City of Powell River has approved a temporary borrowing bylaw to fund costs associated with the new consolidated wastewater treatment plant (CWTP).
According to a media release from the city, it will only pay interest on money borrowed from the Municipal Finance Authority (MFA) under the bylaw and will not pay any interest or fees to enact it. The bylaw came before council at its February 18 meeting.
Continuing to secure CWTP funding semi-annually is slow, not as flexible and requires cash requests to be made several months prior to receipt, which could leave the city with a cash surplus or shortage, according to the release.
“This is a fiscally responsible way to deal with borrowing,” stated councillor George Doubt, chair of the finance committee. “The city will only borrow cash that is needed for expenses that are imminent and known, making us able to reduce the amount of time that borrowed cash is being held. By doing that we will be deferring interest payments on surplus cash. We can borrow at very attractive interest rates and convert to long-term borrowing at an appropriate time.”
The release stated that the approved temporary borrowing strategy facilitates cash flow, similar to a line of credit, where interest is only paid on the balance of cash borrowed until the loan is either paid off or converted to long-term debt. The cash borrowed is charged daily interest at the MFA’s variable interest rate.
The release stated that as of February 19, the 10-year long-term MFA interest rate is 1.68 per cent, while the daily variable interest rate that would be charged on temporary borrowing is 0.90 per cent.
Once the city has taken on temporary borrowing, it can then convert the borrowing to long-term debt, secure the interest rate, and start the 30-year payment process, according to the release. The maximum that can be borrowed is limited to the maximum amount remaining under the loan authorization bylaw, which is currently $17,280,000. The city has already borrowed $10 million from the MFA for the CWTP. Maximum approved borrowing for the project is $27,280,000.
At the completion of the CWTP project, the city will be in a better position to assess cash reserves and outstanding debt, and decide how much of the debt the city is able to pay down prior to locking it in for the long-term, the release stated. The last few million dollars of construction can be funded by temporary borrowing, but if the city is in a good cash position, it could choose to pay the temporary borrowing off and not transfer the balance to long-term debt.
