(City of Red Deer)

By Sheldon Spackman

Proactive Measures

Council gives first reading to additional borrowing to help with COVID cash crunch

Jun 15, 2020 | 7:16 PM

Financial pressures from the COVID-19 pandemic are forcing The City of Red Deer to look at borrowing more cash to help sustain operations over the coming months.

On Monday, city council unanimously approved first reading of a COVID-19 Operations Borrowing Bylaw in the amount of $10 million that could free-up additional cash that may be required.

COVID-19 has negatively impacted the City’s cash flow due to revenue reductions and deferral of payments for utilities and property taxes. The negative impacts are being partially offset by reductions in expenses.

Officials say the City has been managing its operational expenses through staff layoffs and temporary work interruptions of approximately 30 per cent of its work force. There are also potential unknown additional expenses that the City may incur in support of Westerner Park financial challenges.

The City is also advocating to both the federal and provincial governments for financial support as a result of COVID-19, along with virtually every community in Canada and Alberta.

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According to administration, the main advantage to a separate bylaw would allow for different conditions to be placed on the borrowing and can be monitored separately from regular operations. The conditions could include repayment terms, combined utility and tax funding for repayment and length of existence. Currently, any money borrowed would be repaid within three years.

Councillor Michael Dawe says the bylaw is being done in the spirit of caution.

“It does not mean that we’re going to go out and start borrowing millions of dollars for some ‘nice-to-have’ things,” says Dawe. “This is cash flow protection. It has a period of time to it but as he’s (CFO, Dean Krejci) explained, he’s hoping that they (the City) won’t have to use it, but he’s given some very good reasons why it might.”

Councillor Lawrence Lee describes the bylaw as an ‘if necessary’ measure.

“I think due to the timing of everything, the level of uncertainty is high right now,” says Lee. “We hope that other orders of government come up to the plate so that municipalities aren’t put in a tenuous position running deficits which we legislate are not allowed to do. Our own FCM (Federation of Canadian Municipalities) puts out there that all municipalities across Canada may be looking at $15-$20 billion in expenditures to get them through just this latest duration of the crisis.”

Councillors Tanya Handley and Vesna Higham had concerns with the three-year timeline to repay any monies borrowed through the bylaw.

Higham proposed amendments to reduce it to a one-year term with an automatic repeal element included – changes rejected by the other seven members of council.

The City already has a Short Term Borrowing Bylaw of $30 million to cover bank overdrafts. At this time however, it is estimated that the cash flow deficit will exceed the amount available in the Short Term Borrowing Bylaw by September, by up to $10 million.

It is estimated that current cash balances, including short term investments used specifically to manage cash flow, will be fully depleted by July.

By providing first reading, City officials say a valid borrowing bylaw can be in place by late July in case cash flow estimates are incorrect and needed earlier than planned. It’s also noted funds would only be borrowed when an actual need arises.

Administration is now anticipated to bring back information to council at a future meeting that clarifies the procedural expiration terms of the bylaw, such as sunset, repeal or expressed clause for council to consider prior to second and third reading of the bylaw.