The City of Estevan has announced it will apply to the provincial government to have its debt limit increased by $10 million.
Council passed a motion Monday night to raise their debt ceiling from $45 million to $55 million. They will now forward the motion and application to the province for approval.
While calling the move unpleasant and troubling, Deputy Mayor Greg Hoffort said the decision is a necessary one for the City's long-term financial health.
"It's certainly not a pleasant task," Hoffort admitted. "It's needed to get us where we need to go with our projects that have been committed to by council to completion. It's priority number one for the entire council to start addressing the debt that just can't get any higher. It's really a burden to the City and the servicing costs speak for themselves.
"We need to get to the point where we are starting to draw down on that and we will get there."
In his comments, Hoffort noted there were several reasons the increase was needed. One major factor is that a number of their current projects are being either fully funded or co-funded by the provincial government and the City must put all the money up first before the province reimburses them.
For example, the flood repair work at the Estevan Municipal Airport - which is estimated at $5 million - is being paid for by the province while the costly Highway 47 rebuild is a 50/50 split with the province.
"There are several funding sources - provincial funding, Provincial Disaster Assistance Program grants, taxes and other grants - where you have to spend the money before you can receive the grants. Unfortunately, we are going to need a little more on our debt limit before we start getting to where we want to be and that is to reduce that substantially."
In his report to council, city treasurer and acting city manager Jeff Ward said the increase would "facilitate the cash flow needed within the next 15 months to comply with the payment amount set forth within contracts already tendered and awarded for the 2014 fiscal year."
Ward added the current plan also calls for the City to "term out" another $9 million to relieve the current overdraft as of Jan. 1, 2014.
"The current debt load facilitates an approximate reduction of the debt principal in the amount of approximately $5 million per year. Based on the assumption that no further borrowing will be permitted in the next three years, the debt limit at the end of each fiscal year will be as follows: December 2014 - $35 million; December 2015 - $30 million; December 2016 - $25 million."
Hoffort said as unhappy as council might be with having to increase the debt ceiling he is encouraged by the plan laid out by Ward and said it will allow the City to address the debt but also continue with important projects.
"We have an excellent management team who is under the guidance of the acting city manager and city treasurer addressing that and reviewing all expenditures for the forthcoming budget with a fine-toothed comb and making sure that we are very diligent about approving what is only necessary," Hoffort said.
"We are committed to some projects and that is, in part, where the debt limit increase comes from. We are not going to stop on finishing the Highway 47 work that we started this year, we have to finish Parcel F on Wellock Road, we have to finish the Affinity Place parking lot and there are some projects that we are committed to by contract that we just have to complete. There will be great attention paid to any expenditure approvals but we do have a city to manage, we can't shut down all finances entirely."
