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1970s debt imbalance workout

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  • 1970s debt imbalance workout

    Now that we have the benefit of 20/20 hindsight, can anyone determine roughly how long would have taken the City of Edmonton to work its way out of the debt imbalance caused by its accumulated debt that it took on in the 1970s and early 1980s?

    Is there a rule of thumb for municipal borrowing beyond just matching debt terms to project life. As in, this piece of infrastructure will last 40 years so we'll issue 40 year debt.

    i.e. Was the city's debt sustainable in the low growth economy of the 1990s or was it still a drag?
    If it was still a drag, how much longer would it have taken had rising oil prices not come to the rescue?

    What I'm getting at is; that 'excess'* debt is easy and quick to accumulate but often slow and cumbersome to extinguish. It takes years, so cities (think Detroit, NY...) have to think financially out into the future quite a few years not just on a project by project basis but in terms of matching revenue streams.

    I'm guessing that in looking at cost/benefits of projects, their revenue streams look at averages and so indicate that a facility will generate an average sustaining cash flow over its life and as a result the project is deemed sustainable when in fact, during recessions cash flows may dip substantially.

    * I'm thinking excess debt would be debt that seems well worth taking on in good times but significant threatens operating and solvency in average times. (Average times are rare though.)

  • #2
    ^The fact that the City maintains a stellar credit rating I would believe demonstrates that it has been able to repay all outstanding debts as required. It also is not anywhere near its debt ceiling.

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    • #3
      ^ So a repeat of city's financial / operational tactics through the 1980s and 1990s would be desirable? (Not that we are anywhere near the same 1980s situation but what lessons have we learned to guide us through the next recession?)

      Nice graph here of the Calgary situation. It exceeded its debt limit. In the second link you'll note the idiocy of the Edmonton situation.


      Page 9
      http://www.ucalgary.ca/iaprfiles/pol...r-pb-06003.pdf



      A CofC paper on Edmonton and smart debt...
      Excerpt:
      "At the end of the 1970s, tremendous growth pressure resulted in a relaxation of the City’s debt limit, leading to a threefold increase in the City’s annual borrowing. This resulted in Edmonton’s tax-supported debt being higher than most other major Canadian cities at that time.
      The recession of the early 1980s and high interest rates necessitated a revised Policy. Under this new debt policy, tax-supported debt issues were limited to $25 million per year. Moreover, new tax-supported borrowing was prohibited after 1990. "...
      "In 2002, to address growing infrastructure issues and flat sources of financing, tax- supported debt was reintroduced through an amended Policy. "...

      http://www.edmontonchamber.com/exter...pt%202008).pdf



      -
      Last edited by KC; 28-12-2013, 07:44 PM.

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      • #4
        It's pretty easy to rationalize taking on a lot of debt when times are booming.

        Eg.
        China $3 trillion local government debt stirs alarm | Reuters
        http://in.reuters.com/article/2013/1...9BT09M20131230

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        • #5
          One issue we need to consider is that society, in general, looks ahead not back. These exercises of what have been delivered against promises of the past, is great but most people will not even think about it. When average-Joe votes, it mainly looks at the promises being made not what has actually been achieved, IMO.

          I read a number of interesting analysis by major investment banks in the run up to London Summer Olympics 2012, of what added-value the organization of such major event had on the local economy in previous Olympics. See for instance page 25 of this Goldman Sachs analysis: (Page 25: Sydney 2000: “The Best Olympic Games Ever.” Was It Worth It?)

          http://www.goldmansachs.com/our-thin...economics-.pdf

          But as mentioned, no one really remembers the promises after the fact.

          Comment


          • #6
            ^ on one hand people pasha debt but then they go out and enjoy a lot of legacy infruatucture projects that were built 30 40 years ago and Were only "paid off" very recently.

            So silly..... So myopic in my opinion
            "Do you give people who already use transit a better service, or do you build it where they don't use it in the hopes they might start to use it?" Nenshi

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            • #7
              ^ valid point, but i think KC's question had to do with how that goal is achieved. A city can be reckless or prudent in how to fund and deliver its infra (and other) projects. Ultimately tax payers have to pay for it. My point was unless things go spectacularly wrong, these thought don't occupy our minds for long.

              Comment


              • #8
                And it's only myopic if you get to blissfully ride out any subsequent problems (loss of contracts, jobs, property values, historical buildings, children's programs, etc.) when a city swings from one extreme to another and slashes spending and infrastructure repair and maintenance spending in order to pay down previously 'sustainable' debt.


                Just yesterday I heard the mayor say that snow removal budgeting is based on the typical winter and because this winter is more costly, funding will have to be grabbed from other programs. So, what is a typical winter and how often in say the past 10 or 20 years have we actually had a typical winter?
                Last edited by KC; 01-01-2014, 07:26 AM.

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                • #9
                  We also have to understand that municipalities can only operate within the means granted by the Province through law. The finance departments in Edmonton and Calgary have thought of various new ways to raise and manage new revenue to help pay for services, infrastructure, service debt, etc but cannot legally implement such ideas until the Province grants them the powers to do so.

