Some provincial interest rates on new municipal loans have doubled, others tripled in one year as Alberta tries to limit credit risk on local loans.
That will mean increased borrowing costs for the City of Calgary and others at a time when civic budgets are strained, and grants remain tight. Previously, the province had offered municipalities below-market-rate loans.
In December 2021, Alberta municipalities were provided notice the province would increase lending rates. According to the city, the notice said that it was to help support provincial sustainability.
Alberta Finance Minister Travis Toews, in an emailed statement to LiveWire Calgary, said they continue to offer “convenient financing to local authorities at attractive rates and terms.”
Minister Toews said that the rates remain competitive but reflect credit risk being assumed by the province.
“Economic and fiscal uncertainties during the COVID-19 pandemic prompted an evaluation of the Government of Alberta’s financial risk exposure. This relatively modest change in approach in lending to municipalities is a result of that evaluation,” Toews said.
“Alberta is one of only four provinces that provides loans to local authorities for capital financing. The new lending rates are more comparable to what other municipalities and local authorities in Canada pay to their lenders.”
The City of Calgary administration said that it’s too early to tell what the impact will be. The work is confidential right now, but they will be reporting back to council.
“At first glance, this attempt to preserve provincial sustainability seems likely to compromise municipal sustainability with increased borrowing costs for The City of Calgary,” a statement from the city read.
Offloading to cities: Mayor Gondek
Posted indicative interest rates on a three-year loan went from .546 per cent to 2.42 per cent (Jan. 15, 2021 to Jan. 15, 2022). On a 10-year loan, the rate went from 1.29 per cent to 3.05 per cent. The 30 year loan rate bumped up from 2.3634 per cent, to 3.67 per cent.
The province had provided below-market-rate loans under the Alberta Municipal Financing Corporation Act and through the Alberta Capital Finance Authority (ACFA). The latter was dissolved on Oct. 31, 2020. Loans and lending rates are now offered by the province.
In the 2019 ACFA report, it noted they loaned $1.4 billion. With a one per cent increase in interest rates on those loans, it could mean up to an additional $14 million in finance costs in one year.
Calgary Mayor Jyoti Gondek said this has made some council members and administration nervous. She reiterated that they can’t quantify the impact yet.
“I think this is yet another example of the provincial government that wants to demonstrate good stewardship of their budget, but the only way they're getting there is to offload everything else to the rest of us as municipalities,” she said.
Without adding any sort of tax or service charge, you’re simply increasing the cost to municipalities, Gondek said.
“This is a way of saying, ‘you know, we're not going to make it look like we're increasing your taxes. We're just going to expect the city to pay more,’” the mayor said.
“How are we going to pay more for this? We've only got property taxes.”
Alberta Municipalities also said they were “surprised and disappointed” by the decision. They say the province backtracked on promises made when ACFA was dissolved.
They have sent a letter to the government wanting more information.
