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Debt levels rising, but city can handle it: audit

The City of Red Deer is well able to hand its rising municipal debt needed to pay for completed and new capital projects, council was told on Monday.

The City of Red Deer is well able to hand its rising municipal debt needed to pay for completed and new capital projects, council was told on Monday.

Civic leaders received an independent audit from the chartered accountant firm of Deloitte and Touche in Edmonton regarding the city’s financial statements for 2010.

The statements included information on the city’s debt load. The city’s financials need to be in to the provincial government as of May 1.

Financial services manager Dean Krejci said the city didn’t want to go any higher than 90 per cent of the debt limit allowed by the provincial government. The maximum debt limit allowed is based on 1.5 times the municipal operating revenues.

“We could take it to 100 (per cent) if we wanted to,” said Krejci.

The city noticed it didn’t have sufficient capacity within its operating budget to repay that debt. Two or three years ago, it began adding about $2.1 million per year into the budget to pay off that debt. This amount wasn’t added in 2010, but resumed in 2011 and is expected to run until 2015.

“Although the debt levels are rising, we do have a plan for it,” he added.

Krejci said the total municipal debt in 2010 was $184 million.

The city’s allowable debt limit is 90 per cent of $386 million.

Debt is rising because the city doesn’t have sufficient municipal reserves or grants to fund the capital plan. One third is tax-supported debt for capital projects such as the recent civic yards and new RCMP detachment building. One third is utility-supported debt related to water and wastewater treatment upgrades.

One third is offsite-supported and relates to the installing of new water and wastewater trunks, as well as roads.

Councillor Tara Veer, chair of the audit committee, said the city has to be careful when it takes on debt, but it still needs to look at the bigger picture.

“When the Alberta government gives us favourable interest rates, sometimes you can make a sound economic case to take on some debt,” said Veer. “The key is not to sterilize our future by taking on so much debt that we won’t be able to respond to emerging issues.”

Councillor Chris Stephan said the city should take a harder look at its financials, but his motion to delay approval so this could be done was defeated.

“I am concerned about our debt levels and about our expense levels including our wage increases (among staff),” Stephan said. “As a community we’re paying for this. This is an organization you pay for through your taxes, your utilities.”

Stephan, a member of the audit committee, said he would like to see community members on the committee to see what they think.

“If you look at this as a business, the community are the shareholders,” Stephan said later. “I think it’s important for them to know our financial position and there are some things that I do find alarming. But I’d be interested in knowing what the community thinks.”

ltester@www.reddeeradvocate.com