Town's financial position 'getting awfully close to the edge'
New Tecumseth has long term debt of approximately $53 million, not
including interest. The 2014 budget projects to increase that further
by $5.8 million. As it stands now, about $33 million of the debt is
assigned to be serviced by development charges (DC), with the remainder
financed by taxation.
According to a Provincial calculation that controls how much debt a
municipality is allowed to carry, New Tecumseth's annual repayment
limit is calculated to be $2,991,753. Based on current interest rates,
the Town could further incur long-term debt for the following amounts and
terms: $25,400,000 for a 10 year period at 3.21 per cent; or
$40,900,000 for a 20 year period at 4.01 per cent; or $50,000,000 for a
30 year period at 4.33 per cent.
Looming on the horizon is the requirement to debenture more than $20
million to pay for the new wastewater treatment plant in Tottenham,
which even though it is DC eligible, it still applies against the
Town's credit limit, which restricts borrowing capacity to deal with
other infrastructure requirements.
On Monday night, Allister Byrne, retired Town auditor and former
partner of the accounting firm Grant Thornton, who was engaged by the
municipality to provide a "high level" overview of financial stability,
told councillors that it was his "observation you are getting awfully
close to the edge, possibly a precipice of sorts on two very important
In his oral presentation that included some graphs comparing New
Tecumseth with its neighbours Bradford West Gwillimbury and Innisfil,
he pointed to shrinking general reserves, and a high combined debt
level that would come close to its capacity with the Tottenham sewage plant
"From my perspective, there is a pressing, possibly even urgent need to
recognize there's an elephant of sorts in the room, the issue that has
not yet in my view been fully addressed yet by the Town. That issue is
financial sustainability, both in the short term basis, as well as long
Mr. Byrne pointed to the recently tabled Asset Management Plan prepared
by RV Anderson, which concluded the Town was facing a $14 million
infrastructure gap, but reduced it to a five year horizon, which
brought that down to $5 million.
"That's better news than $14 million, but the problem is still the same
irrespective of the amount," he said. "Where's the money going to come
The presentation was verbal, and the handouts provided were some graphs
that compared New Tecumseth to Bradford West Gwillimbury and Innisfil.
Of the three, New Tecumseth had the lowest level of tax revenues.
"Congratulations, I think. .... One has to ask, how
has the Town managed to keep its taxes lower than the others over the
last five growing years? The answer in my view is the Town using parts
reserves, your savings, over a number of years to achieve balanced
budgets. This practice of course keeps taxes lower for the residents
than they might have otherwise been, but you have to ask yourself, at
Mr. Byrne predicted that at the current rate, general reserve accounts
would be depleted by 2015, possibly even next year. His recommendation
to add a one per cent capital replacement levy to property taxes,
approximately $18 per household, would raise about $247,000 annually
toward replenishing reserves. The draft budget proposes an eight per cent municipal tax levy hike to fund $2.4 million in expenditure increases.
"Over a 10 year period such a policy would generate $15 million that it
would not otherwise have to borrow or find money for," he said.
While Mr. Byrne suggested council lobby the province to remove DC debt
from the borrowing capacity equation, he also recommended the Town
return to a policy whereby developers pay the hard services portion of
DCs at the draft plan stage as it was previously. Spurred on last year
by Alex Troop and his Beeton proposal which now involves the Walton
Group as partners, councillors agreed to make all DCs payable at the
building permit stage.
Ward 3 councillor Paul Whiteside noted it was a "split vote, deferred
the collection of
our hard service DC from the signing of agreement to building permit
stage, which I was not supportive of. You mentioned that the timing of
those helps reduce that. Are we going to have to look at other
alternatives, have developers finance that upfront, because we
certainly can't go up to our ceiling, and then say we'll we've hit the
"Well, like everything in life, there is a balance," replied Mr. Byrne.
"But as you get to
acknowledge and recognize the challenge that you have everybody's got
to kind of share the pain a little bit. I think it makes a solid
business case to go back to the development community and look to be
funded sooner. That's option 1. Option 2 in my mind, in a community
that is growing as quickly as yours, that what makes sense to me is
going to the province and asking them to exclude DC related borrowing
from the borrowing limit. Because not every municipality has those
challenges. And quite frankly, it's not increasing the financial risk
to the province or the Town or whatever. It's in essence like a very
rich man owing you money. You know there's a lot of resources there.
thing applies with development charges debt. You know that the
development community can afford to repay and service that debt."
Mayor Mike MacEachern, a proponent of the change in DC timing, told Mr.
Byrne that "I know we did a little bit of financial analysis with
regard to collection of DCs, but
your comments seem to be different than the advice we were getting at
That prompted New Tecumseth CEO Terri Caron to explain that in their
view, when DCs are payable didn't make any difference to the bottom
"One of the issues that we discussed at the time whether the DCs hard
services being paid at the time of subdivision draft approval was
important, or whether it could be at building permit stage, what we
found was happening through experience is that it really didn't make a
big difference because what the developers would do is phase the
subdivisions, so the amount that would be paid wouldn't be very
different, and they would be selling the lots, building what they need
for the lots that they sold," she said. "So the timing between when it
paid as the lump, or be paid with the building permit was really not
very significant. They wouldn't register the whole plan and give you
all those hard services up front, they did it in the phases, so that
was the information we provided based on the review we had done and the
experience that we had."
The mayor added, "I just want to be careful about trying to take this,
and sort of put it
out to support something else, that's not really supporting it at all."
Ward 8 councillor Jim Stone said New Tecumseth is in a better position
than most municipalities because "we've used our debt to produce our
capability of accepting development,
and we at this present time probably have more capability of accepting
development, like industrial development, we have the hard services, we
have the sewage plant, I don't think other municipalities are up to
The mayor acknowledged "the rather large jump in debt happened in this
term" and was connected to the
regional waste water treatment plant, a DC eligible project.
"It's a valuable asset because it's generating a good revenue source
you and it has extra capacity, it's the best of both worlds," said Mr.
Byrne. "But that
graph says it still has to be paid for. It uses up that line of credit,
which is I think what people forget about."
"The challenge too is if you don't have the thing to sell, you don't
have anything to sell," added the mayor. "So when we talk about that
capacity that is
within that sewage treatment plant, without it, you don't have anything
to collect DCs on, because they need the servicing in order to be able
to progress to the building permit stage where we collect the