City Starts Process To Set Up $15 Million Line Of Credit

By Robert Thomas

The City of Moose Jaw has joined many other cities in the province but for many it may not be seen as joining something in a good way.

On Monday evening Executive Committee gave the go ahead for the City to set up a $15 million line of credit with their banker – Bank of Nova Scotia – just in case the City overdraws on its bank accounts.

In a report to the Committee a number of reasons were given as to why the City will need a line of credit.

But it all has to deal with a change the City's investment policy, the investment climate and the success the City is having in getting a higher percentage of capital projects completed.

On the investment policy change front the City has moved from its traditional blue chip bond strategy to a more aggressive strategy involving purchasing equities as part of the investment strategy.

Bonds matured on varying dates allowing funds to be used to help manage the City's cash flow but the new strategy is a longer term investment strategy.

With the City's funds tied up in investments which have now lost $3.5 million of their original $100 million investment to sell now would mean taking the losses.

The financial hit to the City is even harder when the investments had the City with a profit of $2.7 million on their $100 million investment on January 1st. The City's investments lost $6.2 million from their start of the year value.

Additionally incoming grants from upper levels of government means funds may not flow into the City's accounts to help cover the large $82 million in planned capital and equipment expenditures.

These factors could leave the City with overdrawn accounts something the line of credit would help to prevent.

Many cities in the province have lines of credit. Prince Albert for example has a $12 million line of credit.

Administration gave Executive Committee two options:

- Sell Guaranteed Investment Certificates to cover any shortfall

OR

- Establish a line of credit.

DISCUSSION

In his presentation to the Committee finance director Brian Acker said although the report was written before the effects of the Covid – 19 pandemic the pandemic amplified the potential of the City overdrawing from its combined 16 bank accounts.

“The unforseen event of the pandemic does underline the need for a line of credit even if it does not happen very often it is a necessary necessary thing for most organizations,” Acker said.

In the past the City used the internally managed bond portfolio as its line of credit, Acker said. Each year $10 million in bonds matured.

“That gave us the ability to tap into that $10 million for cash flow purposes if we needed it.”

With the City's portfolio made up of longer term GICs and equities selling now would cost the City.

“When the market goes down you do not want to realize your losses to have cash flow,” Acker said.

The City has $38.3 million cash on hand and had intended on drawing it down to $14.6 million. The largest expenditure was $15.6 million for short term self financing upgrades to the waterworks utility.

The short term financing was to take advantage of infrastructure grants available to the City.

“From a financial point of view it certainly helps to have something to fall back on in terms of your cash flows,” he said.

The line of credit would only kick in if the City was overdrawn on all of its combined 16 accounts.

The line of credit would carry a 1.7 percent interest rate on any outstanding daily balance.

The $15 million line of credit would make for a potential $74 million in debt owed to the City if it was used in its entirety.

At present the City's debt is $59.2 million with a debt limit approved by the Province of $95 million.

Speaking in favour of the motion Councillor Crystal Froese said getting the line of credit made sense.

“I think that it is prudent planning. It is good to know we did not have a line of credit before but we are in very interesting times and I just think this is a good safety net for us,” Councillor Froese stated.

In a vote of 6 – 1 with Councillor Brian Swanson the lone voice of opposition the motion passed.

The process to establish the line of credit is expected to take two months as a borrowing bylaw must be approved by Council first.