A debenture is a financial product. More specifically, it’s an investment product where an investor or investors lend their money out over a fixed term and containing a fixed rate in borrowing costs. In English, that means money is lent by people who have it to people who need it, but the people who need it can’t pay it back in full or in lump sums other than the agreed upon yearly payment. So, with a thirty year debenture, the borrower has to pay the agreed upon allotment every year for the entirety of the thirty years.
It’s good and bad for both parties, or pro and con if you like that better. For the lender, you get steady payments every year that you can count on, and at a rate of interest that’s locked in. So there’s some security there that the investment will continue to yield the anticipated returns. There is no change to the interest rate and no change to the term. And the borrower can’t pay it off early and rob you of potential earnings. If the interest rates in general go down, your investment is protected and secure because it’s locked in at the fixed rate.
For the borrower, it’s great because somebody’s lending you money to either do something really big, get you out of a really big jam, or both. The yearly payments are what count towards your operational budget, not the total amount owing. So you can spread your debt over a longer period of time, just the way other loan products work, and still work towards a balanced budget for your year-end reporting.
Nobody “likes” going into debt. Often, when we do, it can be viewed as part of an investment that will yield a profit beyond the cost of the borrowed money. Our debt here is more of the other kind, consumer debt, where we buy things we may or may not need, but those are things that have no prospect of increasing in value to the point where that value outweighs the debt.
Renfrew needs to issue a debenture. From what I understand, the town will indeed issue one, but the whom or whoms that will take up the other part of the relationship are unknown to me, and likely wouldn’t be made known until the town was ready to rock and roll with the deal. But Renfrew will secure the cash it needs to deal with the massive cost over-runs that have mired the Ma-Te-Way expansion project.
A debenture will work an awful lot like a bond, where the municipality is actually making a declaration of indebtedness to the people purchasing the bond. Except in the case of the debenture, the debt in unsecured, meaning that the debt is based upon the issuing municipality’s reputation as a legitimate and trustworthy borrower of the funds with an agreed ability to be able to pay off the debt as stipulated in the terms of the agreement.
The Eganville Leader has speculated that when all is said and done, the Ma-Te-Way project will come in at a whopping $56 million including borrowing costs on the debenture. That’s a lot for an $18 million facility, but, in some degree of fairness, it is an impressive place. And for those who want to say “Can’t we just agree that it’s all a terrible thing and move on and celebrate this jewel of the Ottawa Valley?” Sure we can.
But it’s an especially easy thing to say if you don’t have to pay for it. $38 million in unanticipated and un-budgeted debt is never a good time for those who have to pay it back, and the sunny ways approach is not really the tune people who already struggle with their mortgages want to hear. So sure, celebrate the place, have fun with it and in it. There is absolutely no reason to not use the place to its full advantage, and to the full level of enjoyment possible to the public that uses the place. It’s sort of like buying a car that, when all is said and done, turns out to be something you couldn’t afford to buy in the first place. What are you going to do? Leave it in the driveway for lack of gas money and watch it depreciate over time? Hardly.
But that said, the situation cannot be simply walked away from. There’s a lot of money we’re talking about here, so that means that the situation needs to be treated with earnestness, maturity, and probity.
Failing to do this makes it possible that, with the passage of time, other humans with their failings and vulnerabilities can do it again.
Hazards need to be identified and addressed. Guardrails need to be erected. Officers of accountability identified and empowered.
It would be nice to see the terms and conditions of any proposed debenture, but I guess that’s something the public will find out about after-the-fact. Honestly, I don’t know who in council or on administrative staff takes the point on such things, so I don’t rightly know who to key on.
The Treasurer? The Chief Administrative Officer? The Clerk? All three? Any two? None?
Sometimes a warm smile and an “aw shucks” doesn’t cut it. Pain is pain, and it demands remedy. And somewhere in that remedy is an exercise program that mitigates the chances that it ever happens again. Some preventative medicine, if you will. Proactively working to restore, and maintain, health. And so it is with Ma-Te-Way and a host of other things around this town.
Renfrew needs to have a balanced budget. The debenture helps. But the debenture costs. And that’s where the higher property taxes come in. The higher user fees. The possible reduction of services and capital projects. The cancelling or scaling down of initiatives.
As I said, I don’t know who it is that will take the other part of debenture that Renfrew needs, but I do know that, whoever they are, they’re not in it to win over the hearts and minds of the town’s citizens, they’re in it to grow their money with those same citizens either paying the tab, receiving reduced services, or paying increased fees for municipally-provided items or services.
In summary, this, in my view, is an absolutely legitimate way to go about smoothing out the debt mess associated with the Ma-Te-Way expansion. If such an instrument wasn’t available to the municipality, we’d be in a world of hurt, in that things would be tougher than they are right now.
The fact that things shouldn’t be all that tough at all would be the subject of many articles written by many writers moving forward.
NEWSMAGRENFREW 