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The City's Skyrocketing Debt

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  • Any thoughts on this situation now? Should we borrow more now to take advantage of any opportunity to improve our infrastructure at a lower cost than during stronger economic times?

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    • Edmontons economy about to get hit hard . Its economy dependent on big government spending . Redwater upgrader . RAM. Arena, remand. Airport , lrt almost all done . Governments not spending like it use too

      Comment


      • uh huh. Sure.
        A people that elect corrupt politicians, imposters, thieves and traitors are not victims, but accomplices.

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        • Originally posted by champking View Post
          Edmontons economy about to get hit hard . Its economy dependent on big government spending . Redwater upgrader . RAM. Arena, remand. Airport , lrt almost all done . Governments not spending like it use too
          How does one go about to make you go away?

          Comment


          • Updating the numbers:

            2018 debt: $3.6 billion
            2018 interest pmts: ?





            “S&P expects the city’s debt to rise to $5 billion in 2021 from $3.6 billion in 2018, it said. “

            City of Edmonton’s credit rating downgraded to AA from AA+ – Edmonton Journal

            https://edmontonjournal.com/news/loc...-from-aa-to-aa



            “Edmonton currently carries $3 billion in debt, which is 56 per cent of the provincially-set debt limit. Interest rates are fixed on the debt Edmonton has taken on so far, but officials are predicting increased borrowing and interest costs for new debt in the future.”

            City of Edmonton projecting $14-million deficit for 2018 – Edmonton Journal
            BY ELISE STOLTE
            ORIGINALLY PUBLISHED: SEP 4, 2018
            https://edmontonjournal.com/news/loc...llion-for-2018


            In my eyes the setting of a debt limit based on revenue jumped off the page.


            Branch: Corporate Accounting Asked By: Councillor Banga Question #: 19-070C

            Budget Page #:
            What is the economic calculation and reasoning applied for the MGA as to why the debt limit is set at 2x municipal revenue? Theoretically, could the City continue to raise its debt limit if it increased taxes? This would not be fair or sustainable, but debt as a calculation of revenue seems to make this possible

            Question Answer:
            20

            The City of Edmonton is subject to limits of total debt by the Municipal Government Act, RSA 2000, c M-26 (MGA). The MGA Debt Limit Regulation AR 255/2000 stipulates that the City’s total debt limit is two times the revenue of the municipality. The revenue for purposes of this calculation is the consolidated revenue of the City less capital government transfers and developer contributed tangible capital assets and excludes revenue from EPCOR.

            Since the MGA total debt limit is not based solely on property tax revenue, an increase to property tax revenue would not necessarily equate to an increase in the MGA total debt limit. In 2017, property tax revenue accounted for only 53% of the total municipal revenue which the debt limit calculation is based on. Municipal revenue also includes revenue streams such as user fees, franchise fees, investment earnings, etc.

            Administration is unable to speak to the specific reasons for why the Province established debt limits which are based on revenue. However, the “Affordability Limits” section of the City of Edmonton’s Debt White Paper (https://www.edmonton.ca/city_governm...WhitePaper.pdf) provides an analysis of why the City established it’s own internal debt limits which are based on City revenues.

            https://www.edmonton.ca/city_governm...llor112818.pdf
            bolding mine




            “HISTORY

            9%
            10%

            City of Edmonton managed tax-supported debt in the 1970’s by setting a limit on the amount of new debt that could be issued each year. New debt was generally issued for 25 year terms. Tremendous growth pressure at the end of the 1970’s to support a resource boom cycle led to a relaxation of the total debt limit, resulting in a threefold increase in annual borrowing. This resulted in Edmonton’s tax- supported debt being higher than most other major Canadian cities.

            Developer/Partner Financing 1
            ■ N
            *A portion of this funding is being used to pay back
            fast tracking of grant funding in previous budgets

            4 THE WAY WE FINANCE - DEBT WHITE PAPER - October 2014

            The recession and high interest rates of the early 1980’s prompted a revised debt management policy. New tax-supported debt issues were limited to $25 million per year with a five-year repayment term. Shorter borrowing terms for utility debt (paid for with utility revenue not property taxes) were also required. The objective was to prohibit new tax-supported borrowing after 1990. Subsequent to 1990, a pay-as-you-go approach was adopted for tax-supported capital projects as an extreme reaction to the debt challenges of the 1980’s.

            In 2002, pay-as-you-go as a strict financial strategy was abandoned as it became impossible
            to provide the infrastructure required to support the growing City without huge increases in
            taxation to pay for costly assets on a cash basis. The City’s financial debt was not growing but its infrastructure debt was becoming significant. At that time, the City estimated a gap between the value of infrastructure that could be funded with identified capital resources and the value of the infrastructure required to support the growing City to be in excess of $4 billion dollars. With a “no tax supported debt” strategy, the City was unable to address growing infrastructure issues.

