City of Powell River will be getting a break on the interest rate charged on the $10 million loan it is taking out from the Municipal Finance Authority (MFA) for the liquid waste treatment plant.
At the April 29 city council meeting, chief financial officer Adam Langenmaier outlined the interest rate assessed for the debt, which represents an annual savings from the original interest rate estimate of $120,000. The rate used in the original debt servicing costs ended up being different than originally forecast, so actual savings for the city is $102,277.
Langenmaier said back in 2019 before the COVID-19 pandemic, a recommendation was provided for the city to take out long-term debt to reduce its interest rate risk. A recommendation was made to enter the spring 2020 issue from the MFA to lock in a portion of the city’s debt for the liquid waste treatment plant.
“At that time, we didn’t know what future interest rates were going to do,” said Langenmaier. “We had no idea COVID-19 was going to take over the world. As of March 26, when the actual borrowing went out, it was quite the volatile time.”
Langenmaier said MFA was able to issue an interest rate of 1.99 per cent, which is “very good.”
He said the original estimation in March 2019 was a 3.2 per cent interest rate, which would have had an impact of $82.70 on the average Powell River home in terms of taxation. In January 2020, at the first draft of the city’s financial plan, the expectation was 2.5 per cent interest, because at that time, interest rates were trending down. Impact on the average home at that time would have been $72.21 in taxation. With the 1.99 per cent interest rate that has been locked in, the impact on the average home in taxation is $51.25.
Because of the drop in interest rate, the overall impact on taxation in 2020 for the average city home dropped from 4.8 per cent to 4.7 per cent.
Mayor Dave Formosa asked if the city is locked in at 1.99 per cent for five years. When Langenmaier responded affirmatively, Formosa said: “Beautiful.”
Councillor George Doubt, chair of the city’s finance committee, said it was good news for the first five years of borrowing, but the city does not have the interest rate protection it would have had before with a 10-year term. MFA typically locks in for the entire 10-year term, but given the volatility, it set a five-year term for the 1.99 per cent borrowing.
“We’re looking, in five years, to some exposure to increasing interest rates,” said Doubt. “But all in all, it’s good news. It’s significant savings for the taxpayer.”
Councillor Cindy Elliott said the cost to the city for the borrowing was down because of the interest rate, which was good news.
