Aggressive approach to paying off all borrowing in 5 years has saved Steinbach millions: city official

Steinbach's aggressive debt repayment strategy is an approach many cities across Canada couldn't implementeven if they wanted to.

The southern Manitobacity pays off every debenture, whether it's a newstreet orwastewater improvements,in justfive years.

The practice, which a current official sayshas saved the city millions of dollars,came about in the mid-1980s.

At that point, double-digit interest rateswere stretchingSteinbach's finances, said the city's former city manager,who campaigned for the quick-payoff approach in the beginning.

"When you analyze the city's position back in the '80s, they were just about capped out as far as overall debt, because it was all long-term," recallsJack Kehler, who workedas the city's top administratorfrom 1979 to 2014.

Toease thatburden, the community decidedit would eliminate debt for all future capital projects in five years,rather than the usual borrowing terms of 10, 15 or 20 years.

While the policy has continued to this day,"I didn't think it would last,"Kehler said.

"I would have probably said [it would last] to the next term of council."

Part of the reason it's lasted may be that"the community is fairly conservative with spending," hesaid.

"Most of the people are prudent spenders.They see the government doing the same thing, and it just works better foroverall governance in the short-term and long-term."

Councilskept policy in place

The practiceisn't actually a law in Steinbach. It's adraft policy council couldabandon at any time, but hasn't.

"There were moments where different council members said, 'OK,we should go for a longer [borrowing] term because we need to borrow more money,'"Kehlersaid.

Steinbach has "gonethrough nine or 10different elections, but there was always a core [on council] that kept that five-year debt as a focus, and it's always worked," he said.

Council's commitment tofive-year debentures was recently tested when it took on the biggestinfrastructure project in Steinbach's history.

The city expects to takeout a $7.5-million loan for theplanned Southeast Event Centre, a new $61-million recreational centre though last year, council approved borrowingas much as$12.5 millionif necessary. The city is also contributing to the project through operating and reserve funds.

That maximum debenture amount is more than one-third of theentire $33-million 2022 budgetfor Steinbach, a rapidly growing city that had a populationof just under 18,000 people in the latest census.

Kehler said the city hasthe ability to pay off its debt in short order becauseits tax base keeps growing. Steinbach also charges a capital development fee to developers.

But University of Winnipegpolitical science professor Aaron Moore said retiringa debenture in five years isn't practical for many cities, since they'd face astronomical costs to payoff multimillion-dollar capital projects like bridges and overpasses in a brief span.

Policy could constrain municipalities: professor

Such policies could also preventmunicipal governments including Steinbach's from adaptingif other pressing needsemerge,Moore said.

"If you're really sticking to that five-year horizon, it really restricts or limits a municipality to making significant investments into their infrastructure within the city," hesaid.

Small rural municipalities may have the means to retiredebtissues quickly because they don'tborrow as often, he said.

But Waldo Neustaedter, a longtime real estate agent in Steinbach, arguesthe city'sapproach to borrowing money is more a help than a hindrance.

It's kept taxes reasonable while givingadministrations flexibility by "notstifling future governments, future councils" from entertaining otherprojects,he said.

Troy Warkentin,who replaced Kehleras city manager, said administration has consistently foundfive-year amortization termssuperior and less costly than lengthier terms.

City staff have estimatedSteinbach has saved more than $12.8 million in interest payments over the past two decades assuming a four per cent interest rate bypaying off debt in five yearsrather than 20.

The average interest on the city's outstanding debt has actually been lower than four per cent since 2011, according to city records.

Nonetheless, the money saved has probably helped Steinbach accomplish projects it otherwise wouldn't have, Warkentin said.

Short waits for new capital needs

"If you are being more aggressive with arepayment schedule, maybe in the short term it can mean that projects have to wait," Warkentin said.

"But at the same time, given that it's a five-year amortization termif you do have to wait a short time for other projects to be put in the queue and on the list for completion, it's not going to be a long time to wait."

Duane Nicol, president of the advocacy organizationManitoba Municipal Administrators, said Steinbach hasseveral factors working in its favour, ranging from strongcontinuous developmentto a healthy reserve fund.

Still, he said the city deserves credit for sticking with a policy choice that, while not feasible for every municipal government, has worked for Steinbach.

"They've had good administration, good leadership at both electedand administrative levels for a long period of time, and that facilitates good analysis andlonger-term thinking," he said.