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                  • #10
                    Originally posted by ChrisD View Post
                    We also have to understand that municipalities can only operate within the means granted by the Province through law. The finance departments in Edmonton and Calgary have thought of various new ways to raise and manage new revenue to help pay for services, infrastructure, service debt, etc but cannot legally implement such ideas until the Province grants them the powers to do so.
                    I believe this should be rephrased to. ThE province granting cities and municipalities authority to tax and spend it's residents more. May as well add in the fact we have a spending problem not a revenue problem.

                    Comment


                    • #11
                      Originally posted by KC View Post
                      And it's only myopic if you get to blissfully ride out any subsequent problems (loss of contracts, jobs, property values, historical buildings, children's programs, etc.) when a city swings from one extreme to another and slashes spending and infrastructure repair and maintenance spending in order to pay down previously 'sustainable' debt.


                      Just yesterday I heard the mayor say that snow removal budgeting is based on the typical winter and because this winter is more costly, funding will have to be grabbed from other programs. So, what is a typical winter and how often in say the past 10 or 20 years have we actually had a typical winter?
                      Smart budgeting would have seen surpluses from years of reduced snow put into a fund to balance years of high snow fall... But instead that money was given to one time expenditure projects more than likely.

                      There must be a better way to budget than this yearly cycle..,., now I think THAT would be an interesting conversation. Compared to the never ending det whining that seems absurd to me. Our income to debt ration is nothing..... relatively speaking.
                      "Do you give people who already use transit a better service, or do you build it where they don't use it in the hopes they might start to use it?" Nenshi

                      Comment


                      • #12
                        Originally posted by edmonton daily photo View Post
                        Originally posted by KC View Post
                        And it's only myopic if you get to blissfully ride out any subsequent problems (loss of contracts, jobs, property values, historical buildings, children's programs, etc.) when a city swings from one extreme to another and slashes spending and infrastructure repair and maintenance spending in order to pay down previously 'sustainable' debt.


                        Just yesterday I heard the mayor say that snow removal budgeting is based on the typical winter and because this winter is more costly, funding will have to be grabbed from other programs. So, what is a typical winter and how often in say the past 10 or 20 years have we actually had a typical winter?
                        Smart budgeting would have seen surpluses from years of reduced snow put into a fund to balance years of high snow fall... But instead that money was given to one time expenditure projects more than likely.

                        There must be a better way to budget than this yearly cycle..,., now I think THAT would be an interesting conversation. Compared to the never ending det whining that seems absurd to me. Our income to debt ration is nothing..... relatively speaking.
                        So how much more debt should or could the City reasonably take on to stay within reasonable bounds? And in a recession would the City continue to act intelligently or would it repeat the 1980s, 1990s behavior?

                        Comment


                        • #13
                          ^ That is a set up and an unfair question. I am not a auditor, accountant nor do I have access to all the raw data needed to make such a choice. What I have is a vote.. I vote for the best steward I feel is presented.

                          I think the better question would be why one of the fastest growing cities in the fastest growing province is made to borrow. Were is the support from the province and the feds?

                          It is illegal for us to borrow to pay for services. We have a debt ceiling that we should have maxed out years ago. We are behind the eightball. How much did inaction cost us? So all these "questions" are great but it ignores the fact that what is being done can't be ignored.

                          Now.. we could debate did we need the "fancy" new Walterdale bridge... We could have just build a ugly flat one. This is the heart of our city and a structure in our best asset. The cost of not doing it right, although unlikely measurable in dollars, was simply too high. Much higher than not doing it well.

                          I wold rather question what HAS to be done and how are we going to do it.

                          We simply has stuff that NEEDS to be done and that includeds things that some may view as wants such as rec centers.
                          Last edited by edmonton daily photo; 02-01-2014, 11:52 AM.
                          "Do you give people who already use transit a better service, or do you build it where they don't use it in the hopes they might start to use it?" Nenshi

                          Comment


                          • #14
                            ^"^ That is a set up and an unfair question. I am not a auditor, accountant nor do I have access to all the raw data needed to make such a choice. What I have is a vote.. I vote for the best steward I feel is presented."

                            That's somewhat the point of this thread. We got what we voted for in the 1970s and then in the 1980s and 1990s. Did we learn a single thing from that experience that we could use going forward? We can be our own worst enemies by not having a clue as to what is truly sustainable debt and what is seemingly unsustainable, hence our behaviour throughout the 80s and 90s. We have no rules of thumb.

                            This is not to say that we can't support very high levels of debt and even turn that debt into truly amazing gains, but if we were to attempt that we should do so knowing the risks. We should have in idea of how much and how long tax revenues could stall or plummet in real terms and what we would have to axe given various interest rates. We should also have a rolling public list of major infrastructure projects that would be most beneficial to tackle in the toughest of times rather than defer until costs triple under a return to good times.

                            Comment


                            • #15
                              Lets remember that a nice chunk of the debt on the books is for the LRT... and that debt is backed by Federal/Prov gas tax dollars under a long term funding agreement.

                              Some of this debt on our book is no risk from the city. Likely a good portion of it.
                              "Do you give people who already use transit a better service, or do you build it where they don't use it in the hopes they might start to use it?" Nenshi

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