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.

Debt and Debt Limit

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.

Screen Shot 2013-10-12 at 10.40.29 PM

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.)

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3 Responses to Borrowing for the Future

  1. Francois G says:

    Tony-
    Raw data can be manipulated, presented and interpreted in many ways in order to meet the needs of the creator. As one who works with statistics, metrics and KPI’s on a regular basis in my career, all readers should ‘be aware and read with care’, as charts and statistics only paint a small picture of the entire issue or situation.

    • pharmadaddy says:

      I completely agree Francois. That is why I post my methodology and references. If anyone wishes to, they can access them and challenge my calculations and conclusions. Are you of the opinion then that in the case of this post, the statistics do not support my conclusion that although debt has spiked, it is still well within manageable bounds and has been spent for the most part on appropriate capital projects?

      • Francois G says:

        Tony-
        If I agree or disagree is irrelevant to your moot posts here and on Facebook. As you just stated, “the statistics do not support my conclusion…” clearly showcases your intended bias herin. The continued attempt to sway voters is absurd (in my opinion) subtle or directly against current council and mayor, who have and continue to do an amazing job fixing the previous mayors shenanigans, with the vision and passion needed for our town going forward. Peace.

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