Capital Reserves
A portion of current revenue is set aside in a special account (often annually) to accumulate, and to be used to finance a specific capital project in the future.
Capital reserves should be used for a specific major expenditure and not for operation or maintenance expenses. Capital reserves are often best used with infrastructure or assets with a shorter lifespan and require regular replacement. Larger municipalities typically use this mechanism.
Legislative Authority: S. 155-158 MA, 175-179 NMA and S. 128-131 CA
Debt Borrowing
Borrowing is traditional debt financing where funds are borrowed from a bank or other finance entity, and in return, pays back the funds with interest. Borrowing may be short or long term and used for capital expenditures or deficits in the operating budget. Any municipality may utilize debt borrowing, subject to debt limits and may apply to the Saskatchewan Municipal Board (SMB) to have their debt limit increased.
A municipality (other than a city) that does not have a debt limit established by the SMB, must obtain approval by the SMB in the following instances:
- If the debt is not repayable within three subsequent years;
- If debentures are being issued (see “Debentures” below); or
- If the debt exceeds the municipality’s own source revenues for the previous year.
For a municipality (other than a city) that has an established debt limit, approval by the SMB is only required in the following instance:
- If debentures are issued; or
- If the borrowing will exceed the established debt limit.
The debt limit for all cities is established by the SMB. A city does not require approval of the SMB to borrow within the established debt limit. A city must obtain approval from the SMB to borrow in excess of its debt limit.
A municipality may borrow funds for operations. Borrowing is subject to debt limits considerations and to legislated limits. The limits are based on the total estimated amount that a municipality raises, in the year borrowing occurs, of the following:
- Total taxes; and
- Total unconditional provincial and federal grants.
A city may borrow up to two times that total estimated amount and all other municipalities may borrow up to one times that total estimated amount.
Legislative Authority: S. 161-180 MA, S. 183-203 NMA and S. 134-153 CA
Debentures
Debentures are a type of debt borrowing where a certificate of loan is issued and signed/certified by the mayor and treasurer.
In debentures, the municipality uses its own general revenue as collateral to back the loan. The debenture outlines the amounts and timeframe for repayment.
As with traditional debt borrowing, debentures are subject to municipal debt limits. A municipality (other than a city) must obtain approval from the SMB for debenture borrowing. If the debenture borrowing is approved by the SMB, the debenture must also be signed by the chairperson of the SMB.
Cities may borrow by way of debenture within their debt limit without any further approval from the SMB.
The Saskatchewan Municipal Financing Corporation offers extremely competitive interest rates and flexible borrowing terms to municipalities looking to borrow funds.
Legislative Authority: S. 169-183 MA, S. 191-205 NMA and S. 139-153 CA
Municipal Bonds
Bonds can be used as an alternative to debt borrowing and are typically used to finance new capital projects. Bonds are secured through property taxes or user fees.
The borrower (municipality) promises to repay the capital value of the bond, along with interest at a specific date.
Bonds provide upfront funds and repayment is able to be spread out over a longer period of time. Bonds may be more beneficial for larger municipalities that can raise a large amount of capital and have credit ratings.
Legislative Authority: S. 169-183 MA, S. 191-205 NMA and S. 139-153 CA