The Royal Bank of Canada will provide an $8-million loan for the city’s high-service pumphouse replacement project, a loan that will also increase the municipality’s debt load to $75 million.
During the Nov. 8 executive committee meeting, council unanimously authorized finance director Brian Acker to “negotiate, approve and enter into all necessary agreements” with RBC and approve other documentation or agreements required so the City of Moose Jaw can borrow $8 million for the project.
Furthermore, council instructed the city solicitor to prepare a borrowing bylaw based on the terms and conditions that the finance director has negotiated with RBC.
This recommendation will only become official when council approves it as a motion during a future regular council meeting.
Council authorized city administration during the Aug. 23 meeting to issue a request for proposals to finance the pumphouse replacement project, and after doing so, the finance department received two proposals — from RBC and Toronto Dominion Bank — by the Oct. 12 deadline, explained Acker. City administration recommended RBC since it provided the best overall value.
City hall will use the borrowed money to partially fund the planned expenses for the project, while $2 million will come from federal Gas Tax funding and $4 million from provincial Municipal Economic Enhancement Program (MEEP) funding.
The City of Moose Jaw’s debt limit is $95 million, while current outstanding debts total just over $67 million. Adding the $8 million will increase the outstanding debt to $75,074,380, Acker said. Meanwhile, an interest rate of 2.59 per cent over 15 years of the loan will add another $1.68 million in costs.
The municipality has also guaranteed a $1-million line of credit for the Moose Jaw Municipal Airport Authority, which adds to the debt limit. However, that guarantee expires in April 2022.
The proposals from RBC and TD Bank were for interest rate swap loans with a credit spread, while the differences in the proposals were primarily the repayment schedule, he continued. TD Bank offered a monthly repayment plan, while RBC offered a quarterly repayment plan.
A “swap loan” occurs when two parties trade fixed rates of interest for variable rates of interest on a borrowing loan, explained Acker. The interest rate paid by one party is fixed for the life of the swap, while the interest paid by the other party offsets the floating rate payments.
“This type of loan allows an organization to convert variable rate loans into fixed-rate loans to provide cost certainty and protect against potential interest rate increases,” he said. “This effectively eliminates the interest rate fluctuations of the banker acceptances.”
The 15-year swap rate is two per cent while the credit spread is 0.59 per cent, resulting in a total interest rate of 2.59 per cent.
Of the outstanding debt, $62 million relates to water and sewer projects, while $13.1 million is for the multiplex, Coun. Heather Eby pointed out. So, when residents question why water rates and taxes are where they are, they should understand that council has borrowed millions to support water security initiatives.
“Borrowing means we have work going on and we’re making our community better,” she added.
The next executive committee meeting is Monday, Nov. 22.
