Alarm over Detroit’s filing for bankruptcy protection has Metro Vancouver officials assuring taxpayers that cities here are on much safer financial footing.
The largest-ever financial collapse of a major U.S. city has sparked a call for a checkup on public debt levels here.
All B.C. cities except for Vancouver do all their borrowing through the Municipal Finance Authority of B.C., which holds a triple-A credit rating that rivals the strongest Canadian provinces.
“We’re very different from Detroit,” Metro finance committee chair Richard Walton said. “We’re extremely cautious borrowers.”
He was responding to a request at the committee’s Friday meeting from Delta Mayor Lois Jackson for more detail on the risk to taxpayers of a similar municipal default.
“It’s a totally different situation,” added White Rock Mayor Wayne Baldwin.
A key difference is that unlike American and most Canadian cities that borrow individually, B.C. municipalities share responsibility for repaying debts through the MFA.
Each city cross-guarantees the others, so borrowers consider it much less risky to lend to them and are willing to do so at lower interest rates.
No city in Canada – not even Toronto or Montreal – borrows at lower rates than B.C.’s smallest towns, said MFA chief administrative officer Robin Stringer.
That has saved B.C. taxpayers billions of dollars since the MFA formed in 1970.
There’s never been a default in B.C. in those 43 years.
And even though the MFA’s pooled risk model is the envy of many other regions, it remains basically unique in North America.
Stringer said it was forged in the final years of Premier W.A.C. Bennett’s government at a time of great “cooperative spirit” in B.C.
And he’s not sure it could be repeated today.
“If you said ‘Municipality A, you’re going to be on the hook through this mechanism for Municipality B’ – I’m not certain that would fly so easy today.”
B.C. might not have developed as it did if small mining and forestry towns – dependent on one big employer – had been forced to borrow on their own at much higher interest rates.
Stringer said numerous safeguards and regulations apply here that are different from the U.S.
“It is much more of a wild west show there,” he said. “We’re much more conservative.”
In B.C., cities cannot budget to run a deficit.
Nor can they borrow more than 25 per cent of their sustainable revenues – Stringer noted no B.C. municipality even comes close to that cap.
Additionally, MFA withholds one cent of every dollar it borrows for a debt reserve fund, now at $114 million, which would help bail out any city that runs into financial distress. It’s never been used, but can be replenished through taxation if it is ever tapped.
Borrowing requests by a local city must be scrutinized and approved by first the regional district board and then by MFA.
Other differences in the U.S. are the voter referenda that sometimes force caps on taxes, putting cities closer to the edge of failing to cover debts.
Walton also noted that while highly regulated career professionals manage municipal finance in B.C., equivalent treasurer jobs in U.S. cities are often elected positions, sometimes putting vote-chasing, incompetent or corrupt decision-makers in charge.
Jackson insists Detroit’s failure has the public worried.
She wants a breakdown of per capita and per property local government debt – including the local municipality as well as TransLink and Metro Vancouver borrowing.
“I don’t want to sugar coat this,” Jackson said. “I want us to honestly say what we’re doing at Metro to protect the taxpayers of the cities and the region.”
Surrey wants to borrow $67 million from MFA for a new Grandview Heights pool and Fleetwood recreation centre and Coquitlam is seeking nearly $18 million. Even with the extra debt, Surrey would be at less than 20 per cent of its MFA-imposed debt servicing limit and Coquitlam would be at 26 per cent of its cap.
Richmond Mayor Malcolm Brodie, who sits on the MFA board, said Metro has been scrutinizing such requests more closely as they have grown in size.
“Far more rigour is put into this than was in the past,” he said. “It’s important to all of us that there not be a default.”
Metro directors endorsed the Coquitlam and Surrey requests to MFA and directed staff to get answers to Jackson’s questions.
Canadian Taxpayers Federation B.C. director Jordan Bateman said there are better safeguards in Canada but it’s good to be vigilant.
“The cautionary tale about Detroit is that they started somewhere. They didn’t wake up one day bankrupt.”
Bateman said B.C.’s main risks are small towns that get too reliant on one industry to cover their tax base, rather than doing more to diversify.