A Red Deer County councillor put the brakes on a proposal to borrow $5 million to cover road paving bills.
Administration proposed borrowing $5 million over 15 years at an interest rate of 5.21 per cent to help fund this year's $8.6 million paving program. The rest of the money would come through provincial Local Government Fiscal Framework funding.
Borrowing the money over a longer period means lower monthly payments, which will improve the county's cash flow position and provide more flexibility to deal with other projects that may arise, council was told.
Coun. Lonny Kennett said he was concerned that the timing was not right given current high interest rates to commit to long-term borrowing.
"One of the problems I have is you're taking out long-term debt," said Kennett. "You shouldn't do it at the highest interest rates you've seen in 20 years.
"That's when you should pick up short-term debt."
The longer the repayment period, the more interest the county will have to pay, he added.
Kennett said it might be to the county's advantage to take out a short-term loan in hopes in the meantime that the Bank of Canada lowers its base rate, as some are predicting.
He proposed a successful motion to defer first reading of a paving borrowing bylaw for two weeks so county staff could crunch the numbers and show how five, 10 and 15-year borrowing scenarios would look.
The county is also looking at long-term borrowing to repay $10.3 million outstanding on a five-year $25-million loan taken out in 2021 to develop the Junction 42 rest stop area. The money was used for purchasing land, intersection improvements and road and utility infrastructure.
Land sales and development levies are expected to eventually cover development costs at the rest stop on Highway 2 east of Penhold.
So far, just under 20 acres at Junction 42 has been sold with another five-acre sale in the works. That leaves 96 acres remaining for development.
Since it is not expected the remaining land will be sold by the time the borrowing term ends in 2026, county administration is proposing re-financing the remaining debt over 10 years at an interest rate of 5.02 per cent. Doing that would reduce the county's principal and interest payments by $8 million over the next two years.
That borrowing bylaw was given first reading and will return to council for second and third reading on July 23.
Assistant county chief administrative officer Dave Dittrick said longer-term borrowing eases some of the immediate financial pressure on the county and the need to dip into the municipality's line of credit to cover the bills until tax revenues start flowing in following the July 1 deadline.
"We're trying to stagger our borrowings to meet the life of the asset," said Dittrick in an interview Wednesday. "It's also to put us in a better cash flow position because we're paying on our line of credit at a higher rate of interest (6.45 per cent) than the borrowing."
The financial fiddling is a reflection of the financial stress all municipalities are finding themselves under, he said.
"Provincial cuts to infrastructure have been deep. We're facing the same things the city faces, Sylvan Lake faces, that everyone faces. We're not immune to that anymore.
"We used to be able to rely on our line of credit to guide us through and a line of credit now isn't enough. We need to do longer-term borrowings so we have the cash flow to maintain our business."
The county typically uses its line of credit to cover costs until tax revenues flow in during the second half of the year. It used to be dipped into for about six months a year but is beginning to be required more often.
"We're into our line of credit more than we're out of it. (Long-term borrowing) is a tool that is meant to reduce that reliance on the line of credit."
The county has been backstopping its finances by drawing on reserves, but those are running low.
Besides lower provincial funding, rural municipalities have seen policing become a significant budget line item and recreation agreements with surrounding communities have become more costly.
Taxpayers have been spared the increases that would be necessary to cover the additional costs.
On top of that, some oil and gas companies aren't paying their tax bills. While the county has had some success collecting outstanding debts, $5 million remains owed.
"We're anticipating writing off $1 million a year for the next 10 years. We don't expect to see it getting better."
