New fiscal benefit initiative pitched to city hall

By Jennifer SmithCity Hall Reporter Jul 01 2007 http://www.kelownacapnews.com/

New community bonds lauded by city council as a moneymaker for investors and a tax saving for city residents could see Kelowna break new ground in municipal finance. The community bond operates like a Canada Savings Bond offering those looking for a safe, AAA-rated investment at a 4.9 per cent return on their investment. Meanwhile the moneys collected can be borrowed by the city to help pay for the new 50-metre Mission pool complex and could save up to a million dollars in interest for taxpayers if $5 million worth of bonds are sold. “You have to have a city staff saying they’re willing to spend the time to do the administration and a council wanting to spend the time as well. A lot of communities simply say they do not have time to do it,” said Stephen Berna, an executive with the Municipal Finance Authority of B.C., who pitched the plan for the city’s finance department this week. The Municipal Finance Authority operates as the creditor municipalities turn to finance major infrastructure.

But rather than approach the Municipal Finance Authority for a loan to finance the full cost of the pool, the city is hoping the community can basically borrow from itself. Even if they can only drum up a portion of the overall cost, Kelowna saves both interest and potentially some of the costly banking charges the MFA incurs when it takes the request out to secure financing on the open market. Normally the banks tack a 60 cent commission onto every $100 of the loan. Under the community bond scheme, those commissions stay within city coffers to use for promoting the bond. “If they get somebody to do it for free then, one they’ve got the community bond at a lower interest rate and plus, they’ve got that 60 cents—so it’s a double win,” Berna said. If the bonds sell, Kelowna will be the first major city in B.C. to successfully use the program. Community bonds have been tested by three Kootenay communities—the Village of Warfield, the Village of Montrose and the Village of New Denver—and in the small island community of Sointula.

City finance department head Paul Macklem told council the ideal scenario would see a local Olympic swimmer pitching Mission pool bonds to drum up investors before their first deadline of Sept. 15. Unfortunately, such a person does not exist to the best of his knowledge. The bonds will be sold in $1,000 increments with the first round of purchasing set to wrap up in September. A second round could be issued next spring. While the city does not know how well the bonds will sell, from a financial standpoint, there is really nothing to lose in trying, Macklem said.