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POLICY
Owner Department:
Finance
Debt Management Policy
Effective Date:
October 18, 2010
Last Reviewed Date:
March 1, 2021
Approving Authority:
Moncton City Council
Replaces No.: Policy 0220
1. Purpose Statement
This policy will assist the City of Moncton in managing debt, while allowing growth and ensuring
infrastructure sustainability.
A formal debt management policy will facilitate the City's ability to manage its financial resources
available to support existing capital investment, as well as preserve borrowing capacity for future capital
investment.
The purpose of this policy is to:
1. assist in maintaining a strong financial position;
2. encourage and facilitate orderly planning and budgeting of capital programs;
3. limit the impact that debt charges will have on future property tax and utility rates;
4. match the cost of debt to those who benefit from the use of the capital, creating intergenerational
equity;
5. provide flexibility of current operating funds to cope with changing economic conditions;
6. effectively support initiatives as identified in the municipal Strategic Plan.
2. Definitions
Business Case: refers to an analysis that demonstrates the necessity for, and viability of, a new project. A
business case will include a brief financial analysis and a financial plan that identifies and confirms sources
of funding to provide for the financing of the capital and operating costs of a new project as well as
itemize what priority the project should be given.
Capital Budget: is the corporate capital plans formulated based on prioritized capital investment and
capital maintenance needs for both the General and the Utility funds in which there is no pre-defined
budget allocation to each department.
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Capital Expenditures: means expenditures incurred to acquire, develop, or renovate assets where the
benefit of the expenditure will extend beyond a one-year period and the amount of the expenditure
exceeds the City's minimum capitalization threshold.
Capital from Operating: represents annual tax levy revenues that are budgeted within the operating
budget to finance tax-supported capital expenditures.
Debenture: municipal bonds issued through the Municipal Finance Corporation. A 'debenture issue'
involves the consolidated borrowing, at one point in time, of amounts that may be authorized by Finance
Corporation. Debentures range from 5 to 20 years.
Debt Ratio: is a measure of the portion of the municipality's budget which is allocated to the repayment
of long-term debt. It is calculated by dividing total fiscal cost by total expenditures.
Fiscal costs: means annual required debt repayments including interest and principal.
Intergenerational Equity: means matching the cost of debt to those who benefit from the use of the
asset.
Long-Term Debt: means a debt obligation that is typically issued for capital expenditure.
Tax-supported Debt: refers to all internal and external debt incurred that will be repaid, together with
interest, through municipal property tax levies. The establishment of annual property tax rates will be
sufficient to provide for the annual debt servicing requirements and the orderly repayment of the debt.
Utility Rate Supported Debt: refers to debt incurred for utility capital projects that will be repaid,
together with interest, by a portion of the annual utility rate charged to utility operations customers.
3. Policy
This policy provides a framework and guiding principles for the management of long-term debt.
A debt management policy is a crucial consideration in long-term financial planning and solid financial
management of a municipality. The debt affordability of the City is based on the output of the long-term
financial plan considering the known facts at that time as well as educated assumptions. The debt
affordability will be calculated each year during the long-term financial exercise and will be adjusted
accordingly based on known facts at the time. The debt affordability is dependent on multiple factors
including assessment increases, service level changes, inflation, cost of major projects as well as other
factors.
To meet the objectives of this policy, the annual budget approved by City Council will be developed based
on the guiding principles outlined in the annual long-term financial plan for both the general operating
fund and utility fund.
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All borrowing requirements for each year will be identified in the annual Capital Budget and upon
Council's approval of the budget will be submitted to the Municipal Capital Borrowing Authority board for
approval of the borrowing program.
4. Benefits
By reaching a clear understanding of its objectives in terms of debt management, and by continually
measuring progress towards achieving those objectives, the City can attain greater long-term fiscal
stability and prosperity, therefore maintaining stable tax and user rates.
5. Authority
City Council, through resolution, approves the borrowing requirements in conjunction with its approval of
the Capital Budget.
The application to the Capital Borrowing Board for authorization to obtain money by way of a loan, by the
issue of a debenture, or to guarantee the repayment of any loan or issue of a debenture of another party,
must be approved by City Council through resolution in accordance with the Municipal Capital Borrowing
Act.
6. Legal and Regulatory Constraints
Debt can only be issued in compliance with all appropriate provisions contained within the New
Brunswick, Municipal Capital Borrowing Act and as provided by the Municipal Capital Borrowing Board and
the New Brunswick Municipal Finance Corporation.
7. Administration
This section outlines the guiding principles and the directives that ensure that these guiding principles are
followed.
Guiding principles
1. Long-term debt will not be incurred for operating purposes.
2. The City will only incur and carry long-term debt to support capital projects pursuant to approved
capital budgets.
3. The City may, from time to time, incur short-term debt (i.e. bank line of credit funding) to bridge
short-term cash flow requirements.
4. The City will consider reserves as a source of financing to support approved capital projects.
5. The City will continue to provide a "Capital from Operating" program within the operating budget
to support approved capital projects. Any increases to the annual "Capital from Operating"
program will be made through the annual budgeting process.
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6. The City will consider emergent capital initiatives as they arise through the business case process
and will assess their impact on current and future borrowings, debt ratios, property tax rates and
current level of capital borrowing covered.
7. The City's borrowings will not exceed the guidelines of the Municipal Capital Borrowing Board, in
specifics:
a. Total General fund debt outstanding will be less than 2% of the municipal assessment base
in each year.
b. General fund annual debt service cost should be less than 20%.
8. The amortization period of new debt incurred shall not exceed the estimated life of the capital
project being financed. On a case-by-case basis, if a project is deemed to be in the best interest of
the City's long-term sustainability and would otherwise not be possible, an extension of borrowing
terms may be considered.
9. Long-term debt will generally be obtained through the New Brunswick Finance Corporation. Other
financing options will be considered if advantageous and suitable, and authority will be requested
from the Municipal Capital Borrowing Board.
10. Due to its extensive capital nature, the utility fund annual debt service cost should not exceed
35%.
11. Unused borrowing authorities will be reviewed annually to determine if they require to be
maintained and if not, will request for them to be voided and returned. The City will follow the
Municipal Capital Borrowing regulations and return unused authority upon project completion and
once the aging of the authority reaches the 2-year threshold, as indicated by the Municipal Capital
Borrowing Board.
12. Capital Debt will be divided in the accounting records.
13. The applicability of all other existing financial policies should be reviewed and considered,
including but not limited to the following:
a. Reserves Policy
b. Capital Asset Policy
8. Responsibilities
The City's Finance Department will:
1. coordinate the development of a Capital Budget for Council's review and approval;
2. develop the application for Municipal Capital Borrowing Board approval;
3. borrow authorized funds as required;
4. make debt repayments as required;
5. recommend changes to the guidelines outlined in this policy; and
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6. recommend any revisions or amendments to this Policy that may be required from time to time, as
a result of changes in applicable statutes, accounting standards, economic conditions, etc.
Administration and Contact
City Hall
655 Main St., Moncton, NB E1C 1E8
Telephone: 506.853.3550
Email: [email protected]