Communities across the country are in a situation where cash flow is required on a temporary basis as a result of the pandemic impacts. The City has an approved Short Term Borrowing Bylaw of $30 million to cover bank overdrafts; however, by September 2020, the cash flow deficit created by COVID-19 is estimated to exceed this by $10 million. It is necessary to have access to additional funds to ensure The City can continue providing essential services to citizens funded through the operating budget.
COVID-19 Operations Borrowing Bylaw Explained
COVID-19 Operations Borrowing Bylaw
Approved $10 million on June 25, 2020
Use what we need - pay interest on what we use - pay back what we use within two years
We’ve been getting a lot of questions and concerns about the $10 million Borrowing Bylaw approved by Council – let us explain:
Think of it like an overdraft on your personal chequing account that is there for extenuating circumstances: use what you need – pay interest on what you use – pay back when you can. One big difference is we have two years to make sure we’ve paid back all that we’ve used.
You’ve faced a job interruption and you still have everyday household expenses such as mortgage payments, utilities and groceries. The overdraft is there to help you through this tough time – use what you need, pay interest on what you use, pay back when you can.
The City’s situation:
Financial strain caused by COVID has put us in a situation where we don’t have money coming in to cover our expenses. We’ve offered utility bill payments to be deferred until June 17 and extended the property tax deadline to September 30, pair that with a reduction in revenue from recreation fees, transit passes, parking fees and police-related revenues, we’re facing a shortfall in cash flow to cover services we provide to citizens. To lessen the potential need to use this line of credit we’ve also reduced expenses through staff layoffs and interruptions. The $10 million line of credit will allow The City to continue to provide essential services such as emergency services, transit, waste, water, policing, etc. – use what we need, pay interest on what we use, pay back what we use within two years.
How will we pay it back?
Once we begin to recoup the deferred utility payments and property taxes, along with once again generating revenue through recreation fees, transit passes, parking fees and police-related revenues, we can begin to pay it back then get to a point where it is no longer needed. However, with COVID, there is still so much uncertainty that we don’t know how much we’ll need to use or when we’ll be able to pay it back. We are hoping the two years gives us time to figure it all out.
Living within our means:
Just like a household, we budget to stay within our means. We budget for delivering essential services based on anticipated revenues. The $10 million is to help The City continue to provide those essential services with the decline and deferrals of anticipated revenues.
Although we extended our property tax deadline, if you’re able to pay it in advance of September 30, we appreciate it! Get more information about property taxes.
Frequently Asked Questions
With the financial strain put on everyone by COVID-19, The City took measures to reduce the impact to citizens. These measures include the opportunity to defer utility and property tax payments, which many Red Deerians opted to do. There is also a reduction in revenue generated through recreation fees, transit passes, parking fees and police-related revenues. The revenue generated through these sources are a portion of what funds The City’s Operating Budget. The approved 2020 Operating budget is $385.7 million with funding sources including property taxes (38%), user fees and sales of goods and services (50%), grants (3%), other (9%).
Although we have seen a reduction in expenses with closed facilities and work interruptions, the amount of delayed revenue (property taxes and utility payments) as well as other reduced revenues (including recreation fees, transit passes, parking fees and police-related revenues) exceed them.
The $10 million being considered by Council would be in the form of a line of credit. The City will use this money on an as needed basis and will only pay interest on the amount used. The line of credit is comparable to an overdraft on a personal bank account to cover unexpected expenses.
Since the proposed Borrowing Bylaw is short term, The City will be required to pay it back within two years. Once The City begins to recoup the deferred utility payments and property taxes, along with once again generating revenue through recreation fees, transit passes, parking fees and police-related revenues, we can begin to pay it back then get to a point where it is no longer needed. However, with COVID, there is still so much uncertainty that we don’t know how much we’ll need to use or when we’ll be able to pay it back.
The City has implemented a rigorous monitoring plan for the financial impacts of COVID-19. The Capital and Operating Budgets and Plan may need to be adjusted to accommodate the outcome of the COVID-19 Operations Borrowing Bylaw. The impacts will also be addressed during the 2021-2022 multi-year budget process.