This blog was prepared with the assistance of Danielle Hopkins, summer law student.
As Saskatchewan municipalities and cities implement programs in response to the COVID-19 pandemic, such as deferring utility payments and payment of property taxes, these measures have drastic impacts on revenues.
In order to cover costs, municipalities and cities may wish to consider their options in borrowing to cover expenses. The Municipalities Act and The Cities Act set out municipal and city powers and limitations in regard to borrowing money.
When a municipal council is considering borrowing money, public notice must be given at least seven days before the council meeting where the matter is to be considered. Notice must be given in a manner that is consistent with the municipality’s public notice policy.
A municipal council must pass a borrowing bylaw authorizing the borrowing if the council seeks to borrow money that (a) will cause the municipality to exceed its debt limit, (b) is not repayable within three years after the borrowing is made, or (c) is to be secured by the issue of debentures of the municipality.
A city, on the other hand, can only borrow money if the borrowing is authorized by a borrowing bylaw.
Limitations on Borrowings
A municipality must get approval from the Saskatchewan Municipal Board [“the SMB”], where the proposed borrowing:
(a) will cause the municipality to exceed its debt limit,
(b) is to be secured by the issue of debentures of the municipality, or
(c) is not repayable within three years after the borrowing is made. Unless approved by the SMB, no city may borrow if the borrowing will cause the city to exceed its debt limit.
If SMB approval is required for a borrowing, the application must be submitted prior to or immediately after the first reading of a bylaw providing for the loan. No further action, including submitting the bylaw to a vote, can be done by the municipal council until the authorization has been obtained. There are a number of factors that the SMB will consider when deciding to approve a borrowing, including the period over which the indebtedness will be spread, any provincial or financial assistance that may be available, and the level of services that the local authority is committed to provide. For a full list of the SMB’s considerations, see subsection 23(2) of The Municipal Board Act.
A municipality’s debt limit is the total amount of their own source revenues for the preceding year or the debt limit established by the SMB. “Own source revenues” includes municipal property taxes levied by the municipality and fees, charges, and other revenues generated from the municipality’s ordinary operations that the SMB considers appropriate to be included in establishing the debt limit. The SMB may establish a debt limit for each city, taking into account the factors set out above.
Uses of Borrowed Money
If a municipality or city borrows money for the purpose of financing operating expenditures, the amount to be borrowed, together with the unpaid principle of other borrowings made for that purpose, cannot exceed an amount the municipality or city estimates that it will raise in taxes in the year the borrowing is made plus amounts they will receive in unconditional provincial or federal grants in the financial year the borrowing is made.
If a municipality or city borrows money for the purpose of financing capital property, where capital property is tangible capital assets as defined in the generally accepted accounting principles for municipal governments, they may use that money only for capital property. However, money borrowed for the purpose of financing capital property may be used for an operating purpose if the amount spent is available when it is needed for the capital property. But if money was obtained pursuant to a borrowing bylaw or resolution that had been put to a vote, it may not be used for any purpose other than that set out in the borrowing bylaw or resolution.
This article is of a general nature only and is not exhaustive of all possible legal rights or remedies. In addition, laws may change over time and should be interpreted only in the context of particular circumstances such that these materials are not intended to be relied upon or taken as legal advice or opinion. Readers should consult a legal professional for specific advice in any particular situation.