Tuesday, March 30, 2010

City of Calgary CFO says short-term infrastructure borrowing makes financial sense

In 2007, the Province of Alberta and The City of Calgary signed a funding agreement as part of the Municipal Sustainability Initiative (MSI) that would see the Province provide The City with $3.3 billion in funding over the course of 10 years.

In the 2010 Provincial Budget announcement on February 9, the Province revealed that funding to The City of Calgary would be less than was expected for 2010 – instead of $407 million, The City would instead receive $254 million – a reduction of $153 million.

This announcement posed a problem for The City as it had budgeted these funds for the start of several major projects, including West LRT, extensions to the CTrain system and the construction of affordable housing and community fire halls.

In hopes of addressing these budget shortfalls, The City of Calgary approached the Province to request a change in the requirements for MSI funding – that an increased amount be permitted to be applied to cover interest costs of short-term borrowing to fund these projects. The Province agreed to these changes, which will allow The City to borrow an increased amount in the short term to permit construction, which will then be paid off as the MSI funding is received in future years.

According to The City of Calgary’s Chief Financial Officer, Eric Sawyer, this increased borrowing strategy makes financial sense.

“By using borrowing to advance the work, we are able to get these infrastructure projects built sooner and when needed rather than waiting for funding to come in years down the road. By doing the work sooner, we are able to avoid construction cost escalation and take advantage of today’s low interest rates,” says Sawyer.

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