City of Powell River council will consider applying for another $5 million of borrowing for the consolidated wastewater treatment plant.
At the March 24 finance committee meeting, chief financial officer Adam Langenmaier outlined a proposal to bring the city’s borrowing to a total of 20 million. According to a report from Langenmaier, if council approves the application for borrowing, it will be submitted for the fall 2022 intake of the Municipal Finance Authority of BC (MFA).
Langenmaier said the policy of the city has been to take out pieces of debt for the plant incrementally, rather than borrow the whole amount in one piece. He said this is to spread out the interest rate risk.
“The city could have taken out the full $27 million loan at the start of the project, but what happens in 10 years from now when the rate is renewed and, depending where rates fall, you could roll the dice good or bad,” said Langenmaier. “So, this method of taking $5 million out each year, we spread that risk out because we will be renewing over several years.”
Langenmaier said the request gets passed by council and then has to be sent on to qathet Regional District for deliberation, and then to MFA to enter in the fall issue.
Langenmaier said interest rates are rising. The first debt issue in spring 2020 was 1.99 per cent, the second in fall 2021 was 2.58 per cent and the expectation for the fall 2022 issue is three per cent.
“There’s a bit of uncertainty now with rates,” said Langenmaier. “We’re seeing indicators that rates should rise. We know interest rates are tied to a lot of things in the economy. The MFA goes out into the world markets for our debt.
“That being said, at three per cent, we’ll have a total debt servicing cost of about $270,000 a year for this loan. Based on the average home, that’s about $36 per year.”
Langenmaier said with this latest debt, the city would be using $20 million of the available $27 million. He said there was an amendment passed by council to increase the total loan authorization to $30.7 million and it will only be used if the city needs to use it. That means that if the additional borrowing is approved by the inspector of municipalities, the city would have $10 million in borrowing left.
Mayor Dave Formosa said the city’s hope is that it doesn’t need to use maximum borrowing, but with COVID-19 and the high cost of everything that the whole world is fighting, it’s a terrible time to be building.
Finance committee chair councillor George Doubt said there was a lot of good information on the potential loan in the agenda package and that it was well worth the read.
The finance committee gave consent to send the loan authorization to city council for approval.
