Edmontonians look to their City to build, improve and repair the infrastructure essential to their day to day lives, their enjoyment and their prosperity. Cities keep pace when they are able to place the right infrastructure in the right places at the right time.
In order for the City to accomplish that, it must dedicate resources to acquire, create and rehabilitate infrastructure. Debt financing is one tool we can use to achieve that end.
The City of Edmonton only borrows for building and renewing infrastructure. Projects undertaken in 2004-2013 that were funded at least partially with debt include four community recreation centres, the Whitemud/Quesnell Bridget Upgrade, the Whitemud Drive East – 34th Street Interchange, the South and North LRT, the Southeast Police Station, the Belle Rive Fire Station, the Jasper Place Library, the Kennedale Eco-station and Sewer Rehabilitation projects.
The City borrows to allow large projects to proceed without having to accumulate enough in savings to pay for all of the cost at one time. If we needed to accumulate savings to pay for significant infrastructure projects, it could mean that the taxpayers paying for the projects may not be able to benefit from the projects. This concept is referred to as generational equity. Users of a capital project will likely change over its useful life and fairness would suggest that those costs should be paid by those who will use the infrastructure over time. Therefore, debt financing over a longer term can be more equitable than using savings collected and accumulated over time from current and prior residents who may not get to benefit from future improvements.
While debt is an essential financial tool for municipalities to use in moving forward their capital investment agendas, the debt must be reasonable. Not unlike a homeowner, the City must determine how much of its revenue it can reasonably afford to dedicate to making payments on debt.
The City of Edmonton is subject to limits both for total debt and debt servicing (the principal and interest payments on debt) by the Municipal Government Act (MGA), which is the principal legislation that governs municipalities in Alberta. The debt limit for the City of Edmonton is for a total debt no more than two times the revenue of the municipality, and for debt servicing, no more than 35% of the revenue of the municipality.
Despite these regulated debt limits, it is important for the City not to just borrow up to those limits, without gauging what is appropriate or in Edmonton’s best interests.
The City of Edmonton utilizes debt financing as part of a well-balanced approach to optimizing funding sources available for the acquisition, creation and rehabilitation of infrastructure. The City takes a conservative approach to the use of debt staying well-under the provincially legislated limits for debt and debt servicing through implementation of its own Debt Management Fiscal Policy C203C. It would be timely to review this policy, which was approved in 2008.