CBRM now in a low-risk category for borrowing after paying off debt

Councillors and staff in the Cape Breton Regional Municipality are breathing a sigh of relief now that debt servicing costs are at an all-time low, which officials say could mean more spending on infrastructure construction and repairs.

CBRM's cost of paying off debt hit a record high last year, while the municipality was paying off a short-term loan to help manage cash flow during the pandemic.

Now that the money is paid back, the debt servicing indicator has dropped dramatically and CBRM is now in a low-risk category for borrowing, according to provincial financial indicators.

After Wednesday's audit committee meeting, chief financial officer Jennifer Campbell said it's not clear when that's ever happened before.

"I don't know that for certain, but I would suggest that the answer to that is never," she said.

Until now, council's borrowing policy limited new debt to no more than what was being paid off in the same year.

CBRM's population has been growing and Campbell says as a result, the policy is no longer needed.

"Our revenue streams have grown and our debt servicing costs have come down and we're in a position that we can make wiser and better informed decisions on how much debt we take on going forward," she said.

"We had record high debts in the past that we weren't able to manage, and the current borrowing policy that was implemented ... was successful. It helped address that issue and now we're at the point where we really don't need to follow that methodology anymore."

Debt servicing ratio drops

Campbell said CBRM's debt servicing ratio reached over 18 per cent last year, which is one measurement the provincial government uses to determine the fiscal health of municipalities.

The ratio compares the cost of repaying debt in a given year to the municipality's annual own-source tax revenue.

The province issues a warning when the ratio reaches 15 per cent, which is considered a high-risk level.

With some major debts paid off, CBRM's ratio is expected to drop to 8.2 per cent, which is below the low-risk threshold of 10 per cent.

Campbell recommended the audit committee adopt a new debt management policy that limits annual borrowing to 1.5 per cent of CBRM's total property assessments.

She said that would allow the municipality to borrow more, if needed, while tying the debt to the growing tax base.

The committee voted unanimously to adopt the new policy, which includes annual reports on the debt situation and annual reviews to make sure the policy remains appropriate.

Deputy Mayor Eldon MacDonald, who chairs CBRM's audit committee, said council is not necessarily going on a spending spree, but they now have more wiggle room to work on roads and sidewalks.

"It's something we still have to watch," he said. "I'm very cautious on it, but to know that we have some room there with the low indicator to be able to borrow more and invest more in our communities, I think that's a good thing."

MacDonald said that will help as council gets into budget talks scheduled for Thursday and Friday.

"It's a good news story for sure, so I look forward to our budget coming up later this week ... and seeing where we can go in regards to helping to get some more work done."