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Town's borrowing capacity shrinks in 2014

Posted April 11, 2014

New Tecumseth's annual debt service obligations grew to $5.4 million (P&I) in 2013, an increase of $1.58 million, reducing the municipality's Annual Repayment Limit to $3.3 million in 2014, according to the Annual Repayment Limit (ARL) schedule posted by Ontario's Ministry of Municipal Affairs and Housing. It was $4.8 million in 2013.

The ARL "represents" a municipality's credit limit relating to debt and financial obligation. Its calculation is based on data contained in the annual Financial Information Return. It supposes principal and interest rates at five and seven per cent respectively over five, 10, 15 and 20 years terms (as illustrated in the chart below).

New Tecumseth

The ARL represents 25 per cent of a municipality's net revenues. For 2014 purposes, New Tecumseth gross revenues are projected at $42.3 million, which then excludes several various line items, including deferred revenue from development charges, reducing the net to $34.8 million. It's the DC category, which the Town has been borrowing against to pay for water and wastewater infrastructure upgrades, on the premise those DCs will be replenished by future development, that is impacting the borrowing capacity. In 2013 deferred revenue from DCs was $3 million. In 2014, it's show at $4.86 million.

The shrinking credit limit capacity comes at a time when New Tecumseth prepares to issue long term debentures to pay for the Tottenham wastewater treatment plant construction, valued at more than $22 million - which is to be recouped from DCs.

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