Higher debt means higher taxes

Opinion

The City of Brandon is taking on massive new levels of debt, and it will be decades before that obligation is paid off. During the time those payments are being made, the city will struggle to fund other pressing needs, let alone address the city’s mushrooming infrastructure deficit.

That’s the upshot of a report in yesterday’s Sun, which revealed that the city is expected to have more than $173 million of authorized debt by the end of this year — and that it won’t be paid off until a staggering 33 years from now.

For comparison, the total authorized debt was just $47,712,524 just four years ago, while the outstanding debt was just $36,212,524.

The city is doing all that new borrowing in order to pay for big projects such as the water treatment facility upgrade, southeast drainage improvements and the southwest wastewater expansion, along with a number of smaller items.

Troy Tripp, the City of Brandon’s director of finance, says that “We’re borrowing for tomorrow’s needs so we’re not acting on impulse or borrowing for today’s wants … We’re being responsible with it and planning for the needs of tomorrow.”

That’s nice spin, but it only tells part of the story. The reality is that the city is taking on all this debt now, and incurring millions of dollars in interest charges, because previous city councils failed to engage in responsible budgeting processes for capital projects they knew, or should have known, would be needed.

In their misguided quest to continually keep property tax increases as low as humanly possible each year, they delayed construction of a number of projects. Given the impact of “construction cost inflation,” delaying those projects ensured they would be much more expensive when finally constructed.

Even worse, those councils failed to set aside money to pay for those projects. Instead, they drained reserves in order to reduce property tax increases. Worse still, they consistently failed to accurately estimate the cost of the projects, often by several million dollars. As a result, even more money had to be borrowed to cover that extra cost.

Even worse than that, those councils often failed to apply for funding that may have been available from federal or provincial governments for some of those projects. Doing so would have reduced the amount of money the city needed to borrow.

Viewed in its totality, this was a multi-year case of gross financial mismanagement, and Brandon taxpayers will bear the consequences of that negligence for decades to come, in the form of increasingly painful property taxes and water bills.

The most galling part of all of this is that many of the same councillors who made those poor budgetary decisions back then are still sitting at the council table today, including Mayor Jeff Fawcett. Their fingerprints are all over the mess they say they are fixing, but it’s taxpayers who are being stuck with the tab.

In yesterday’s report, Tripp also claimed that the city’s debt ceiling is “more of a recommendation” by the Manitoba Municipal Board, and currently sits at $231.6 million. Based on that, he says the city is only at three-quarters of its borrowing capacity.

Hold on there, Troy. On Aug. 18, city council deliberated additional borrowing an additional $10 million for the southwest wastewater project (yet another cost overrun — surprise!). The memo prepared by city administration regarding that issue said this:

“The Municipal Board utilizes two ratios when examining a municipality’s capacity for borrowing authority. The recommended ceiling for total authorized debt to municipal assessment ratio is 7%, while the debt servicing costs to current revenue is recommended to be no higher than 20%. Based on the 2025 Financial Plan and this proposed increase to the SWWWS Project borrowing authority, the City projects to have $173,394,795 in authorized debt at the end of 2025 and estimated debt servicing costs of $15.5 million annually if all debt was issued. These estimates result in ratios of 5.24% and 13.68%, respectively — well within the Municipal Board Guidelines.”

Nowhere in the city’s memo does it say the ceiling is just a recommendation. Beyond that, it’s obvious the borrowing limit is tied to the total assessed value of all properties in the city, as well as the total amount of property taxes the city generates annually. Note also that the memo forecasts total annual borrowing costs of $15.5 million, which is much higher than the $6.4 million discussed in yesterday’s report.

Both Tripp and the memo ignore the reality that a collapse in property values is occurring among downtown commercial properties, which have been a source of a huge portion of the city’s tax revenue for decades. That collapse is shifting an even heavier property tax burden to residential property owners, who are already being slammed by huge tax and water rate increases.

In other words, it’s one thing to say that the city’s planned debt is within the guidelines, but that conclusion has nothing to do with taxpayers’ ability to shoulder the additional tax burden that comes with that debt — a burden that is already making it very hard for many to afford remaining in their homes and will only worsen over the coming years.

If you aren’t paying attention to what is happening with the city’s finances, now is a good time to start. If you aren’t worried about how all that borrowing will impact your property taxes, water rates and ability to afford to continue living in this city, you should be.