Capital financing policy
Highlights of the Tax-Supported Capital Financing Policy Review
A report on Tax-Supported Capital Financing Policy Review was presented to the Standing Policy Committee on Finance and Budget on 2002 February 5.
The Committee recommended that Council approve a new financing policy to address the imbalance between The City's infrastructure needs and its financing capacity.
Under the new policy, which went to Council for decision on February 25, The City would have the capacity to borrow up to an additional $70 million a year for the next five years. The funds would be borrowed on a project by project basis, with Council approving each project and each borrowing by-law.
Any borrowings would not affect municipal property taxes because they would be repaid with reserve funds, which come from savings resulting from paying off previous debt.
The policy enables new money to be borrowed over a period of 20 years instead of the 15-year maximum debt term now in place. Under the new policy proposal, The City would always set targets for debt-servicing costs below 10 per cent of operating costs.
Current capital financing policies for The City are an amalgamation of policies developed over the past two decades. They call for The City to continue reducing outstanding debt and restrict the debt to a term much less than the asset's life.
The City has made substantial progress in paying down the municipal debt since 1985, when it reached $1.04 billion and debt-servicing costs were 22 per cent of the operating budget. Major capital projects and debt have been limited since that time, particularly considering the City's enormous growth. As a result, debt servicing only required 8.4 per cent of operating expenditures in 2001.
Population growth in Calgary during the past five years has led the nation, and in the last decade more than 183,000 people were added to Calgary's population, an increase of 27 per cent.
The phenomenal growth comes with huge demands on public infrastructure, including roads and public transit. In addition to infrastructure not keeping pace with the City's continual growth, there has been a decline in funding for transportation from outside sources.
The new capital financing policy will give The City the ability to borrow funds for these new projects so that it can meet some of the infrastructure demands. The Standing Policy Committee on Transportation, Transit and Parking will receive a report on February 19 outlining high priority transportation projects that can improve traffic flow.
For copies of approved City policies, please visit our Administration Policy Library.