He pointed out that the city has $175 million in debt on its books and potentially another $225 million related to new projects, which will take a toll on cash reserves and add a lot of new debt.
As he sees it, it’s a total that was expected to push the city to its debt limit of $400 million, which is starting to remind some of us of the 1980s.
A look at the city finances leaves a couple of impressions. First, $400 million in civic debt is a lot of money and to be at our debt ceiling makes many people nervous. It’s like when you’ve run up your credit card to the limit. Not only can you not do anything until it’s paid down, but paying it off takes up a lot of money that could be spent elsewhere. Let’s hope the city at least gets reward points.
Does that mean that civic finances are in bad shape?
Some on city council say it does, but Standard & Poor’s recent report on city finances maintained our AAA credit rating. The bond rater does mention some clouds on the horizon – higher debt from the capital projects and some pension liabilities. Reading the S&P report shows it’s concerned, but not especially so, about Saskatoon’s debt level, which it expects to peak in 2014 at about 30 per cent of revenues. It’s a lot of debt, but it’s not crippling.
Looking at other western Canadian cities, an independent benchmark of Saskatoon’s finances and services (we are compared to Regina, Calgary, Edmonton and Winnipeg) was tabled on Feb. 23. It shows our credit rating to be higher and we compare favourably to other cities in most services offered and how much we pay for them.
The only area we really lag behind is in mosquitoes per capita (Winnipeg), NHL franchises and CFL teams.
Not surprisingly, we will soon lead the group in large, box-like riverfront art galleries.
When it comes to debt per capita, Saskatoon is at $526.91. Regina is at $549.80, while Calgary leads at $2,310.61. Moose Jaw has the highest per capita debt of Saskatchewan cities, at $1,168 At $400-million debt, our debt per capita would start to look like Moose Jaw’s – high, but manageable. As for taxes, our per capita tax burden compares well not only to that of other western Canadian cities, but it’s around half of the Canadian average.
It’s not how much debt a city has, but how it will pay for it. It’s a question Dayday raises and one worth exploring. Looking at growing cities with high debt levels, Red Deer’s debt limit is 1.5 times city revenues and it is approaching 90 per cent of that limit.
Its plan is to pay down its $183-million debt $2.1 million a year, which is similar to trying to pay off your credit card by making the minimum monthly payment. Calgary budgeted debt reduction into its mill rate increases in an attempt to lower its burden, despite its growing economy and larger tax base.
Paying off civic debt is not a lot of fun and a mill rate increase may be something that Saskatoon may have to do. In his letter Dayday says: “The city has been experiencing a boom period, but as in the past we know that times change.”
In the 1980s it was low commodity prices and in the ’90s it was taming a massive provincial deficit that made for a most significant challenge. Both held the city back, which contributes to the spending debate now.
How many of these capital projects have been discussed and planned for years?
Before we get too caught up with what to cut, we need to have a discussion about what those challenges in the future will be. Rising energy prices, the lifeless and debt-ridden American economy and global warming. Two of those issues will reshape Saskatoon beyond recognition both positively and negatively, and all three of them, if handled poorly, could severely hinder the city’s ability to pay off its debt.
You have to start the discussion somewhere, so in next week’s column I will look at how rising energy prices will reshape Saskatoon.
Here are some of the background links.
- Since former Mayor Henry Dayday didn’t send me his letter on the city’s debt, the first place I saw it was on Dave Hutton’s City Hall Notebook. I have a feeling many of you have read the letter and Dave’s blog but if you haven’t here is the link.
- The Standard and Poor’s report was uploaded to Scribd by the City of Saskatoon. I can’t find it anywhere else online so you will have to read it on Scribd. Because of changes on how Scribd is doing business these days, you can’t download files without paying for them. Make sure you zoom in on the report or you’ll start your day with a headache. You can find the report here. Let me know if you have or know where an original copy of the report is online and I’ll link to it.
- The benchmarking report prepared for the City of Saskatoon is really interesting and compares us to Edmonton, Calgary, Winnipeg, and Regina. We really do quite well compared to those other cities and I am surprised that you don’t hear more about it.
- It’s two years out of date but Maclean’s magazine found that Saskatoon was the second best run city in the country and has the second lowest per capita tax rate.
- The Red Deer Advocate does the reporting on Red Deer’s debt. If they keep this up, either Calgary or Edmonton should be able to purchase them out of bankruptcy court in a decade or so. That is if Calgary’s suburban sprawl hasn’t eaten it up first.
Next week’s column is about the impact peak oil is going to have on the city and how it will affect our long term future. This won’t get much more of a passing mention in next week’s article but both the Rockefeller’s and Bill Gates are betting on algae being the future of carbon based petroleum. That being said, Shell is betting against it. It’s an interesting possibility, even if it won’t come to market in time to stop massive crude oil price shocks.