Borrowing for the Future

Debt, much like tax, is a necessary evil in government.  Without taxes we have insufficient revenue and without debt we cannot fund growth.  Which is to say that debt has its place.

Interest rates are at historical lows right now, meaning debt is cheap.  Thus, there has nary been a time better to finance projects to stimulate future growth.  And municipalities in Alberta are doing just that, Peace River being no exception.

This does not free us from looking to the future, so money borrowed now must be serviceable in the future and the projects financed with debt should be projects that will provide benefits for years to come.

There are myriad ways to measure the prudence of borrowing.  I’ve chosen just a few that I’ve seen in other venues, namely the link above and here.

The government does consider whether the amount of debt a municipality carries is appropriate, that target currently sitting at less than 80% of the legislated debt limit.

Here is what Peace River’s total debt and debt as a percentage of debt limit has looked like since 2006.

Currently at roughly 20% of debt limit, there is obviously lots of wiggle room left.

On what are we spending this money?  Town bylaws show how much money was borrowed for what project.  In 2012 and 2013 that has mainly been paving, water infrastructure improvements, and road base improvements.  And $750000 for purchasing and installing the chairlift.

With the exception of one of these, the trend leans toward upgrading of infrastructure and, as far as I’m concerned, that is a worthy way to spend money borrowed at incredibly low interest rates.

How do we compare with our cohorts?  Since I’ve been informed on multiple occasions that assessment is of paramount importance when considering growth, I compare equalized assessment on a per capita basis against debt per capita.  If a town has way more debt on board then their assessment level, over time that debt is going to catch up to them.  Furthermore, if assessment is a harbinger of growth, if there are abnormally high levels of debt but low assessment, then debt is not producing growth.

The arrow signifies Peace River.  Not too much debt, not extraordinary assessment values.  Just nice and cozy right in the middle.

(The dot way up high is Banff.  Its assessment level is incredible, but I think that stands to reason.  The one all alone on the right is Slave Lake.  It has astronomical amounts of debt, I can only assume because of the fire.  One cannot begrudge them for borrowing to rebuild their town.)

Conclusion?  This may surprise some people but my conclusion is that Peace River is doing A-OK as far as debt is concerned.  Yes, it has gone up quite a bit in the last 3 years, but it still seems to be at sustainable levels. Since interest rates are at all time lows, it makes logical sense to me that we would borrow some cash to fix our infrastructure.

(To read more on borrowing for growth, go here.  If you want to see a visual of growth in action over the years, check out Google’s TimeLapse project.  Check out Peace River.  Also look at Blackfalds, the leader in population growth in this cohort over the last 20 years.  Taber and Bonnyville are about middle of the pack.)