East Gwillimbury in black today, but it won’t last: mayor
Yorkregion.com
Nov. 19, 2015
By Simon Martin
If you have heard East Gwillimbury Mayor Virginia Hackson discuss the town’s finances over the past few years, you, no doubt, have heard her tout the town’s debt-free status.
In fact, East Gwillimbury is one of the few municipalities in Ontario that is in the black. While the phrase certainly sounds good, what advantage does it give the town and its residents?
For Hackson, being debt free means residents’ taxes aren’t being eaten up by hefty interest payments, which means the town can keep taxes low and still plan for the future by putting money into infrastructure reserves.
“For us, it’s a good news story,” she said. “There will be a time in the future when we do go into debt.”
The town borrowed money to build the civic centre and the East Gwillimbury Sports Complex and managed to pay off those debts early in Hackson’s first term as mayor.
While not having any debt is a good thing, it doesn’t necessarily mean it’s bad for municipalities to go into debt either, one expert says.
Enid Slack, director of the institute on municipal finance and governance at the Munk School of Global Affairs at the University of Toronto said, often times, it makes sense to fund infrastructure projects by going into debt.
“(Municipalities need to ask) what is the debt going toward and can we afford to make the debt charge payments?”
A municipality isn’t allowed to go into debt on its operating budget, Slack said. Debt is only allowed on the capital budget and there is a debt limit set by the province.
York University political science professor Robert MacDermid even went as far as saying debt is often a more just way of paying for infrastructure.
“When I am paying for use of infrastructure, there is some sense to funding through debt because it more fairly spreads the cost to users over time. Why should the future taxpayers get a free ride?,” he said.
With East Gwillimbury slated to add more than 50,000 people by 2031, MacDermid said the community will, most likely, have no choice but to go into debt.
“Most large municipalities have debt,” he said.
Low interest rates make it more and more appealing for municipalities to go that route, he said.
Where a municipality can get into trouble is when development charges aren’t high enough to pay for the demands on infrastructure, MacDermid said. Slack added the idea is that development charges should pay for future infrastructure, but it is never totally paid through development charges.
So, what are the things municipalities usually go into debt on?
“It’s things like recreation centres,” Slack said.
A new healthy living complex is on the town’s radar as it tries to reach a deal with the YMCA, but Hackson said the town simply can’t afford to operate a recreation facility with a swimming pool at its current population level.
“It is not a revenue generator,” she said.