$5,000 charge sinks sinking funds for IDs

The Ministry of Community, Sport and Cultural Development recently announced to all Improvement Districts in the province that a minimum $5,000 annual fee will now apply to all long-term financing of water capital projects made through the Ministry of Finance.

Circular No. 11:09 dated May 19, 2011 addressed to all Improvement Districts announced the rules have changed significantly for IDs wanting to arrange long term capital financing for water projects. The annual fee of $5,000 is in addition to standard interest charges and makes the cost of borrowing through the Province prohibitive. The financing charges on $100,000 at a 5% interest rate would double the annual financing cost . As Circular  No. 11:09 states: This new fee is large enough that it removes the financial advantage of using the provincial borrowing system – no kidding!

The circular does not provide a clear explanation for the policy change. It does mention that dealing with financial institutions eliminates the sinking fund shortfall risk many IDs have experienced in the past and that ministry Financial Officers are available to assist with the new financing process. We understand that any Improvement District currently holding a sinking fund debenture can make arrangements to get out of that obligation and arrange alternate financing with private lenders.