Agenda Item No.: E.1.c.
Council Debt Management Fiscal Policy.
Recommendation:
1. That City Council Policy C203A – Debt
Management Fiscal Policy be replaced
and approved as outlined in
Attachment 1.
2. That the new Debt Management Fiscal
Policy be subject to a compulsory City
Council review in three years time.
Report Summary
This report outlines recommendations to
replace the current City Council Policy –
C203A – Debt Management Fiscal Policy
with a new policy.
In addition to increases from real
assessment growth, tax revenues will
increase each year at the rate of CPI for
Edmonton plus 1% to address the capital
gap.
The additional 1% tax levy is intended to
finance the tax-supported debt servicing
costs.
Report

Previous Council/Committee Action
At the June 18, 2002, City Council meeting,
the following motion was passed:
That the Administration prepare a report
for the September 17, 2002, City
Council meeting on the Council Debt
Management Fiscal Policy in order that a
Council decision can be made on
amending this policy.
At the same meeting, City Council approved
the guidelines for the preparation of the
2003 Budget and the 2003 – 2005
departmental business plans, including that,
The 2003 Capital budget and five year
Capital Plan will include a maximum of
$50 M in annual tax-supported debt
financing (total $250 M over 5 years);
recommended priority projects for
borrowing to be clearly identified
annually for approval by Council,
and that,
Routing:
Delegation:
Written By:
August 29, 2002
File: 2002COF076
City Council
Randy Garvey, Roger Rosychuk
Carol Engelking
Corporate Services Department
(Page 1 of 3)


The 2003 – 2012 Long Range Financial
Plan for the City of Edmonton
recommended a strategy of limited taxsupported debt as one funding source to
begin to address the $3.2 billion
infrastructure gap. This strategy
necessitates a debt management policy
change.
The existing policy requires that
municipal tax-supported capital
expenditures be financed on a pay-as
you-go basis, with no tax-supported
borrowing permitted. In this regard, the
City has not issued new debt since 1987
for tax-supported capital expenditures.
The existing policy was appropriate at
the time it was implemented, where the
organization had become reliant on debt,
interest rates soared and tax-supported
debt servicing costs had become
onerous. The City was considered a
model at that time as it introduced and
followed the pay-as-you-go approach for
tax-supported capital expenditures. As
outstanding tax-supported debt was
retired and no new debt was added under
the policy, savings in debt servicing
were applied to increase the annual payas-you-go pool, without a tax increase.
E
1
c
Council Debt Management Fiscal Policy


However, circumstances are somewhat
different today. Outstanding taxsupported debt will be fully retired by
the end of 2004. That being the case, the
existing debt management policy
provides for no further growth to the
existing pay-as-you-go pool beyond that
time. The City is experiencing
significant growth and the infrastructure
demands are great. Interest rates are low
to moderate.
Much of the existing Debt Management
Fiscal Policy reflects specific references
to the period of 1991 through 1996,
which are no longer relevant.
Key Changes Recommended to the Policy
Changes recommended to the policy are
generally to:
 allow tax-supported debt, subject to
consideration of a number of criteria
including a detailed business case
analysis, and the approval by City
Council;
 outline internal restrictions around debt
levels and servicing costs, which are
significantly lower than those
legislatively imposed by the Municipal
Government Act;
 require new revenues to fund debt
servicing costs on new tax-supported
debt issues; and
 remove specific information no longer
relevant.
The existing policy does allow debt for
utilities, self-supporting purposes and local
improvements. That does not change under
the recommended policy.
Budget / Financial Implications
The impacts of the introduction of up to $50
million ($250 million over five years) were
integrated within the 2003 – 2012 Long
Range Financial Plan. With City Council
approval of the new Policy, budget
implications will be fully addressed within
the recommended 2003 – 2007 Capital
Priorities Plan and 2003 operating budget.
2003 budget guidelines include a 1% tax
increase specifically directed to cover debt
servicing costs.
Legal Implications
The issuance of debt will be subject to the
restrictions and limitations of the Municipal
Government Act (MGA) and the Debt Limit
Regulation, AR 255/00, as amended, for
debt limits and debt service costs. The
policy being recommended to City Council
falls within the legal limits established by
the MGA.
Justification of Recommendation
1. Amendments to the Debt Management
Fiscal Policy are recommended based
upon the following:
(Page 2 of 3)

The financial health of the City is
sound.

The City is experiencing a period of
economic development and growth.
However, the funding available for
capital projects is not sufficient to
meet projected demands for
infrastructure rehabilitation and
growth. Furthermore, Council
approved financial policies make no
provision for growth of the pay-asyou-go funding beyond that provided
Council Debt Management Fiscal Policy
by retirement of the existing taxsupported debt.

Used wisely, debt is a financial tool
available to help address the
demands of large and expensive
infrastructure, at a point in time.
Increases over the longer term to
pay-as-you-go funding does not
address the larger dollar project
needs now.

Debt financing associates costs of
infrastructure for long life assets to
those who ultimately benefit in the
future.
corporate economic conditions of the
time.
The initial five year tax-supported debt
program should be viewed as a pilot
with a compulsory City Council review
in three years. This promotes a
conservative approach, careful to
maintain our positive overall economic
position and our financial flexibility over
the longer term.
Background Information Attached

Interest rates are at historically low
levels at this time. Once a debenture
borrowing is in place, the interest
rate is fixed for the life of the
debenture.

The proposed policy requires a new
dedicated funding source to support
the added cost of debt servicing, in
order that existing capital funding is
not eroded for that purpose. This
will necessarily limit the City’s
ability to borrow to a maximum of
our ability to pay the debt servicing
costs.
1. Proposed City Policy – Debt
Management Fiscal Policy
2. Existing City Council Policy C203A –
Debt Management Fiscal Policy

Under the proposed policy, City
Council must annually approve a
maximum debt envelope as well as
the specific capital projects for
which the debt would be applied.
2. It is acknowledged that the decision to
reintroduce borrowing for tax-supported
operations is a significant step for the
corporation. Further, the policy and its
application must continue to be
appropriate for the environment and
(Page 3 of 3)