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Column: Handling debt poses challenge

Today’s column in The StarPhoenix.

The StarPhoenix Former mayor Henry Dayday wrote to council in May questioning how much debt the city was taking on and how Saskatoon residents were going to pay for it.

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.

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.

One Comment

  1. Bert Lang says:

    What is poetry? I guess I’m a heathen who just doesn’t ‘get’ it – oh wait – I’m like everyone else who isn’t busy buying poetry books. I thought that perhaps the lyrics of modern music, as crass as some of them are, were today’s poetry.

    I guess I should be glad no one gave that kind of money to support magic lantern shows.

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