Grey Highlands approves $4 million in new debt

Grey Highlands council has approved taking out just over $4 million in debt through a loan from Infrastructure Ontario.

Council approved the debenture’s issuance at a special meeting on Dec. 11. The debt is being taken out to pay for a number of capital projects completed over the past couple of years including:

• Alice Street construction in Flesherton
• The Wyville Bridge project
• The Connecting Link project in downtown Flesherton
• Fire department vehicles.

Although, the bylaw to formally approve the new loan is a relatively routine piece of business for council, it was complicated by rumours the morning of the meeting about a Bank of Canada interest rate cut coming (the bank cut the prime lending rate by 0.5 per cent later in the day).

The 10-year loan secured by Grey Highlands through Infrastructure Ontario for a total of $4,016,151 carries an interest rate of 3.76 per cent. This rate is significantly lower than what could have been found at a commercial lending institution. The trade-off is that Grey Highlands is locked into the loan for 10 years with no escape clause.

Coun. Paul Allen referred to rumours in the news that an interest rate cut was coming from the Bank of Canada and wondered if the municipality should hold off on taking out the loan with an eye towards getting a lower rate.

Members of municipal staff warned council that the municipality was in the endgame stage with the loan and that Infrastructure Ontario had done a significant amount of work and preparation on the file. Staff said the municipality would face financial penalties if its application was withdrawn now and re-started.

“It’s not a quick turnaround process,” said Anna McCarthy, treasurer and director of finance.

CAO Karen Govan also explained that there was no guarantee the 3.76-per-cent rate the municipality had secured for its interest rate would drop along with the Bank of Canada’s rate cut. Govan said Infrastructure Ontario calculates its rates based on a long-term forecast over 10 years.

“If we wait, it doesn’t necessarily mean it will go down,” said Govan.

The discussion about the matter stretched on for approximately 40 minutes with members of council suggesting they could defer the matter until later in the day when the Bank of Canada’s rate news was official. They also wondered if there was a way to compare the potential savings from an interest rate drop to the penalty from Infrastructure Ontario if the municipality reneged on the loan deal.

McCarthy quickly calculated that over ten years the savings in interest payments with a 3.5 per cent rate instead of 3.76 per cent would be approximately $52,000 - or $5,200 per year. McCarthy said she didn’t know the financial impact of the penalty and said such a measure would be initiated by Infrastructure Ontario if the debenture deal was not closed on Dec. 16.

In the end, council voted to proceed with the deal presented by staff and passed a bylaw to authorize the mayor and the clerk to sign the necessary documents to finalize the loan.