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RMOW considers borrowing $125 million

Not enough in reserves to pay for infrastructure, buildings, but plenty of assets justify loans
1501munimoney
Rescuing Arts The RMOW is considering paying off the remaining cost of Millennium Place over 10 years rather than out of capital reserves.

Contrary to a long-standing “pay as you go” policy at municipal hall, council is considering going into long-term debt for several large capital projects.

If approved, the municipal debt-load could run as high as the $125 million mark beginning this year.

However, the bulk of that money, $100 million, will be borrowed to build the athletes’ village, with a goal of repaying it within five years as homes in the village are sold to local residents.

Roughly $25 million will finance large capital projects already underway, in conjunction with millions of dollars taken from reserves, or the municipality’s savings program.

While it’s an unusual step for Whistler, it’s par for the course for municipalities elsewhere, explained Diane Mombourquette, the municipality’s general manager of economic viability.

“It’s not unusual for municipalities to finance long term programs that are going to benefit taxpayers in the future,” said Mombourquette.

“It’s actually quite prudent to have a blend of the two (borrowing and using reserves).”

And while she admits it seems like a large amount of borrowing all at one time, even without the unique situation of the athletes’ village, it’s not a lot of money when compared to the municipality’s assets and its considerable borrowing power.

“We have assets over $200 million…” said Mombourquette.

“That’s not a very large debt ($25 million) on such a large amount of assets.”

The assumption of debt, however, comes at a time when Whistler is considering a property tax hike as well as considerable cost cutting measures at municipal hall.

In some respects it’s all a question of unfortunate timing.

Keep in mind, said Mayor Ken Melamed, several projects such as the wastewater treatment plant, the library, and Millennium Place were scheduled to be finished, and paid for, long before now.

“Things are catching up on us,” he said.

In addition, Whistler has not needed to invest in large upgrade projects to its major resort infrastructure until recent years.

The 2010 Games also has an indirect role to play as projects are pushed to completion before the Games.

“Because the Olympics are here there’s a demand to finish certain projects on time,” he said.

“This is a fairly unique period in time.”

It’s also fair to say that the days of paying for things like the Meadow Park Sports Centre in cash are long gone as the town reaches build-out and Whistler transitions to the steady state economy.

“We’re getting close to build-out and moving away from an economy buoyed by growth,” said the mayor.

Shelley Hahn, manager of financial services with the Municipal Finance Authority (MFA), which lends money to B.C.’s municipalities, said Whistler, which has very little debt, is in great shape to borrow money.

“Whistler’s in fabulous shape,” she said, adding that the community takes in about $50 million annually. “We’re not worried in the slightest and we’re the ones giving out the money.”

She explained that municipalities are beginning to see the value in borrowing money over time at a discounted rate, allowing the taxpayers using the service to pay for it over the lifetime of the asset, rather than saving for it and putting the money down in one large chunk.

Typically most communities borrow money, she added.

“We can get money cheaper than you can at the bank,” said Hahn, adding that there are a handful of communities in the Lower Mainland who don’t typically borrow.

Mombourquette will go before council at the Monday, Jan. 7 meeting to ask for approval for a loan authorization bylaw to borrow the money for the athletes’ village. The other loan bylaws will come for approval at a later date. Before Whistler can get the money, the Ministry of Community Services must give its approval too.

The following projects may be assuming debt either in the short term or over the 20 years, pending council’s approval.

The Athletes’ Village

This project, built for the 2010 Games, will cost roughly $131 million, according to the June 2006 business plan.

While the Vancouver Organizing Committee for the Games is kicking in $35 million and the municipality is kicking in $11 million (in cash and waived fees), there is still a gap of roughly $80 million needed to build the units.

The Whistler 2020 Development Corporation (WDC), the municipally-owned subsidiary charged with building the venue, needs to secure “construction financing” to come up with that money.

The financing model in the business plan assumes a 3.6 per cent annual borrowing rate, subject to provincial approval, which would save the WDC roughly $7 million compared to traditional borrowing rates.

The municipality will be asking for a $100 million loan from the MFA, though it does not anticipate using the loan in its entirety.

