The City of Estevan has gone from a time of spending, where a number of capital projects were undertaken, including Affinity Place and a new water reservoir, and is now in a period of paying back the loans made to complete those projects.
It's not unusual for cities to invest money in capital projects and borrow to meet those needs, following those times of spending with more fiscally conservative years that pay for those projects. Estevan is entering the second part of that cycle now.
"The public has seen a lot happen," said Jeff Ward, City treasurer, regarding the capital projects of the last five years. "That's why the debt situation is what it is. You got a lot done in a short period of time. It was in a period of time with growth, the reservoir, the rink, the highway. These were all needed things."
Now, he said is the time to pay for them.
Mayor Roy Ludwig said it's only recently city council has drawn a critical eye toward the debt load and decided to make it a priority.
"Our debt has crept up to the point that with our last council, we started to take a hard look at it and we asked 'what are our priorities?' The priorities of course are continuing with the needed growth, but at the same time, starting to pay down our debt, which hadn't been a big priority of the past. It's a huge priority for us now," said Ludwig.
As of May 1, the City of Estevan is carrying about $34.5 million of debt. The payment plans are now in the annual budget and will see the City pay off another $2.395 million on the principal amount this year, and between $3.4 and $3.8 million each subsequent year through 2020. Interest payments will top $1 million in 2015, before dropping to $876,647 in 2016, $739,064 in 2017 and $610,043 in 2018.
The city steadily built up a debt load as the opportunities provided in a booming area of the country allowed for attention to be turned to some large capital projects. The construction of a new arena and completion of a water reservoir saw the City borrow roughly $17 million in a short time. At the start of 2014, they borrowed another $3.5 million for the development of Parcel F, land purchased from St. Joseph's Hospital that may provide up to 21 new lots, as well as $4.1 million for work on Highway 47.
Ludwig said the City went through a period where it could get work done, and they wanted to capitalize on that opportunity.
With the new arena project in Affinity Place, he said, "(The Civic) had to be replaced, and with the government grants that we were able to obtain at the time, it was simply the right time to do that," the mayor said.
"We made a commitment as a council many years ago. We were at a crossroad. Do we take on growth and take on all the associated costs with growth? Or do we say no and let all of this growth go elsewhere? We said we would take on growth, we will spend the money, and as a result there were a lot of expenditures to make that happen. Now we have to pay those off."
"Expansion is the new norm," noted City Manager Amber Smale. "It's not going to slow down. It may even out. It may balance out in its pace, but Estevan 10 years from now is going to be way different than today."
As the debt is paid down, in order to better plan for the future, the City wants to build up a reserve so they don't have to borrow for capital projects, said Ward, who noted that in the future, the City will borrow specific amounts for specific projects.
"It should be working that a debt amount is taken specifically for one capital project," he said. "That's how it should be. Your operations should be coming from your property tax, it should be coming from your utilities to fund most of your operations and some significant capital projects. If there are big ones, a good example is our reservoir loan that we took out in 2011. It was $10 million that we took out for a $10 million project. Those should be specific."
Ludwig added that provides more transparency as well as ensuring the money is appropriately directed.
Ward said the City's financial picture will be much more transparent when loans are taken out for specific projects and their operations are covered by tax revenues, which he said may have fallen behind in the past.
"In some of these loan amounts, there was probably some catch up to balance the budget a little bit. Going forward, that's not the plan. We're making a plan and taking (debt payments) into consideration in our budgets," he said.
"There's no magic to it. In some cases, our expenses were more than the monies we were taking in because of the fact that for years we didn't have much for tax increases. Now we have that under control, and we're looking at only spending the money we have," said Ludwig.
"If we do have some cash reserves at the end of the year, it will be a council decision whether we want to put those in funded capital reserves, to move forward and complete capital projects or maybe it is pay down some debt to reduce interest payments," said Ward, noting council may decide to exercise two or more of those options.
"My preference would be to clear some of these older loans as soon as we can," added the treasurer, who noted the City recently paid off a 2009 sinking infrastructure loan for land development and another 20-year debenture from 1994 was cleared off the books. "We're getting to the point where it's sustainable."
The City's current loans are expected to be paid in the next 10 years, though that doesn't necessarily mean is will be debt free.
"Debt isn't necessarily a bad thing. You can leverage yourself correctly as you grow. We just need to be more conscious of the monies that we need to pay off those debts," noted Ward.
"We need to really prioritize our capital projects," said Ward, who added there will be incremental tax increases even though there will be fewer capital projects completed in the next few years than were undertaken previously. "You'll probably actually see less capital done because we've done it, and now we need to get to the fiscal end of it, start paying this down and doing prioritized projects as needed."
"What we're looking at is a predictable, achievable game plan that we have that we feel comfortable with, that at the same time will allow us to take care of our growth issues," added Ludwig.
