Local Government Long-Term Capital Borrowing
Municipalities and regional districts can enter into long-term capital borrowing to finance the purchase or construction of capital assets such as land, emergency vehicles, buildings, water mains and roads.
Local governments may undertake long-term capital borrowing through a loan authorization bylaw. The bylaw must include the purpose of the borrowing, the maximum amount to be borrowed and the maximum duration of the borrowing; for regional district loans the specific service that the loan relates to must also be specified.
All loan authorization bylaws must receive approval of the Inspector of Municipalities before any borrowing can be done. In most cases, approval of the electors (municipalities) or participating area approval (regional districts) is also required before the bylaw can be adopted.
After the loan authorization bylaw is adopted, a local government may interim finance the construction and development of a capital project through one or more temporary borrowing bylaws. The total amount of approved temporary borrowing cannot exceed the maximum authorized borrowing under the initial loan authorization bylaw.
Converting Borrowing to Long-Term Debenture Debt
Once the capital project (or a major phase of the project) is completed, a local government can convert its temporary borrowing into long-term debenture debt through a regional district security issuing bylaw. This security issuing bylaw provides regional joint and several liability, and provides greater assurance against default, reducing the risk associated with the debentures.
This security issuing is undertaken through the Municipal Finance Authority, which pools all local government long-term debt and sells it through the bond markets.
Liability Servicing Costs
The B.C. government further mitigates borrowing risk by capping the annual liability servicing costs (for example, interest and principal) for each municipality. Liability servicing costs cannot exceed 25 percent of eligible municipal revenue.