FAS-006 - Debt Management Policy_2019
Title: Debt Management
Subject: General Fund Debt Management Policy Category: Finance and Administrative Services
Policy No.: FAS-006 M&C Report No.: 2019-167
Effective Date: 2019-07-08 Next Review Date:
Area(s) this policy applies to: Cross Corporate Office Responsible for review of this Policy:
Finance and Administrative Services
Related Instruments: Policy Sponsors:
FAS-001 Asset Management Policy Commissioner of Finance and Administrative Services
FAS-002 Investment Management Policy
FAS-003 Reserves Policy
FAS-004 Operating Budget Policy
FAS-005 Capital Budget Policy
Document Pages:
This document consists of 7 pages.
Revision History:
Common Clerk's Annotation for Official Record
Date of Passage of Current Framework: July 8, 2019
I certify that this Policy was adopted by Common Council as indicated
above.
__ __July 10, 2019__
Common Clerk Date
Common Council Approval Date:
Date Created: Contact:
July 8, 2019
July 8, 2019 Finance and Administrative Services
City of Saint John
Debt Management
TABLE OF CONTENTS
1. POLICY STATEMENT.................................................................................................. . 3
2. DEFINITIONS............................................................................................................... 3
3. ACCEPTABLE PURPOSES FOR DEBT ............................................................................ 4
4. DEBT LIMITS ............................................................................................................... 5
5. DEBT ISSUANCE .......................................................................................................... 6
6. INTERNAL BORROWING ............................................................................................. 6
7. PAY AS YOU GO .......................................................................................................... 6
8. REPORTING ................................................................................................................ 7
9. RESPONSIBILITIES ...................................................................................................... 7
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City of Saint John
Debt Management
1. POLICY STATEMENT
1.1. The Debt Management Policy does not apply to Saint John Water;
1.2. The Debt Management Policy is established to ensure that all debt is issued
prudently and cost effectively in accordance with the Long Term Financial Plan;
1.3. The Debt Management policy objectives are as follows:
The City obtains debt financing only when necessary;
The City manages debt such that future financial flexibility is maintained;
The City strategically issues debt based on sound financial planning.
1.4. The Capital Investment Plan (CIP) is essential to intelligent planning of debt
issuance by prioritizing potential capital investment and potential sources of
financing.
1.5. All City debt issuance and management procedures will comply with the following
legislation where applicable:
Province of New Brunswick Local Governance Act
Province of New Brunswick Municipal Capital Borrowing Act
Province of New Brunswick Municipal Debentures Act
Province of New Brunswick Control of Municipalities Act
Province of New Brunswick Financial Corporation Act
2. DEFINITIONS
Sustainability – means meeting the needs of the present without compromising
the ability of future generations to meet their own needs.
Long Term Debt – means financing with a term over 10-30 years with municipal
bonds through the Municipal Finance Corporation or capital leasing as defined by
the Public Sector Accounting Standards.
Inter-Generational Equity – means distributing the costs associated with capital
investments across the generations which will be enjoying the benefits of the
capital assets built today.
Debt Term – the period of time during which debt payments are made. At the end
of the debt term, the loan is paid in full.
Internal Financing – means financing for capital purchases from reserve funds as
permitted in FAS-003 Reserves Policy.
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Debt Management
Pay-As-You Go Financing – means the use of operating funds for capital purchases
as opposed to using debt or reserves.
3. ACCEPTABLE CONDITIONS FOR USE OF DEBT
3.1. The City will issue long-term debt solely for the purpose of financing the projects
approved in the Capital Budget and the Capital Investment Plan (CIP);
3.2. Long term debt shall not be used to fund operating or maintenance costs or used
as a tool to balance the operating budget;
3.3. The Long Term Debt amortization period shall not exceed the life of the asset it is
financing;
3.4. The City shall promote a balanced approach between maintaining an affordable
debt level, maintaining infrastructure and accommodating growth by:
Utilizing this Policy in conjunction with the Asset Management Plan, FAS-
005 Capital Budget Policy, FAS-004 Operating Budget Policy and FAS-003
Reserves Policy.
Integrating debt issuance with the Capital Budgeting process to determine
the necessity, priority, and viability of the capital project.
Considering the Long Term Financial Plan, and analyzing the tolerance or
capacity to absorb and manage new debt given future priorities.
3.5. Debt will be structured to fairly distribute the costs over time, taking into
consideration inter-generational equity.
3.6. The City may also issue debt on behalf of an Agency, Board or Commissions (ABC)
under its control pursuant to Generally Accepted Accounting Principles to further
the public purposes of the City. The City shall take appropriate steps to confirm
the financial feasibility of the project, the financial solvency of the ABC, and that
the issuance of such debt is consistent with the policies set forth herein;
3.7. This Policy does not apply for the use of Short Term debt instruments.
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Debt Management
4. DEBT LIMITS AND DEBT CAPACITY
4.1. The New Brunswick Local Governance Act stipulates that:
A local government shall not, in any one year, borrow for its current operations any
money in excess of the sum represented by 4% of the budget of that local
government for that year or $15K, whichever is greater.
