Entertainment District ($90 million in debt), The Junction ($68 million) and the Pioneer Manor bed redevelopment ($59.9 million). 

“Politicians like capital projects,” Di Matteo said. “They like ribbon-cutting ceremonies, and everyone likes to leave a legacy of accomplishment of large buildings, but sometimes that also comes with other costs and you do have to be careful.”

As for comparing Greater Sudbury to other municipalities, Di Matteo pointed to the latest BMA Management Consulting Inc. Municipal Study, which ranks the city as carrying the second-highest total outstanding debt per capita among Northern Ontario’s five most populous municipalities. In order, this raking is:

  • Thunder Bay: $1,889
  • Greater Sudbury: $1,543
  • Timmins: $1,090
  • North Bay: $1,036
  • Sault Ste. Marie: $110

By adding $103 million to municipal debt, Di Matteo said Greater Sudbury will become the highest ranked among these municipalities. Among municipalities throughout the province, the average debt per capita is $685 and the median is $441.

The city’s broader financial position (financial assets less liabilities) per capita fares much better, he said, with Greater Sudbury sitting at $1,297 against a Northern Region average of $1,022 and median of $1,245. 

Greater Sudbury also has some wiggle room by way of taxes, Di Matteo said, noting, “Sudbury’s aren’t as high as Thunder Bay or Timmins – they’re certainly lower than North Bay, but they’re higher than the Sault … so they could always raise taxes if that’s what they need to do.”

Di Matteo uses the same constant as city staff uses when comparing Greater Sudbury’s taxes to other municipalities: a specific single-family bungalow.

In 2021, this property owner would pay $3,453 in Greater Sudbury, which ranks the municipality near the middle of the pack among Ontario municipalities, whose average is $3,613 and median is $3,575.

Among municipalities with populations greater than 100,000, this property owner in Greater Sudbury pays the third least in property taxes among the 30 municipalities listed, behind Chatham-Kent ($3,262) and Windsor ($3,444). This group’s average is $4,269. 

When it comes to taxes paid on the detached bungalow, the five most populous Northern Ontario municipalities rank as follows:

  • Timmins: $4,450
  • Thunder Bay: $3,955
  • North Bay: $3,797
  • Greater Sudbury: $3,453
  • Sault Ste. Marie: $3,183

It’s unclear how big the current window to borrow money at low interest rates will be, with interest rates fluctuating in recent days and projected to increase in the long term. In a recent municipal report, city staff anticipated securing a 3.08-per-cent interest rate on the $103 million, which has since jumped to the 3.5-per-cent range, although they remain in daily conversation with lenders in an effort to secure as low an interest rate as possible.

“Who knows what’s going to happen to rates in the next month or two,” Di Matteo said. “They could end up paying a bit more than that.”

Tyler Clarke covers city hall and political affairs for Sudbury.com.