Please accept this letter as a concern that a number of taxpayers have related to me as a former Mayor of the city. The city has been experiencing a boom period, but as in the past we know that times change.
The concern is due to the large amount of money that is being spent on new projects without a clear plan for financing and paying for these projects. To date, many of these projects have been built with financing that uses borrowed money, or financing that will reduce the revenues to the city for operations in the future, or will reduce the amount of money available through reserves.
The city, to date, needs $12M to service its present projected debt of $175M. The city has also agreed to use money from new developed areas of the city to finance capital projects such as the Clarence Street overpass, which is in addition to the one third that already goes from increased taxation in new development areas for capital projects. Some reserves that are in deficit have already received approval as exemptions from the normal requirement to be funded. There is also a conversion of one half million dollars that the Art Gallery received from assessment growth that goes as a capital contribution and will now be diverted to debt repayment. This means that the city now needs to find an additional one half million dollars to fund the already deficient reserves. In addition, City Council adopted a policy in March of 2008 that transfers annually a portion of the accumulated return on investment of approximately $5M from the land development activities to general revenue, which is in addition to the existing transfer of over $1M.
The city has now approved a proposed new police station that is estimated to cost the taxpayers $131M with $9M as a down payment in 2011. Each year, hence until 2016, the city will raise taxes by $850,000. By the year 2016, the taxpayers will have had a tax hike of approximately 5.8%. Then once the $7.5M repayment of the loan begins, the tax hike will be another 5.8% for a total tax increase of 11.6%. Furthermore, in 2016 the total cash paid is $38M leaving a loan of$93M. At a 7% interest rate, which appears to be the rate that is being paid on the present $175M debt, this requires that the taxpayer will need approximately $98M over 30 years for interest including the $131M as the principal cost for a total cost to the taxpayers of $229M. This is in addition to many other projects such as a new traffic bridge, the Mendel Art Gallery, the new transit headquarters and the relocation of the city yards, just to mention a few where there is no funding in place.
During my years as the Mayor, the administration and I negotiated an agreement with the Provincial Government to transfer City Hospital for a large tract of land in the north east sector of the city. This land proved to be very beneficial to the city and is meant to help the taxpayers by reducing tax increases in the future. Another objective is that the land sales are to be used not only for development, but also to replace the sold land through new land acquisitions. My concern is with the policy of March, 2008 where Council is drawing approximately $5M from the reserve annually. At this rate, that could deplete the reserve when sales slow down as well as not replace the land for future development whereby future taxpayers would not get the benefit that the land was intended to provide.
To my knowledge, the city has been required to have an actuarial review done on all its pension plans every three years. It is also my understanding that these reviews have been deferred. The taxpayers would be interested in knowing the status of these pension funds.
Every time the city changes a policy of transferring money from one account to another to finance a project and then does not replace the money or draws more money from an account, so that the account will not be sufficiently funded in the future, is another form of borrowing against the future.
The purpose of this letter is to answer the concerns that the taxpayers have raised. How do we pay for this spending and how will it impact on future tax increases?
To date, we have a borrowing limit of $400M with $175M already borrowed. We have a projected unfunded liability to the end of 2015 for reserves of $144M. We the have a number of expensive projects that are already started with funds committed such as the $131M police station, the $67M Art Gallery, the $26M traffic bridge and a $200M approved financing plan for a new transit headquarters and the relocation of the city yards without knowing the funding sources. These commitments already appear to exceed the borrowing limit.
In the past, major expenditures by the city, such as Credit Union Centre, had a financial plan in place as to how the project would be financed before we proceeded with any construction. As was the case with Credit Union Centre, the taxpayers voted twice as to the location of the facility and then on the approval of the $10M expenditure. If my memory serves me correctly, the cost for each household was approximately $15 annually for ten years. After ten years, City Council decided what to do with the extra $1M plus that was no longer required to fund the debt. To date, we have not seen any financial plans as to the impact all these major expenditures will have on the taxpayer in the future.
He has some recommendations as well and the art gallery will probably cost more than $90 million when all is said and done. There are a couple of city councilors who are avid readers on my website, I would love to see their comments. My own personal view is that I don’t know how much debt it too much debt for Saskatoon’s GDP but as Richard Florida points out, some of the most desirable cities to work and live in North America (Seattle, Portland, Austin) have higher level of services and taxes. At the same time, I see the city wanting the services but not the taxes so we are increasing debt. The question that I have never see answered is “how much debt is too much.” Former Mayor Dayday says that we are at that point now. Are we?