Barrie and Borrowing

Some talk recently about the City’s debt. True that we have had to borrow recently to build (among other things) the new clean water plan, the expansion to the pollution control plant, and the Holly Recreation Centre.  Here’s a message I recently sent to someone who was asking about the City’s debt:

The easiest way to think about this is like a mortgage on your house.  Almost nobody has enough cash to buy a house outright, so you take out a mortgage.  The City is no different – we don’t have hundreds of millions of dollars in the bank to use when we need to build a new building, so we essentially take out a mortgage.   The key question in making this decision – just like with your home budget – is how much of a burden the mortgage payments are.  Can you make your mortgage payments, and pay for everything else you need in life, without running into any kind of financial trouble, based on your income. 

In 2010, our debt payments were 4% of annual revenue.  This is the equivalent of someone who makes $40,000 a year having mortgage payments of $1600 per year.  Obviously, that’s a very low level of borrowing costs relative to income. 

But – Barrie does have to take out a bigger mortgage over the coming years, because we don’t have the cash to build the clean water plant or the pollution control plant.  However, one of the reasons our credit rating has stayed consistent despite the extra debt is because not only is our current debt relatively low, but Standard and Poor’s feel that our revenues are also likely to increase in the coming years due to economic growth (the new TD operations centre is a good example).  So while our debt costs are increasing, they’re very low to begin with, and the analysts believe we will have more income to cover increased debt charges in the future.

Overall, however, I think Barrie does need to reduce some areas of capital spending.  While we actually need to spend more than we have been on fixing roads and pipes, we need to take a very hard look at other projects to ensure we’re making fiscally responsible decisions.  This year, the draft capital budget calls for a fairly dramatic reduction in spending and I think that’s appropriate given the level of spending over the past few years, associated in part with the economic stimulus projects.

About jefflehman
Jeff Lehman is the 46th Mayor of the City of Barrie. The Ward 2 Councillor for the City of Barrie from 2006 to 2010, he was the Chairman of the Finance Committee of Council, chaired the City’s Growth Management Working Group, and created the Historic Neighbourhoods project, a new initiative to protect and revitalize Barrie’s oldest neighbourhoods. Jeff has lived in Barrie for most of his life, having grown up in Allandale and attended Barrie Central Collegiate. Jeff holds a B.A. from Queen’s University, and a Master’s Degree with first class honours from the UK’s prestigious London School of Economics. He was hired to teach at the LSE following his graduation, and lived and worked in London for two years as an academic. Since that time, as an economist, he has worked with cities across Canada to manage redevelopment and invest in their urban infrastructure. In 2005, he established the Growing By Degrees Task Force to assist in expanding university education opportunities in Barrie, and has volunteered his time with many organizations in the City. Jeff lives near Downtown Barrie with his wife, Jennifer, a part-time professor of political science, and their young daughter Cassie, who is already smarter than her father.

Comments

3 Responses to “Barrie and Borrowing”
  1. How can you say that this is a very low cost of borrowing?
    If somebody makes ONLY $40K a year and has to pay $16K for mortgage he will not have enough for living because:
    1. The Income Tax will take away about 15-20% – $8,000
    2. The Property Tax in Barrie is very high and with your calculation a house would be $400K . as a result of this the Property tax would be about $5,600

    How could live somebody in Barrie with a Net income (after Tax) of $ 10,400 ? Not possible.

    Since you mention that the City needs to borrow even more , that means the City will not be able to pay his credits in the future. That will lead automatically to higher Tax and means people have to leave.
    It also makes me wonder why I read recently that Barrie has a AA rating ??

    We live now 10 Y in Barrie and getting prepared to leave – because:

    1. We wanna give our Children a future (well paid jobs – Not this min wages)
    2. As mentioned , living is way to expensive
    3. With age you are looking for health care – which is not available
    4. Lifestyle has gone

    Regards,
    J. Heller

    • jefflehman says:

      Hi Jurgen. Thanks for your post, but the amount is $1,600, not $16,000! $1,600 per year is about $150 per month. I don’t know about you, but I don’t know anyone with a mortgage that low. JL

      • Jeff,
        if somebody makes only $40 K annually he should not have any mortgage at all because he will struggle on its daily expenses for living, not including any mortgage.

        The current financial situation of the City of Barrie does confirm this statement. The City took two new large mortgages of $150,000,000 for water treatment plant and $ 75,000,000 for pollution control center and is stretching its payments over a period of up to 40 Years. That shows the City already must have issues to make payments, otherwise it would keep the mortgage period short and save on interest cost.

        Well, if you would have to run a company , I would say the company would be bankrupt soon. But government can increase taxes and have others pay the bill.

        Lets keep it straight – the City borrows money and is leaving the payments to the upcoming generations.

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