Few homeowners have the ability to pay cash for a house, up front, thereby creating the need for mortgage financing so they can enjoy a home right away and pay it off over time.
Few municipalities can afford to foot the bill, up front, for key capital projects that will either provide immediate benefits to the community (such as pools and rec centres), or infrastructure (such as roads and utilities) that will help a city attract development to boost its tax revenue.
Diane McMordie, St. Albert's director of finance, drew attention to the city's current debt policy at a council committee presentation May 30, and nudged at ways the city may want to update how it deals with debt down the road.
"While on the surface, some would argue the city has been fiscally responsible by severely restricting its use of debt, I’m going to challenge this notion a little bit today,” said McMordie, suggesting it might be time to re-examine the city's internal debt limits, established in 2003.
Indeed, McMordie is on the right track.
Avoiding long-term debt projects, as the city has long touted as a marker of its commitment to fiscal responsibility, has delayed essential growth projects, argued McMordie, which has also meant increased costs in some cases, or juggling retiring debt at the same time as incurring new debt for upcoming expenses.
Certainly, there are limits to what the city can take on. Just because lenders are more than willing to advance funds to municipalities doesn't mean we should overindulge. And just because the city may want to take on exciting new ventures doesn't mean it should.
But weighing what economists like to call "good" debt with the benefit of a long-term borrowing strategy means that future residents share in the cost of projects with past residents, rather than past residents footing most of the bill, said McMordie, which does make sense.
It's a more equitable solution, and also smooths out the financial kinks created when a municipality takes on too much at once.
McMordie told the committee debt can act as an affordable source of funding if utilized properly; a strong, strategic long-term debt plan will have a mix of old debt retiring, with new debt coming in. Achieving this balance means debt can complement “the sustainability of an organization,” she said.
Basically, if the city had been a bit more aggressive in past years, taking on more long-term debt to accomplish necessary projects, there would be a better balance between retiring debt and new debt, a much better management strategy for the city's overall financial health.
Conservative debt caps, as McMordie asserted, could also be re-evaluated to nudge things along, responsibly, but perhaps with slightly more risk, as St. Albert currently caps debt at 15 per cent below the limit set for municipalities by the Municipal Government Act.
It's encouraging to see city administration push for some financial innovation in an area that could reap huge benefits. Let's hope, as administration scans the municipal landscape across Alberta for better strategies, it comes up with solutions that are both forward-thinking, and fiscally sound.
Editorials are the consensus view of the St. Albert Gazette’s editorial board.