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Clarity From Those Who Know

   Anything repeated enough times will eventually become accepted as fact, or truth. I’m afraid this is what has happened with respect to public understanding of our city’s debt. Why has this matter become an issue? It’s election time and for some it has become valuable fodder for their attempts to attract voter support. No one likes debt, and if there is one thing that might touch a raw nerve with the public, it is the thought that not only does their city have a debt, but that it has a large debt resulting from mismanagement by the Council in office, and furthermore, there is no plan to repay it. At least that is what the public is told.

   I won’t fill this space with a discussion about the pros and cons of carrying a debt, nor about how much capacity the city may or may not have to carry its debt. I want to address two issues here: the size of Abbotsford’s debt; and in particular, what qualifies as part of that debt.

   There is a fairly wide-held belief that Abbotsford has a debt of $102m. Part of the reason for this is that a sitting councillor, Henry Braun, has repeatedly expressed that opinion, while acknowledging that his Council colleagues don’t agree with him. So he shares part of the blame, but he is entitled to his views on this matter. The other Councillors, as well as our finance department don't agree with him.

   In fact, the long-term debt of Abbotsford stood at $78m at the end of 2013, a repeated point of fact supported by audited statements in the city’s Annual Report. The larger figure is arrived at by adding the $24m in “internal borrowing”. For the edification of all, I solicited information from the City’s finance department and received the following from the Assistant Director, Finance:

   “Internal borrowing is not debt, because the City has no obligation to repay anyone; only to use DCCs, as they are collected, to replace internally borrowed funds. What the City has done, is advance existing available cash to cover the costs of critical infrastructure projects. The City is being paid back by developers for that advance, plus interest, as development occurs. The end result is that all interchange funds “internally borrowed” will be fully repaid, with interest, by DCCs. Taxpayers will not have paid a penny to cover DCC internal borrowing on the interchanges. The alternatives to internal borrowing would have been to: 

§  (1) defer the interchange projects at the risk of traffic safety and at the risk of losing senior government grants worth over $30 million, or

§  (2) ignore the fact that the City had available cash on-hand and choose to finance the interchanges by issuing debt, which would have come at a much higher cost (interest rate) than the use of internally available funds. This option would have resulted in actual debt on the City’s balance sheet, but this debt, like the internal borrowing, would have been covered by DCC contributions, meaning taxpayers would not pay any of the cost.

o   Additional benefits from undertaking interchange projects and receiving government grants – The initial scope of the Clearbrook interchange project was completed over $7 million under budget. As a result, the City was able to redirect unused senior government funding to other roads, sewer, water, and storm drainage improvements in the vicinity of the Clearbrook interchange and obtain $7 million worth of senior government funded improvements that would otherwise have been costs Abbotsford taxpayers and/or developers.

o   5-year liability limit – There have been questions regarding whether or not there is a requirement to repay internal borrowing within 5-years. This question is based on Section 175 (2) of the Community Charter, which requires City liability agreements exceeding five years to be approved by referendum. Section 175, however, does not apply to internal borrowing, as it is not a debt obligation to the city, but an internal cash management decision. The relevant section is Section 189 (4.2), which requires that internally borrowed funds be repaid, with interest, no later than when it is required by the lending fund. There is no five year limit. The City has been projecting for some time that funds will be repaid by 2017 or 2018, and results to date in 2014 continue to support that timeframe as a reasonable projection.”

The question of size of our debt and the plan for repaying it has been dealt with in another recent post:

The Truth About Debt

Further to this, Bill MacGregor has just published additional information on this topic, on his Blog site.