Whitehorse city council weighed the pros and cons of a hefty $18.8 million bank loan for the new operations building at its July 10 council meeting.
The overall budget for the project is $40.7 million for the original design, plus an additional $9.2 million for the transit building. Much of this money will be pulled from reserves and the federal gas tax fund, but the remaining $18.8 million must come from bank loans, staff told council at a recent standing committee meeting.
Based on the offers from local banks, staff have recommended borrowing from TD Canada Trust.
For the duration of construction, the city would draw funds like a line of credit, said chief financial officer Valerie Braga, meaning the money could be taken out as needed, depending on where it is in the building process. The advantage to this style of loan, she said, was that the city did not have to start paying interest on the entire amount right away, but only what it had already borrowed, at a rate of between 1.62 per cent and 1.95 per cent.
“This allows us to withdraw the money as we need it,” Braga said. “Once we have a construction schedule, we can better plan when we will need that money.”
Once construction is complete, Braga said, the loan becomes a 20-year term loan, which allows the city to have a guaranteed interest rate on the $18.8 million of 2.62 per cent for five years. After five years, staff told council, the bank would have an “opt-out provision” which would allow it to negotiate the loan.
Braga admitted this was “a risk” but one that city staff felt was low.
“So, basically, if they opt out, we have to start over again (with negotiations)?” said Coun. Betty Irwin.
“Basically, yes,” Braga said. “But the bank has said they have never seen (the opt-out clause) used.”
If all $18.8 million is spent, the city would incur $5.4 million in interest over the 20-year loan period, bringing the cost to $24.2 million by the time the loan is paid off.
Coun. Rob Boyd said he was hoping, in the process of these negotiations, the city would be able to pay off or consolidate some of its existing high-interest debt.
Coun. Samson Hartland, who has been an outspoken opponent of the project, said he also wanted to know if taking out a loan this size would allow the city to consolidate existing debt.
“We certainly don’t want to carry an extra debt if we don’t need to,” he said.
Braga said that it might be “possible,” because the city doesn’t plan to spend all $18.8 million, and leftover money could be used to pay down higher-interest rate loans already incurred by the city.
“I’d like to keep digging at this until we get an answer,” said Boyd.
Council voted to move the issue to third reading, where they will make a final decision at the July 24 council meeting. The vote passed 5-1, with Hartland voting against. Coun. Jocelyn Curteaunu was absent from the meeting.
Pending approval of the loan, the operations building contract still needs to be tendered. The deadline for tender proposals closes July 20.
Contact Lori Garrison at firstname.lastname@example.org