DEBT MANAGEMENT POLICY

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1 POLICY MANUAL Page 1 DEBT MANAGEMENT POLICY Effective Date: May 22, 2001 Revision Date: Approved By: City Council Approved On: May 22, 2001 Resolution #: 2001-C-234 PURPOSE 1. The City Of Airdrie recognizes the foundation of any well-managed debt program is a comprehensive debt policy. A debt policy sets forth the parameters for issuing debt and managing the outstanding debt and provides guidance to decision-makers regarding the timing and purposes for which debt may be issued and the types and amounts of permissible debt. Adherence to a debt policy helps to ensure that a government maintains a sound debt position and that credit quality is protected. 2. Debt is an effective way to finance capital asset acquisitions, but its misuse can cause serious financial problems. Unchecked debt payments can soon become a major drain on tax revenues. On the other end of the spectrum is the notion of no debt at any costs. Unless there are other sources of funds to take its place, this policy can lead to crumbling infrastructure and poor service delivery, both unacceptable risks. 3. Under ideal circumstances, a municipality s long-term debt is proportional in size and rate of growth to its tax base, and does not put an excessive burden on operating expenditures from which debt servicing is drawn. The debt structure can influence cash management controls, operating expenditure flexibility, future borrowing capacity and use of short-term debt to finance current operations. 4. Advantages of a debt policy are as follows: SCOPE 4.1. Enhances the quality of decisions by providing guidelines, encouraging discipline, and promoting long-term consistency and continuity in decision making Rationalizes the decision making process 4.3. Identifies objectives for staff to implement 4.4. Demonstrates a commitment to long-term financial planning objectives 4.5. Is regarded positively by the rating agencies in reviewing credit quality. This policy will cover issues dealing with: 1. Use of Debt; 2. Comprehensive Capital Planning

2 POLICY MANUAL Page 2 3. Debt Limitations 4. Structural features of debt 5. Administration 1. USE OF DEBT 1.1. The City of Airdrie will only use debt financing for capital projects and will not use it for operational needs, unless approved by City Council The City will balance the use of long-term debt, with draws from reserves, contributions from operations, grant revenue and community fundraising for funding capital acquisitions. 2. COMPREHENSIVE CAPITAL PLANNING 2.1. Planning Municipal Development Plan The Departments of Planning and Development and Engineering are responsible for managing growth through comprehensive planning and the regulation of activities in the City. These departments coordinate the preparation and revision of the plan that includes policies for land use, growth management, infrastructure and environmental strategies Associated Plans and Policies The Municipal Development Plan provides a framework for the future growth of the municipality. It also establishes the process by which plans are adopted. These plans establish and use patterns within which standards are applied to ensure appropriate land assembly or separation occurs and infrastructure is provided. These plans include statutory planning documents such as Area Structure Plans, Area Redevelopment Plans and non-statutory plans such as the Land Use Bylaw, recreation and emergency services master plans, transportation studies, outline plans, ten-year facilities plans, and the infrastructure and off-site levy report Capital Improvement Plan The City prepares a three-year capital plan for consideration and adoption of the current year by the City Council as part of the City s budget process. Annually, the capital budget identifies revenue sources and expenditures for the coming current year and the next succeeding two fiscal years. The plan is updated annually.

3 POLICY MANUAL Page 3 Priority will be given to those projects that enable the achievement of Council s Strategic Priorities and implementation of approved City plans The City shall maintain current level of services before adding additional assets.

4 POLICY MANUAL Page 4 Funding for the Capital Improvement Plan Whenever possible, the City will first attempt to fund capital projects with grants, developer contributions, or other sources such as community fundraising where applicable, as part of its broad capital improvement plan. When such funds are insufficient, the City will use debenture financing and/or draws on other reserves. The City is guided by the following principles in selecting a funding source for capital improvements Equity Whenever appropriate the beneficiaries of a project or service will pay for it. For example, if a project is a general function of government that benefits the entire community, such as a library, recreation facility or major road improvements, the project will be paid for with general tax revenues or financed by debentures. If the project benefits specific users, the revenues will be derived through user fees or charges Maintenance 3. DEBT LIMITATIONS The City intends to set aside sufficient current revenues to finance ongoing maintenance needs Replacement and Renewal The City s three year capital plan will provide periodic replacement and renewal consistent with its philosophy of keeping its capital facilities and infrastructure systems in good repair and to maximize a capital asset s useful life Total tax supported debt payments in the operating budget will not exceed 10% of the total General Fund operating revenue, net of requisitions Total Utility fund supported debt payments will not exceed 25% of revenues generated through a rate structure Total outstanding tax supported debt shall not exceed.75% of the City s taxable assessment The City of Airdrie will ensure that any debt financing will adhere to sections 251(1) through 263(1) and the Debt Limit Regulation of the Municipal Government Act 4. STRUCTURAL FEATURES OF DEBT 4.1. Unless more advantageous interest rates can be obtained elsewhere, the City will obtain capital financing funds through the sale of debentures to the Alberta Municipal Financing Corporation.

5 POLICY MANUAL Page The City will only fund through long-term debt, capital projects having a life expectancy greater than three years The City will not fund the purchase of vehicles and small equipment, computer hardware and software through long-term debt even though their life expectancy is greater than three years. This excludes heavy equipment such as graders and emergency equipment such as fire trucks and ambulances. The City will adhere to the term for loans for various types of capital expenditures as outlined in the Alberta Municipal Financing Corporation Bylaw No Where the useful life of a capital project is less than three years and where the City s reserves and/or contributions directly from operations are insufficient to fund these capital projects the City may obtain financing from a bank, treasury branch or credit union, for a term no greater than three years, upon Council approval Where possible, the term of a long-term debt issuance will not exceed 75% of the useful life of the asset acquired. Furthermore, the repayment of principal on tax supported debt should generally not extend beyond 20 years unless there are compelling factors which make it necessary to extend the term beyond this point. By financing over the shortest term possible, lower interest rates and reduced future costs of financing result. This also allows for a debt-free period for the asset in which other financial policies such as capital reserve allocations can be initiated. 5. ADMINISTRATION 5.1. It shall be the responsibility of the Finance Director, within the context of the Capital Plan, to oversee and coordinate the timing and process of issuance of the City s borrowing requirements required in support of the plan.