DARRYL KNIGHT Local Journalism Initiative Reporter for The Standard
KAWARTHA LAKES: A municipal credit rating will not be pursued by the City of Kawartha Lakes, following a report to council which found the costs and administrative burdens outweigh the potential benefits.
At its Tuesday, February 18th, meeting, council received a staff report which analyzed the option of funding capital projects through the open market, by obtaining a municipal credit rating. The report, authored by Sandra Shorkey, Financial Services Supervisor-Treasury, recommended continuing to utilize Infrastructure Ontario (IO) for debentures, rather than seeking a credit rating.
“A credit rating is often used by municipalities to secure potentially lower interest rates,” Ms. Shorkey explained. “However, given Kawartha Lakes’ current debt levels and borrowing needs, the costs associated with obtaining and maintaining a rating would likely outweigh any savings.”
The financial analysis compared the cost of borrowing through IO versus the open market, assuming Kawartha Lakes could achieve a rating similar to Toronto’s AA rating. The findings showed, issuing debt through the open market could result in approximately $156,000 more in financing costs, for a 10-year, $20-million debenture. Additionally, the initial fees for a credit rating would range from $35,000 to $37,000, with ongoing annual surveillance fees of up to $37,000.
“Municipalities which hold a credit rating still frequently turn to Infrastructure Ontario, due to its competitive interest rates and lower transaction costs,” Ms. Shorkey added. “For smaller municipalities like ours, the IO model remains the most cost-effective financing option.”
Council members agreed with staff recommendations, noting, the city's annual borrowing needs do not justify the expense of a credit rating. Some councilors expressed openness to revisiting the idea, if borrowing needs exceed $50 million annually.
“We need to be fiscally responsible,” said Councillor Mike Perry. “If we’re already getting comparable rates through IO, without the extra costs and administrative burden of a credit rating, then it just doesn’t make sense at this time.”
Mayor Doug Elmslie echoed this sentiment, stating, “Council’s priority is ensuring taxpayer dollars are spent wisely. Right now, a credit rating wouldn’t provide enough financial advantage to justify the costs.”
Council voted to receive the report as printed and directed staff to continue borrowing through IO, while monitoring financial conditions for potential future reconsideration.