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City of Edmonton’s debt: breaking down the numbers

EDMONTON – One of the themes emerging in the municipal election campaign is the city’s debt, and how a new look council will deal with it. So as part of a three-part series, we are looking at what Edmonton’s debt is paying for and why Council decided to borrow the money.

Here are the top five infrastructure projects, which make up a nearly a billion dollars worth of debt:

  1. South LRT – $490M
  2. Multi-purpose rec centres – $148M
  3. Whitemud Drive/Quesnell – $135M
  4. North LRT – $109M
  5. Terwillegar Rec Centre – $102M

Current total: $984M

And there’s more on the horizon: $117M for the new Walterdale Bridge, and $94 million for initial works on the Valley Line LRT expansion. By 2016, the city’s debt it will be an estimated $2.9 billion; it’s expected to drop to the $2.4 billion range by 2021 – all of this assumes that no new major projects will be financed through borrowing.

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The numbers may seem daunting, but there are strict rules in place when it comes to how much cities and towns can borrow, and how much revenue they can use to pay off that borrowing. All of it is set out in the Municipal Government Act.

The Act states municipalities can’t borrow or run deficits for day-to-day operations. The city has even stricter guidelines through its own debt policy. But since 2007, the city – through direction of Council – has been using debt as a tool to get projects built.

One of the main reasons for that has been low interest rates. Municipalities are able to lock in interest rates for the length of the borrowing term – ranging from 1.59 per cent for a 5 year term to 3.27 per cent for a 25 year term.

As with all debt the city takes on, funding sources to pay it off have to be put in place. The LRT expansion to Century Park, for example, is being paid off by the Federal Gas Tax.

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Property taxes also play a role in paying off debt. For every $157 of property taxes paid, $11 goes to debt repayment.

Like a business, City Hall is using debt financing to build what’s seen as key infrastructure, with the hope for a good return on investment. The idea is that if future generations will use it, they should help pay for it.

Ultimately, the question becomes how comfortable Edmontonians are with debt, and whether voters support the idea of using it to build a city.

On Wednesday, some councilllor hopefuls will weigh in, and on Thursday, we’ll speak to several mayoral candidates about it.

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For a more in-depth look at the debt issue, here is a list of some City sources, which should answer your questions:

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  • From our annual Operating Budget 2013 document (on pages 446-449), you can get a sense of how much of the budget is dedicated to debt repayment. In the glossary at the back, there’s also a definition of debt and information about how much debt municipalities can take on.
  • The appendix of the document below shows the total projects financed by debt, and the next couple of years of projects coming on stream including the arena and SE-W LRT.
  • And finally, the Capital Investment Agenda (pages 21-23 in particular) should give you a better handle on debt projections in the future:
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A key distinction that should be made is that even though our total debt in those years increases, not all of the debt for those projects is being paid for, or serviced, by taxes. Monday’s Executive Committee report which showed that only about one-third of the total debt is financed by taxes; the rest is financed through grants from other orders of government, utility fees, and neighbourhood improvement levies, among other funding sources. The arena debt, for example, will be financed mostly by Community Revitalization Levy (CRL), future ticket tax, parking fees, contributions from Katz Group, etc. So it’s important to distinguish between total debt and the sources of financing of that debt.

Files from Vinesh Pratap, Global News

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