A local government shall not, in any one year, borrow for capital expenditures any
money in excess of the sum represented by 2% of the assessed value of real property
in that local government.
The total amount of money borrowed by a local government for capital expenditures
shall not exceed 6% of the assessed value of real property in the local government.
4.2. The City’s capacity to issue debt is directly related to Taxpayer’s ability to service the
payments required on the debt. Three key performance indicators will be benchmarked
and measured and the following debt limits shall be applicable:
Debt per Capita: This measurement can provide elected officials with a trend of
overall debt outstanding by measuring how much debt the City has per citizen.
General Fund Debt per Capita shall not exceed $1600;
Debt Service Ratio: This measurement allows elected officials to be aware of the
amount of the current year’s annual operating budget which is devoted to servicing
debt. The General Fund Debt Service Ratio shall not exceed 12%;
Total Debt Outstanding as a Percentage of Operating Budget: This measurement
identifies the percentage of annual operating revenues that would be required to
extinguish the City’s outstanding debt. The General Fund Total Debt Outstanding as
a Percentage of Operating Budget shall not exceed 70%;
4.3. Additional debt is only permissible when existing debt is within these limits, the limits will
be reviewed and updated on an annual basis;
4.4. The City’s General Fund target Debt Per Capita is $1175 by 2030, the City’s Debt Service
Ratio Target is 9% by the year 2030 and the City’s General Fund Target Debt Outstanding
as a Percentage of Operating Budget is 50% by 2030.
4.5. Long Term Debt Term shall be in accordance with the Debt Management Plan.
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5. DEBT ISSUANCE
5.1. A resolution of Council is required for all new debt issues.
5.2. The debt issuance process generally follows the steps below:
Notice of motion: Council gives notice of intent to borrow after 30 days
from the day of Council resolution;
After expiration of 30 days, Council authorizes staff to issue and sell to the
New Brunswick Municipal Finance Corporation debentures at such terms
and conditions recommended by the Corporation;
Application form filled out and submitted to the New Brunswick Municipal
Finance Corporation;
New Brunswick Municipal Finance Corporation advises the City of the actual
bond issue; and
Staff reports back to Council regarding terms of the issue, coupon rate,
price, average yield and settlement date.
5.3. Debt is structured to fairly distribute the costs over time, taking into consideration
intergenerational equity;
6. INTERNAL FINANCING
6.1. The City may use reserves as a source of funds for the internal financing of capital
projects as approved by Council. Any borrowing from reserve funds shall comply
with Policy FAS-003 Reserves Policy.
7. PAY-AS-YOU-GO FINANCING
7.1. The City will seek to gradually increase pay-as-you-go as an option for financing
capital over time. Factors which favor pay-go financing include:
Asset Renewal Projects;
Assets with a useful life that is less than 10 years – for example, IT
equipment and road maintenance;
Situations where additional debt could adversely impact the City’s financial
health;
Situations where market conditions favour the use of cash rather than debt
(for example, escalating interest rates)
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Debt Management
8. REPORTING
8.1. The total debt outstanding, and total annual debt service payments will be
reported in the annual consolidated financial Statements;
8.2. Key performance indicators for debt will be measured and tracked in the City’s
Annual Financial Health Report Card;
8.3. Long-term debt will be forecasted over the long term in a Debt Management Plan
based on the Capital Investment Plan as part of the City’s Long-Term Financial
Plan.
9. ROLES AND RESPONSIBILTIES
9.1 Council shall:
9.1.1 Approve the Debt Management Policy;
9.1.2 Approve new debt issues; and
9.1.3 Approve budgets sufficient to provide for the timely payment of principal
and interest on all debt.
9.2 Finance Committee shall:
9.2.1 Review borrowing requirements for alignment with the Long Term Financial
Plan; and
9.2.2 Recommend to Council the approval of new debt issues.
9.3 The Finance Commissioner shall:
9.3.1 Review the policy annually in consideration to meeting the City’s debt
management goals and submit required changes to the Finance Committee
for recommendation to Common Council consideration and approval.
9.3.2 Assume primary responsibility for the debt management process;
9.3.3 Determine the City’s available debt capacity and alignment with Long Term
Financial Plan;
9.3.4 Provide for the issuance of debt at appropriate intervals and in reasonable
amounts as required to fund approved capital expenditures;
9.3.5 Submit to Finance Committee and Council, all recommendations to issue
debt; and
9.3.6 Ensure compliance with the principles and mandatory requirements
contained in this policy.
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