November 20, 2009

Toronto to extend borrowing term to finance 10-year capital plan

VINCE VERSACE

staff writer

The City of Toronto plans to accelerate its borrowing of funds to finance its 10-year capital plan of $16.1 billion. The city says it will follow its affordability guidelines that limit its debt to 15 per cent of the property tax revenues forecast for any given 10-year period.

Toronto’s current tax-supported debt is approximately $2.4 billion to the end of 2009. The proposed capital plan earmarks $2.4 billion in spending for 2010 and $2.5 billion for 2011 and 2012.

“Funding the needs of our capital budget programs will be done through a mix of financing strategies that closely match the lifespan of projects and keep the city’s total debt within council- approved guidelines,” Cam Weldon, Deputy City Manager and Chief Financial Officer, said in a statement.

The city plans to refinance parts of it current and future debt by paying down existing debt and borrowing funds for selected projects on 30-year terms as opposed to the current 10-year term. The 30-year debt will be used to finance long-term assets such as subway tunnels and subway cars.

Toronto will use a Toronto Hydro promissory note, which had been dedicated to investments in the Spadina subway and waterfront development, to pay down approximately $600 million of existing debt.

The projects previously funded from this reserve will be refinanced for that amount over a 30-year period and only when they’re required.

Federal infrastructure stimulus funding for 500 infrastructure projects, ranging from road upgrades to public transit will result in a half a billion dollar investment. Ottawa’s $240 million contribution will be met by Toronto picking up the remaining two-thirds of the cost.

The Toronto of Board of Trade, in its capital budget submission to the city, commends Toronto’s use of federal stimulus funds and the promissory note. However, it is concerned with the use of 30-year debentures instead of the customary10-year debenture issued by Toronto. The Board says though it lowers Toronto’s interest payments, it raises the overall cost of its debt, totaling approximately $1-billion in interest payments over the additional 20 years.

The repair and maintenance of existing infrastructure stock should be a priority in the budget, the Board stated. Also, Toronto’s approach to ongoing asset management “needs to change.”

“The city should pursue more rigorous asset management based on lifecycle management practices to ensure that finite funds are prioritized appropriately,” the board submission stated.

“This requires long-term planning and accounting for (lifecycle) costs.”

Among the board’s recommendations to the city is that it incorporate the capital costs for hosting the 2015 Pan Am Games in its 10-year plan. Also, Toronto should start open public discussion on how best to finance and implement capital infrastructure projects and Metrolinx’s transit growth plan.

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