Debt, reserves, or cuts: Windsor council to debate how to pay for battery plant lands

The future site of an electric vehicle battery manufacturing plant in Windsor, Ont. Stellantis and LG Energy Solution made the announcement alongside government officials on Wednesday, March 23, 2022. (Rich Garton/CTV Windsor)

Windsor city council will meet next week to debate the best way to pay for $53 million for land to be acquired for the future site of the 45 gigawatt Stellantis-LGES battery plant on the city’s east end.

According to an administrative report published Friday, city brass is recommending financing the “Point East Development” through the issuance of debentures to Ontario Infrastructure and Land Corporation, also known as Infrastructure Ontario.

City administration recommends initially financing the purchase by using current cash reserves “to provide an interim financing source for the land acquisition until such time as permanent long-term financing through issuance of debentures is obtained,” the report states.

The City of Windsor already owns about 40 acres of the necessary land just south of E.C. Row and west of Banwell Road. The total estimated purchase price of the roughly 180 remaining acres is $45 million. The other $8 million earmarked in the price tag accounts for the cost the city will bear to service the land before leasing it to the Stellantis-LG joint venture.

Council initially endorsed the plan but will need to confirm the plan at the next meeting of council on Monday, May 9.

“Administration is now at the point where city council must approve next steps in order to allow the project to proceed,” states the report, authored by Janice Guthrie, the deputy treasurer for taxation, treasury and financial projects. “After careful consideration of the alternatives, administration is recommending the most practical and sustainable alternative for council’s endorsement.”

The city’s debt level is $54.7 million projected for 2021, far below peak debt levels of $230 million in the early 2000s. But council recently approved long-term mortgage debt financing for the Community Housing Corporation (Meadowbrook repair and renewal programs) and along with the addition of the proposed battery plant lands, the city’s debt load could rise to the $120 million range.

“We’re in a real enviable position in terms of our debt situation, and some levels of debt are strategically very important and good to have,” says Joe Mancina, the city’s chief financial officer and acting CAO. “The financial profile of the city and that balance sheet has improved dramatically from 20 years ago, so when you look at debt from that context, it’s a reasonable, well-planned strategic level of debt is not necessarily a bad thing.”

If council chooses to issue debt with Infrastructure Ontario, administration will bring back a final report for council’s review and approval, which will include the recommended term of the debenture (no longer than 30 years), along with annual repayments of principal and interest, much like a mortgage.

Windsor Mayor Drew Dilkens says even the most “financially prudent” councillors understand the difference and significance between “good debt” and “bad debt.”

“This is one of those unique, very, very important, strategic acquisitions, that in order to realize upwards of 3,000 jobs and a $5 billion investment, we need to play our part,” says Dilkens. “I would submit that issuing debt to create 3,000 jobs for the strength of the community is a good decision to make.”

Dilkens tells CTV News by allowing the reserves to grow and owning the land, both of which will continue to appreciate, the city will be able to pay down the debt faster and will look to avoid any tax increases as a result of the debt.

“As we’ve done every other year, trying to find savings to minimize the impact to taxpayers, we’ve been very successful for 15 years or longer doing that so the same commitment exists today,” Dilkens says. “We’ll go through the hard work and the hard slog on the inside to make that happen.”

“It’s challenging, no doubt, but we’ve certainly delivered in the past and we’ll continue to do that going forward,” says Mancina.

Other non-recommended options

Administration has tabled a few other options, including using reserves to pay for the land, or possibly cutting projects in the capital budget to shoehorn the previously-unaccounted new cost into the 10-year plan, as the $45 million purchase of the land nor the $8 million site servicing costs were considered when the 2022 budget was developed.

Reprioritizing the 10-year capital budget

The current capital plan budgets $1.655 billion over the next 10 years on a number of different projects. Should council wish to redirect planned funding, it would “severely limit any future flexibility that may be necessary to respond to the growing needs for various expanded services and amenities that will naturally come during a period of expanded economic growth and development,” the report states, noting it “would require a significant reprioritization of projects.”

Projects that could be deferred include funding the Windsor Works economic development plan, the Central Riverfront Improvement Plan (CRIP), the servicing of Airport Lands, Howard Avenue Corridor Improvements, Riverside Vista Improvements, Cabana Road Improvements and also capital contributions to the City Housing Reserve Fund, according to the report.

Administration warns this course of action could further delay projects or create a domino effect of project deferrals throughout the approved capital plan.

”If we decimate our capital budget, lots of road projects aren’t going to happen and we know that’s not palatable to the public,” says Dilkens.

Given the anticipated population growth in Windsor, administration wants to preserve the flexibility of the capital plan to support local amenities, such as parks and recreation improvements, active transportation infrastructure and road rehabilitation.

That said, administration indicates it will attempt to include the $8 million land servicing costs into future capital budgets and will seek grants for the work where possible.

What about self-funding using existing reserves?

The city has made an effort over the past two decades to build up its reserve account, resulting in a reserve account balance of approximately $260 million, according to the city’s treasurer.

But city administration cautions there are significant “encumbrances” for items that have been approved and the balance of the account is “still well below peer comparator municipalities.”

Much of the city’s reserve fund is linked to specific funding sources and cannot be used for the proposed purpose

The city uses its reserve funds for capital improvement and asset replacement, including the fleet replacement reserve, on-off street reserve and pollution control reserve.

“Given the significant capital outlay that is proposed for this once in a generation, long-term economic development investment, it is not considered practical to finance this level of investment from existing reserves as a source of permanent financing,” the report states.

What is a debenture?

“A debenture is a marketable security (a type of investment) issued by a business or other organization to raise money for long-term activities and growth. It is a form of debt capital so it is accounted for as debt on the balance sheet of the issuing company,” according to the Business Development Bank of Canada.

Debentures are unsecured and are typically issued by large corporations with a strong credit rating, based on their client — in this case, the city — and its predictive ability to repay without default.

It’s not an unprecedented for municipalities. The City of Windsor issued debt to construct the Candarel building, to fund upgrades and expansions at the pollution control plant and the joint justice facility.

The City of Toronto issued a debenture for $300 million just a month ago to finance capital projects like facilities management, solid waste management services, Toronto Public Health, transportation services and the TTC, on a 10-year repayment plan.

Toronto has one of the largest municipal borrowing programs in Canada, according to a release on the city’s website.