Policy statement

1   The City strives to continue to

(a) limit its debt obligations,

(b) ensure appropriate service levels are maintained,

(c) match long-term benefits with long-term cost recovery, and

(d) avoid sudden property tax rate increases.

Purpose

2   The purpose of this policy is to

(a) establish financial guidelines and appropriate controls for the issuance and use of new debt, and

(b) ensure a favourable financial position while supporting the City's ability to meet current and future capital expenditure needs and challenges.

Interpretation

3   The Interpretation Bylaw applies to this policy.

Definitions

4   In this policy

"annual municipal revenues" means the revenues considered both controllable by the City and sustainable for long periods of time, as set out within section 4 of the Municipal Liabilities Regulation;

"debt servicing limit" means the maximum annual required debt repayments, including interest and principal, expressed as a percentage of annual municipal revenues;

"useful life" means the estimated lifespan of a depreciable municipal asset, or total years it is likely to remain in service before it is replaced.

Guiding principles

5   (1) When utilized appropriately, debt is recognized as an affordable source of funding and an important tool in establishing long-term fiscal sustainability.

(2) The City currently utilizes debt as part of financing its capital expenditures and the debt is integrated in the City's long-term financing plans and strategies.

(3) Utilizing debt must be done with due consideration of affordability while maintaining fiscal flexibility to respond to future financial challenges and opportunities.

(4) Debt must be structured in a way that is both fair and equitable to those that pay and benefit from the underlying assets, with consideration of inter-generational benefits.

(5) The timing, type and term of debt will be determined with a view of minimizing long-term costs.

(6) The term of the debt will be limited to the useful life of the particular asset, but not be less than 5 years or more than 30 years, with a preference for 10- and 20- year terms.

Use of debt

6   (1) The City will only issue debt to finance capital expenditures and will not use debt to fund operational needs.

(2) The use of debt will be done with the full consideration of alternative capital funding strategies and in the context of the City's long-term financial sustainability plan.

(3) Short-term use of debt is limited to the following:

(a) interim financing for capital expenditures;

(b) to manage short-term cash flow requirements such as bridge financing for capital projects.

(4) Long-term debt will be considered for capital expenditures for

(a) purchase or construction of capital assets with long useful lives that provide long-term benefits,

(b) projects that provide community-wide benefits,

(c) growth-related projects,

(d) emerging needs to support corporate priorities, as supported by the City's Strategic Plan and 5-year Financial Plan, and

(e) major rehabilitation of existing assets as a short-term strategy to address significant backlogs or emergency situations.

Debt approval

7   (1) A multi-year debt guideline, corresponding debt servicing schedule and funding strategy will be maintained and consistent with the City's various long-term plans and master servicing plans.

(2) Capital projects for debt financing will be considered and approved as part of the City's multi-year budget process.

(3) New debt issuances will identify sources of funding and debt repayment, including interest.

(4) When appropriate, the beneficiaries of a project or service will pay for it, generally consistent with the following:

(a) growth-related projects will be funded by direct developer contributions and development cost charges to the extent permitted under legislation;

(b) projects of a general function of government will be paid for with general tax revenues and/or fees and other charges revenues;

(c) water and sewer related projects will be financed from utility rates.

Debt limitations and management

8   (1) All issuance of debt requires an authorized bylaw.

(2) The recommended debt servicing limit for the City are as follows:

(a) utility funded services: 15% of annual municipal revenues within the fund;

(b) property tax supported services: 10% of annual municipal revenues within the fund.

(3) The difference in the debt limits between the utility funded services and property tax supported services is intended to reflect that user rate based services (utility rates) have strong benefit-received correlation, committed revenue streams and close linkages with rate increases and service improvements.

(4) Utility services also receive development cost charge levies which can be used to fund the development-related share of debt funded capital.

Structural features of debt and administration

9   (1) The City will only fund capital projects having a useful life greater than 10 years through long-term debt.

(2) The term of debt will not exceed the useful life of the asset.

(3) The City will not fund the purchase of vehicles and small equipment, computer hardware and software through long-term debt even where their useful life is greater than 5 years, excluding heavy equipment and emergency equipment.

(4) Where possible, the term of a long-term debt issuance will not exceed 75% of the useful life of the asset acquired.

(5) The repayment of principal on tax-supported debt will generally not extend beyond 20 years unless there are compelling factors which make it necessary to extend the term beyond this point.

(6) By financing over the shortest term possible, in accordance with subsection (5), lower interest rates and reduced future costs of financing result, allowing for a debt-free period for the asset in which other financial policies such as capital reserve allocations can be initiated.

(7) When a debenture is fully paid and retired, the City, when fiscally viable, will consider maintaining an equivalent payment into a capital reserve.

(8) The approach described in subsection (7) protects or uses the “tax room” created in the tax or utility rate for other capital needs, including reserve provisions for long-term asset management.

(9) It is the responsibility of the financial officer, within the context of the 5-year Financial Plan, to oversee and coordinate the timing and process of issuance of the City's borrowing requirements in support of the plan.