Mombourquette said this scenario is slightly different from the other projects because it’s a short-term loan — five years long — with the expectation that it would be paid back following the Games as the village is converted to employee housing and sold to people on the Whistler Housing Authority waitlist.

“It’s separate and distinct from all the others,” she said.

This is a kind of loan given in anticipation of revenue coming in the future to pay it off. It is different from long-term borrowing.

The Wastewater Treatment Plant

This $51 million project will bring much-anticipated and long overdue upgrades to the oft-smelly sewage plant in Function Junction, close to the new athletes’ village.

The project will be financed three-ways — from the Sewer Capital Reserve, an external grant from the federal and provincial governments, and from borrowing money.

“We actually haven’t finished our analysis in terms of what we’re going to borrow,” said Mombourquette.

She estimates it will be in the $15 to 20 million range over a 20-year period.

Over two-thirds of the $51 million will come from reserves and a federal-provincial grant.

In 2003 Whistler secured a $12.6 million grant from the federal and provincial governments for this project. That grant money is contingent on $20 million of work being completed by March 2008, a very tight deadline considering the bulk of the construction work began in August. It is not clear how much money has been spent to date.

When the grant was approved in 2003 the total cost of the project was an estimated $20 million. It was expected that the balance would come from municipal reserves. As the scope of the project changed and building costs rose, the project costs increased to $51 million.

“We’ve been doing our best to set aside enough funds to cover it,” said Melamed.

“Much to our chagrin the costs have risen above our ability to forecast what they were.”

The upgrades will most likely completely exhaust the sewer reserve, said Mombourquette.

“We’ve been building up the reserves knowing that there would be these major community investments,” she added.

Reserves are created for a variety of projects. Every year the municipality aims to contribute 20 per cent of its property tax revenue to capital projects or reserve funds, which are a savings plan to fund capital projects. It has fallen short of that 20 per cent goal in recent years.

The municipality plans to begin to replenish the Sewer Capital Reserve immediately, said Mombourquette, to build up money for future upgrades down the road.

Solid Waste Transfer Station

The total cost of closing the landfill and relocating the new waste transfer station to the entrance of the Callaghan Valley is not yet clear.

The project was fast-tracked because of the location of the 2010 athletes’ village.

The current Five Year Plan has a total project cost of $5.6 million.

The municipality expects to borrow $5.5 million to pay for this project.

The cost of the new state of the art composter will straddle both the wastewater treatment project and the solid waste transfer station project because they are intrinsically linked.

And, as Mombourquette pointed out, the money is all coming from essentially the same place.

“At the end of the day the same people are paying for everything,” she said. “It’s the taxpayers of Whistler.”

The sewer parcel tax, charged on all homes and businesses in Whistler, is expected to increase from $179 to $314 to help pay for the wastewater treatment plant upgrades. Likewise, all properties will be billed a $170 fee for the solid waste transfer station upgrades. Last year, only single-family homeowners were charged a $210 flat fee for this service.

MY Millennium Place

Instead of paying the $3.2 million to buy Millennium Place outright, the municipality intends to pay it off over time.

In May, as the mortgage came up on the building, council made the decision to buy the facility from the Whistler Interfaith Society. The municipality had guaranteed the loan in 2002 and had been paying the interest on the mortgage at a cost of $120,000 a year.

“Council chose to rescue it on behalf of the taxpayer,” said Melamed.

It has a vested interest, he added, in trying to make the facility more profitable.

Originally the money to pay for it was to come out of capital reserves. Council will now consider paying for it over a 10-year period.

The building was built for $7.4 million in 2001. It was most recently assessed at more than $10 million.

Library

The new $11 million library will also assume some debt, though it too is different from the others in that it comes from the Federation of Canadian Municipalities Green Municipal Fund.

A $560,000 grant from that fund was contingent on the municipality accepting a $3.2 million loan to be used to offset the costs of designing and building an environmentally responsible building.

“We weren’t going to shy away from (the grant),” said Mombourquette.

Her calculations show that the money lost in interest from taking the $3.2 million out of reserves is roughly equivalent to the interest costs of borrowing the money over time.

“I don’t think there will be a net cost,” she said.

“It’s also a place where you want to be recognized (for green building).”