            Due to the decision to severely constrain the use of debt in the 1980’s, and subsequent to 1990 to use debt to fund only utility infrastructure, construction of some of the types of facilities that contribute to quality of life and the economic well-being of the City did not occur. For example, neighbouring municipalities were building multi-purpose recreation centres in the late 1990’s and early 2000’’s. The City did not start to offer those amenities until Terwillegar Community Recreation Centre was built a decade later after the City’s approach to debt financing was changed.
            Tax-supported debt was reintroduced with a revised debt management fiscal policy in 2002. At that time, a $250 million borrowing guideline was established with $50 million per year allocated over five years for debt-financed projects.

            As growth pressure continued to accelerate, a revised Debt Management Fiscal Policy C203C (Appendix 1) was approved in 2008 that is still in effect. The existing policy will be discussed later in the paper in the section on what amount of debt is reasonable.
            ...”

            The City of Edmonton is subject to limits both for total debt and debt servicing (the principal and interest payments on debt) by the Municipal Government Act, RSA 2000, c M-26 (MGA), which is
            the principal legislation that governs municipalities in Alberta. Section 271 allows the Minister of Municipal Affairs to make regulations respecting how a debt limit for a municipality is determined. The MGA Debt Limit Regulation AR 255/2000 specifies that the debt limit for the City of Edmonton in respect of the City’s total debt is 2 times the revenue of the municipality, and in respect of the City’s debt service, is .35 times the revenue of the municipality. The revenue for purposes of this calculation is the consolidated revenue of the City less capital government transfers and developer contributed tangible capital assets and excludes revenue from EPCOR. These proportional debt and debt servicing limits mean that as revenues grow, the amount of debt and debt servicing can increase.
            Despite these regulated debt limits, it is important for the City not to just borrow up to those limits, particularly with respect to debt servicing, without gauging what is ...”

            “In developing the existing City of Edmonton Debt Management Fiscal Policy C203C, the City took a more conservative approach than what is mandated by the MGA by constraining the limit for total debt servicing for both tax supported debt, including self-supported tax-guaranteed debt, and self-liquidating debt to 22% of eligible revenues. The policy further constrains tax supported debt servicing, which includes self-supported tax guaranteed debt to 15% of eligible revenues. These limits were established when the policy was developed in 2008 based on the following rationale.

            ...”

            “Given that the City’s approach to debt just prior to the policy being developed was extremely risk adverse and limited the total debt to $250 million dollars at $50 million per year over 2002 to 2007, the City acknowledged the need to provide greater flexibility for the use of debt while at the same time maintaining a fiscally conservative approach to debt. When the current policy was drafted in 2008, it achieved this by setting the debt servicing limit at 85% of the trigger percentage set ...”


            https://www.edmonton.ca/city_governm...WhitePaper.pdf

            Bolding mine
            Last edited by KC; 24-09-2019, 08:20 AM.

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            • No problem. Just add a civic sales tax and the debt will all magically go away, never to appear again.

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              • Maybe a city wide CRL is a solution?
                Advocating a better Edmonton through effective, efficient and economical transit.

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                • Originally posted by Stoneman View Post
                  No problem. Just add a civic sales tax and the debt will all magically go away, never to appear again.
                  i don't think it would work on a municipal basis.

                  on a provincial basis a sales tax would be able to make use of input tax credits all the way through the process. there would also be zero implementation cost as collection infrastructure is already in place as long as it's harmonized. it could be implemented virtually overnight and the feds would collect and forward the proceeds to the province.

                  the costs for the city to set up and administer a sales would be horrendous and would simply drive business to surrounding municipalities even more than takes place now.
                  "If you did not want much, there was plenty." Harper Lee

                  Comment


                  • Originally posted by kcantor View Post
                    Originally posted by Stoneman View Post
                    No problem. Just add a civic sales tax and the debt will all magically go away, never to appear again.
                    i don't think it would work on a municipal basis.

                    on a provincial basis a sales tax would be able to make use of input tax credits all the way through the process. there would also be zero implementation cost as collection infrastructure is already in place as long as it's harmonized. it could be implemented virtually overnight and the feds would collect and forward the proceeds to the province.

                    the costs for the city to set up and administer a sales would be horrendous and would simply drive business to surrounding municipalities even more than takes place now.
                    I was obviously joking. Should have used an emoji.

                    Comment


                    • ^



                      no harm, no foul.
                      "If you did not want much, there was plenty." Harper Lee

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