When it comes to local municipal politics and administration, debt is a four-letter word of vile proportions.

On other hand, there’s a compelling argument that the town might benefit from taking on more debt to kick-start capital projects and speed replenishment of the town’s cash reserves.

During its four-year mandate, Orangeville Council has cut the Town debt from $21 million to $17.4 million, while steadily decreasing annual town-only property tax increases from a high of 6.83 per cent in 2007 to 2.5 per cent per cent in 2007 to 2.5 per in 2010.

Council has achieved this through a “pay as you go” policy of prioritizing capital projects and only carrying out those that fit into the parameters of what cash is available on any given year.

In this time of economic uncertainty, the consensus among council members is to maintain this philosophy and continue a steady, if unspectacular, march to financial stability.

“With the economic climate the [county and town] found itself in during the last two years, I believe the ‘pay as you go’ philosophy was the most prudent method to fund capital projects,” said Deputy Mayor Warren Maycock. “By using tax dollars, development charge money, reserves, gas tax money and matching federal/ provincial funds, the town has been able to do tens of millions of dollars worth of capital projects during this term of council.”

Money from the tax levy is used to finance the cost of just $6 million of the current debt. The rest is taken care of through development charges and water/ sewage rates. Approximately 2.5 per cent of property tax revenues go to servicing the debt.

While council has accomplished much of what it was mandated to achieve, several projects have been put on hold, and the town’s cash reserves have taken a severe hit to help pay for others.

Thee town’s current reserves are in the neighbourhood of $15 million, but the bulk of that has already been committed to either specific projects or for specific purposes, such as sewer and water and infrastructure for new development.

There is just $1.4 million for “discretionary” reserves – the non-committed fund the town has on hand for such situations as emergency over runs and disruptions in cash flow.

All in all, Orangeville’s percapita reserves are $110 for each resident, as opposed to an average of $823 among other municipalities surveyed in a recent town treasurer’s report.

In a hypothetical situation where the town borrows $2 million to pay for present and future capital works projects, the rate of interest could be locked in at four per cent over 15 years.

At these rates, the town’s treasury department says to cost of servicing the interest and principle is $113,000 per million dollars borrowed or, in this case, $226,000 per year.

During the 2010 budget deliberations, town treasurer Bill McKennan pointed out that a single percentage point equates to $240,000 when it comes to collecting taxes. Therefore, a onepercent increase in the town-only property tax would be required to accommodate the loan costs.

Meanwhile, the current debt is being paid down and the cost of servicing it would decrease. Thus, there would be no need for the tax increases after three years, since the costs of the new loan would be absorbed by the amount, currently about $800,000 per year, which has been set aside to service the debt.

As a result, $2 million would be available to pay for capital projects that otherwise may be funded by the annual tax levy. If such funds had been available in 2010, council would, for example, have the option of taking the $1.1 million it allocated for tax-levy-funded capital projects and use it for servicing the debt, adding to reserves, or both.

Yet this also presents a situation where the town would, over a 15-year period, shell out $3.4 million for the use of $2 million. Such long-term obligations tend to make Councillor Gary Kocialek uncomfortable.

“I support the pay-asyou go philosophy for capital spending,” he says. “Borrowing for routine capital works puts an undue burden on future residents of our Town and should be avoided.

“There are situations where I would support borrowing. As one example, if the provincial and federal governments implement an infrastructure stimulus program, and provide twothirds funding for capital projects I would support the Town borrowing funds to pay its one-third of the project cost. This represents excellent value for the tax-payers of Orangeville as opposed to missing out on the opportunity to leverage funds from the upper tiers.

“That said, do I support the do concept of borrowing for routine capital works? No.”

Councillor Scott Wilson, on the other hand, is a proponent of borrowing in order to provide a municipality with the infrastructure and facilities it needs. He uses the Alder Street Recreation Centre as an example. “This is another case where the public is enjoying the foresight of borrowing money.

He said that if the council at the time had relied on pay-as-you-go, “it would have taken forever to raise the $15 million to $18 million” to build the facility.

Mr. Wilson contends that, ideally, total reserves should be equal to the tax levy – (which in, Orangeville’s case, is about $20 million) – and discretionary reserves should be at least half that. If borrowing is required to meet the necessary levels, than borrowing should be strongly considered. “If you can get long-term money at low interest rates, you should take it,” he says.

“You can never have too much money in the bank,” explains Mr. Wilson. “I’ve always been a fan of reserves. Doing the right thing with reserves is always easier if you don’t have to always borrow the whole amount when the opportunity arises.”

Councillor Gail Campbell concurs insofar as, a member of the previous council, she felt it necessary to take on a considerable debt load to carry out badly needed project

“During the previous term of Council, after much painful consideration and many sleepless nights, I supported Council’s motion to borrow $15 million, a small portion of what was actually needed, to address urgent problems facing Orangeville,” she recalls. “We were aware that Mill Street bridge was in desperate need of repair to make it safe, and not immediately addressing the problem would have been irresponsible.

“Our police were working in cramped, overcrowded conditions, and our old station was in a flood plain and unable to be expanded. We needed a new safe police station Many of our old sewer pipes were about 100 years old and it was only a matter of time before we had sink holes.There was raw sewage seeping into some basements and this unsafe, unsanitary situation needed to be addressed.”

Now, with several major capital projects taken care of – either through the last council or through present council taking advantage of provincial and federal infrastructure spending – Ms. Campbell suggests restraint when it comes to the debt.

“There is a line that must be drawn between projects that are absolutely necessary and those that are nice to have,” she says. “It is my opinion that only ‘must have’ projects are the ones that are funded

“As far as reserves are concerned, when money is available, we should add to them. This will help meet our future needs, reducing the necessity of borrowing money. I think that, at this point, however, reserves will be slow to build, as we must deal with our urgent demands first.”

Mayor Rob Adams concurs. “My approach is pragmatic,” he says. “It’s right to borrow money, as long as it is in the right context.”

An example would be council’s recent decision to purchase town lands, owned by the Upper Grand District School Board, for $2.2 million. To pay for this, and not drain municipal reserves to a critical point, will require some borrowing.

The decision, which received the unanimous consent of council, was predicated on the town maintaining the property for recreational purposes, as well as acquiring real estate that will rise in value.

When it comes to the aforementioned hypothetical situation of borrowing further money to shore up reserves and finance some capital projects, Mayor Adams says: “It’s unreasonable, considering the economic situation we are at. I would say no.

“Decisions are never as simple as they seem. A myriad of elements have to be considered. That’s what makes municipal government so interesting and challenging.”

For instance, he points to population growth in Orangeville. In less than 25 years, it has doubled to a point where there are nearly 29,000 people, and around 9,700 households, in the town. It has, however, levelled off to the point where it is predicted that there will be 12,000 taxpaying households by 2018.

That means the municipal government must be cautious that it does not commit to a large additional debt load that cannot be spread around a population of tax payers that has limited growth.

Mayor Adams says an immediate priority is to have a comprehensive 10- year financial plan for all facets of municipal government.

In the meantime, patience is the key. “Pay down the debt,” says Mayor Adams, “slowly build reserves and wait for opportunities when more infrastructure funding is available from the federal and provincial governments, and when construction costs are at lower levels.”