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).
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.