The town of Gibbons thinks borrowing money could help solve their financial woes– but the town wouldn’t be the one doing the borrowing.
The town’s Chief Administrative Officer wants to offer a Gibbons credit card to homeowners in the community of 3,000. Gibbons is about 30 kilometres northeast of Edmonton.
“This is all money people are spending now.”
If it works, O’Malley think the project will bring in at least $900,000 per year to Gibbons.
The plan would see the town partnering with a lender that has ties to a major credit card. Gibbons would be the primary cardholder and would then issue cards to Gibbons homeowners.
At the end of every month, the town would pay off all the collective bills. It would borrow money at the Bank of Canada’s overnight rate, which is currently 1.75%. This would ensure no interest payments would be sent to the credit card company guaranteeing the card.
Cardholders would then pay the town what they owe. All interest from any outstanding balances would go to Gibbons, instead of Visa or MasterCard. O’Malley said that’s good for everyone in town.
Every card would be guaranteed by the holder’s house. If someone fell behind in their payments, arrears would be settled through property taxes.
If the person still couldn’t pay, O’Malley said the town is the best shape to both recover the money and help the homeowner. The town already has a tax repayment program in which it works with individuals to come up with ways to repay.
Interest rates would likely also be lower than traditional credit cards because town council would set the rate. O’Malley thinks 13% would be a good place to start.
He said that would make the card attractive to homeowners and would help reduce their credit card payments, if they carried a balance.
The cash the card would bring in could significantly change the community’s fortunes.
O’Malley thinks a $900,000 revenue projection would be a conservative estimate. Gibbons’ annual operating budget is about $6.6 million. Its proposed 2020 capital budget is $1.2 million.
If the credit card money can nearly pay off a full year’s worth of capital projects, O’Malley said that would change the way the town did business.
“This gives us a 25-year capital maintenance plan or replacement plans, using the funds that are generated from this,” O’Malley said. “It allows us to do longer term planning without having to wait for what grants might be available.”
Some Gibbons residents said they love the idea.
“I’ll be the first to sign up,” Terry Kopp said.
Kopp manages Mainstreet Public House in Gibbons. She said it’s important everyone in town does what they can to keep cash in the community.
She’s also hoping to buy her first home in the next few months and once she does, would like to have the opportunity to have the credit card.
Kopp said she carries a balance on her current credit card. If she can get a lower rate and help her town, great.
“I think if everyone stands behind it, why not? There’s little risk to us.
“I already have a credit card. I’m paying into these big companies. Why not get some of that money coming back into my community?”
It might not be quite that simple, said one person who works in the financial services sector.
Angus Watt is with National Bank Financial.
“One of the things you learn in business is you say, ‘What am I good at?’ You have to know what you do best and I don’t have any expectation that the City of Edmonton, City of Calgary or Gibbons are going to be good on their credit applications.”
Watt also says there’s no shortage of options for people who want cards. This wouldn’t fill a consumer need.
He also says politics could hurt the financial plan. Homeowners would no longer be dealing with Visa or MasterCard. They’d be dealing with their town and its elected leaders.
“Conceptually, the town of Gibbons will be kicking you off the front porch. And I would not want to be in that situation.”
O’Malley says Gibbons council is supportive of the credit card concept and fellow town administrators are saying they want to get involved, too.
If everything goes as he hopes, O’Malley wants to start a community credit card pilot project sometime in 2021.
If that project succeeds, he think other municipalities, provinces or even federal governments might be able to build on his idea to keep more money at home.