In light of climbing interest rates, the town has changed its borrowing strategy for both the new protective services building and Highway 1A upgrades.
Last night, town council approved borrowing the funds sooner and raised the maximum interest rate it is willing to pay to seven per cent, although it is anticipated to be much lower.
Corporate services executive director Katherine Van Keimpama explained the provincial government is no longer offering below-market loans to municipalities. The current rates offered for both projects now exceed three per cent and are forecasted to increase further, based upon indications from the Bank of Canada.
Van Keimpama said town officials weren't informed of the change in policy by the provincial government, and that she came across the information in an Alberta Municipalities (formerly Alberta Urban Municipalities Association) bulletin issued Jan. 19.
Last March, council approved borrowing $23 million over 25 years at a maximum interest rate of 4 per cent. At the time, interest rates were 2.789 per cent. The 25-year borrowing rate is currently 3.6 per cent.
The town will make the application by Jan. 31 to receive approval for the next borrowing period that begins on Mar. 15. Repayment would commence six months later on Sept. 15, 2022. Originally, the draw was planned to occur in September, with repayment beginning in March 2023.
The actual payment amounts will be determined when the funds are borrowed. At four per cent, semi-annual payments of $731,994 would begin in September.
A total of 27.45 per cent of the payments will be funded from off-site levy reserves, as originally planned. Approximately 39 per cent of the payments are to be funded from lease revenue from the RCMP once they are in the building.
RCMP lease payments won't begin until sometime in 2023, so the lease-funded portion of the 2022 debt repayment will be drawn from the police operating reserve.
A revised strategy for borrowing $2,453,869 for highway improvements will see the town pay less in interest than originally planned.
In December 2020, council approved borrowing the funds for15 years at a maximum interest rate of 3 per cent. At the time, the 15-year interest rate was 1.78 per cent, and it's currently slightly above three per cent.
To help offset the higher interest rate, the funds will be borrowed over 10 years instead of 15. That is expected to save the town about $200,000 in interest payments.
Town administration recommends using the tax stabilization reserve to offset 2022 draws for the infrastructure projects. A 2021 budget surplus of over $1.225,000 is anticipated, and it recommends transferring at least that much into the stabilization fund.
Council was told the changes will not impact the town's borrowing capacity.
In a Jan. 19 news bulletin, Alberta Municipalities (AM) expressed surprise and disappointment in the decision to no longer provide municipalities a lower-than-market interest rate for capital projects. It says municipalities were informed quietly in December. It is pushing for a reversal of the decision.
AM says it breaks a promise made to municipal governments in 2019 when the province dissolved the Alberta Capital Finance Authority.