City borrowing from reserves to fund infrastructure work

For the first time, the City of Brandon is taking out an internal loan from development charge reserves to finance the growth in the southwest corner of the city.

During its regular meeting on Aug. 17, city council voted to authorize $1,475,000 be expended from two development charge reserves to fund the water and wastewater servicing infrastructure in the city’s southwest.

The new financial plan will pay for the installation of two 300-metre watermains prior to the construction of new roundabouts — one at 26th Street and Maryland Avenue, the other at 34th Street and Manitou Drive — which are needed to support the growing developments in the area.

According to the report submitted to council, $885,000 will be funded from the development charge water network reserve and the remaining $590,000 will be pulled from the wastewater network reserve.

However, the city’s water network reserve does not have enough money in it to pay for the project — hence the internal loan.

Currently, the city’s wastewater reserve has a projected closing balance of more than $2 million for 2026, whereas the water reserve only has a projected closing balance of $245,060.

In order to fund the project, the city is borrowing $750,000 from the wastewater reserve and paying the loan back over a 15-year period with a 4.45 per cent interest rate.

According to Troy Tripp, the city’s director of finance, the internal loan is necessary to address timing discrepancies with new developments.

“We haven’t done an internal loaning arrangement before, but we were aware that this would likely be a necessary tool for us to utilize,” Tripp said in an interview Monday.

“The money that’s raised through development charges … is collected to actually construct the infrastructure that’s required for growth,” he said, explaining how this financing model is a common approach for other municipalities.

“We felt this was the most practical solution for the current requirements,” Tripp said.

According to Tripp, administration did look at other borrowing options as well.

“In the past, the city has utilized external debt,” he said, citing other financing options like debentures or external financing loan arrangements.

But the reason the city is internally financing this development, he said, is because the money is sitting in the reserves and it “preserves the integrity and the principles of the development cost charge system.”

Since development charges were implemented in 2018, the city has collected these charges from developers to pay for city-owned infrastructure such as water, wastewater and roads.

While money sits in the reserves, it collects interest — which is why the city is charging itself interest on the loan, to account for the interest lost by taking the money out of the reserve.

Tripp said there aren’t any immediate concerns about the fiscal impacts from the internal loan.

“The benefit of this is that over the next number of years, that infrastructure that’s required is going to start being built, and as we collect future development cost charges resulting from that infrastructure, that is going towards ensuring that these DC reserves are able to accommodate future growth,” Tripp said.

Because this is the first time a financial model like this has been used in Brandon, there is no official framework for inter-reserve borrowing.

According to the city council report, administration is currently making a reserve policy to set the groundwork for how future borrowing will work, but Tripp doesn’t think inter-reserve borrowing will be used more frequently.

“I don’t see it becoming a regular practice. There’ll be a time and place when this avenue makes the most sense for the city.”

The policy is slated to be presented to council in September.

» rgerrard@brndonsun.com