Coalhurst council direct prepayment of debentures

Posted on February 1, 2023 by Sunny South News

By Nikki Jamieson
Sunny South News

Four debenture prepayments will free up funds in Coalhurst.

During their regular Jan. 17 meeting, Coalhurst town council discussed several debentures.

The town has several long-term projects through debentures – water line, fire hall, Lafarge property, Range Road 223, land – sewer and lift station.

CAO Jeff Coffman noted that the numbers in front of council are a close approximation numbers, as “the numbers change day-to-day”.

Full or partial prepayments of a debenture are allowed. However, a prepayment cost is applied to the prepayment amount, in order to protect the lender against significant losses that would occur in accepting prepayments of high-interest rate loans and re-lending the funds at lower rates.

Despite this, it may be good for a municipality to do either a full or partial prepayment, as it may result in fewer debt payments being made. As both principal and interest debt payments are made through general taxation, by making a full or partial prepayment, the number of funds going towards debt repayment would be further reduced or eliminated, freeing up funds for other uses.

Administration believes the Town should make prepayments on several of the listed debentures, with Coffman noting that compared to when those debentures were first acquired, “we’re in a different situation now, where we can handle that differently”.

There are four debentures the town could apply a prepayment to:

• Water line – the partial cost of constructing the main water line from Lethbridge to Coalhurst to deliver water to the Town. A full prepayment on this debenture of approximately $81,761.01 could be made from the Water Reserve.

• Fire hall – financing the entirety of the project. A full prepayment on this debenture of approximately $100,068.17 could be made from the Fire Department Reserve.

• Lafarge property — land has the northern stormwater pond located on it. A full prepayment on this debenture of approximately $130,562.16 could be made from the drainage reserve.

• Land-sewer – for purchase of land east of town where the old lagoons are, with the original intent to stormwater holding ponds, but circumstances changed and the land was sold in 2017. A full prepayment on this debenture of approximately $1,002,660.06 could potentially be made.

At the time of the sale, a prepayment had not been made, and the funds had not yet been used and are located in the Town’s unrestricted surplus. Administration had requested information from the province on carrying a debenture for purchasing land which had been sold, with the province indicating that this is not something they monitor and that as long as the regular payments are being made, they do not have a reason to get involved.

If all four full prepayments were made, it would free up approximately $115,000 in funds for other uses, such as creating funds for strategic priority projects, professional development, replenishing reserves or reducing taxation requirements.

The town could continue to have the long-term taxation capacity in its annual budgets to continue paying the debentures as scheduled, along with generating the equivalent interest from accumulated reserves and unallocated funds.

Coun. Deborah Florence supported prepaying the four debentures, saying she thought it was “prudent to free up debt allocations for other projects”. She would like to learn more about the history behind the land–sewer debenture and land purchase, and although she was not a fan of the unrestricted account, moving forward it would be prudent to move forward and fix some of these mistakes.

For a point of clarification, Coffman said the town didn’t have unallocated reserves, and the prepayment for the Land-Sewer debenture comes from unallocated surplus, as the money came into the bank account and “just sat there”. It didn’t go into a reserve with no identified source for it and should be the only thing in that account. All other reserves are dedicated funds.

Coun. Scott Akkermans voiced approval, noting that it supported sustainability in their strategic plan, and frees up money for their strategic goals. Mayor Lyndsay Montina also voiced support.

Council passed a motion to direct the CAO to prepay the remaining balances on the water line, fire hall, Lafarge property and land-sewer debentures, and further that the CAO present council with options for the reallocation of the annual payment amounts of these debentures no later than Feb. 21, 2023, in a 4:1 split vote, with Coun. Jesse Potrie opposed.