Fiscal uncertainty and shrinking revenues are putting the City of Red Deer in a difficult position: to pay its bills, the city might have to put off doing some capital projects.
Chief financial officer Dean Krejci asked city council to give initial approval to a short-term borrowing bylaw that, if needed, could add $10 million to the city’s $30-million overdraft.
“At this time, it is estimated that the cash flow deficit will exceed the amount available,” said Krejci.
While he told council he believes it’s prudent to approve more borrowing to ensure the city can pay its bills and continue to offer essential services, he cautioned councillors that this will raise the city’s debt level.
Taking on more loans at a time of shrinking municipal revenues means the city would hit its 74.8 per cent debt limit by 2021. This would mean that city council will likely have to revisit the city’s 2020-2021 capital plan and strike some things off the list, Krejci added.
As with all other municipalities, the City of Red Deer’s revenues have taken a beating because of measures to prevent the spread of COVID-19 and lessen the impact on residents and businesses.
Recreation facilities are closed and transit ridership has dropped off. There’s the loss of parking fees and a steep decline in revenues from development.
Krejci said there are also the deferred utility payments (that end on June 17) and deferred property tax payments (that end Sept. 30.)
“We’ve never been in this type of situation before,” Krejci told councillors, so it’s hard to predict what the city’s cash-flow situation is going to be this fall.
The chief financial officer believes much will depend on how many Red Deerians (or their banks) pay property taxes on time, by June 30, instead of waiting the three additional months the city is allowing.
The city’s financial situation could also be alleviated if the province or federal government provides some municipal stimulus or relief funding.
But it’s safer to be prepared, he said, asking council to give first reading to the $10-million borrowing bylaw. The money would only be sought if needed, Krejci said, and would be paid back within three years.
While the multi-year payback period raised concerns with councillors Vesna Higham and Tanya Handley, who wanted a shorter term and did not support first reading, the rest of council gave the borrowing bylaw initial approval.
Coun. Lawrence Lee said council made a lot of “conscious” economic decisions, such as approving a very low 2020 tax increase to help ratepayers and allowing bill deferrals, and these are now having an impact.
“We hope that other orders of government step up so we don’t hit that debt limit,” he said.
This sentiment was also expressed by Mayor Tara Veer. But she noted that all municipalities have their hands out in this difficult time, so “we have to look within our own house and do what we can.”
She said she is pleased the city had its financial house in order before the pandemic hit.
Coun. Dawe supported borrowing “in the spirit of caution. We’re hoping we don’t have to use it, but we’re being prudent.”