The City of Courtenay has chopped its total debt in half from 2012 to 2026

This is the third in a series of articles about City of Courtenay finances

A complete examination of any municipality’s financial competency has to include their capital planning process and its debt management practices. It’s an important and significant portion of local government spending.

When you hear comments about the financial management of the City of Courtenay, or any other municipality, it’s usually not about their phone bill or other common operational expenses. Most often, it’s about spending on the big stuff in the city’s Capital Improvement Plan – sometimes called the Capital Budget or Capital Plan.

And it’s natural that people will reasonably disagree about which projects the City Council included in the capital budget. Pickleball players want more courts. Performing arts groups want improvements to theatres.

There will be as many pros and cons for every project as there are passionate and active special interests in the community.

So how does the City Council decide what goes into its Capital Budget, how are the items financed and what effect does that have on individual homeowners?

And the most important question: How well has the City Council managed its debt and borrowing?

The short answer to that question – spoiler alert – is that Courtenay has reduced its total borrowing by more than half from 2012 to 2025, according to the most recent data. And the city has reduced its Real Debt Per Capita by 65 percent in 2026 adjusted dollars during the same time period.

So let’s take a closer look at debt and Capital Budgets.

WHAT IS A CAPITAL PLAN?

At the beginning of every new term, the new council creates a Capital Improvement Plan, which some citizens misunderstand as complete discretionary spending. Far from it.

There are four types of projects that comprise a Capital Plan.

1) At the top of the list is infrastructure facing imminent failure. Council has no choice here but to repair or replace. Past Courtenay Councils skimped on infrastructure repairs and maintenance to keep taxes artificially low. But the new councils since 2018 have created the province’s first Asset Management Plan to plan maintenance technically and financially going forward.

Here’s an example: In 2007 the province mandated Courtenay and the other users of the Comox Valley Water System to build a water treatment facility. The work was estimated at $30 million in 2007, but not done.

When an extreme weather event in 2014 broke a Cumberland dam causing turbidity in Comox Lake, and boil water advisories made building the water treatment plant a necessity, the cost had escalated to $129 million.

“What people don’t realize is that 90 percent of what the city does is under provincial and federal regulations,” Incumbent Mayor Bob Wells told Decafnation. “In this case, a history of doing nothing to keep taxes low ended up costing the taxpayers even more.”

2) Next are unfunded provincial mandates. The province may set new regulations for infrastructure and the council has to find the money to meet them. No choice.

3) Projects scheduled in the city’s various master plans. Council has some leeway to choose among the projects specified in these master plans for a current year’s work. But “have to dos” can push “like to dos” out to future years. And some of these projects may already be underway, not giving a new council much leeway.

Sometimes, councils will put projects envisioned in a master plan into the budget in order to explore the possibility of grant funding, which may green light or kill the project. But the city cannot apply for grants unless the project is in the budget.

And when projects are put in the Capital Plan, council always uses the maximum estimated cost of the work. They budgeted the East Courtenay Fire Hall at $18-$23 million, but now appears to be tracking toward $14 million.

4) Projects that are not mandatory. Although it’s a small percentage of the Capital Budget, these projects usually originate with requests from citizen groups.

For example, a delegation to council in 2018 calling themselves the Arden School Ambassadors asked for a multi-use pathway between Lake Trail School and Arden. Council agreed and it went into the capital plan. But “have tos” pushed the pathway forward several years until it was completed. 

“The kids just wanted a safe way to get to school,” incumbent Councillor Will Cole-Hamilton told Decafnation. “But it is a reality that the expenditures some people see as discretionary, others see as necessary.”

BORROWING MONEY

The City of Courtenay wraps some small projects into existing taxation, but larger ones may also require using some reserves and surpluses. And for the largest community improvement projects — to build new Fire Halls or bridges or renovate recreation centers — they must borrow money.

And in BC, a municipality like Courtenay can only borrow money from the provincial Municipal Finance Authority (MFA), an independent financial institution created by the BC Municipal Finance Authority Act. Its sole purpose is to provide low-cost lending to local governments across the province.

That is one way the province controls municipal debt. But there are others.

First of all, legislation prohibits municipalities from running an operating deficit and they cannot borrow to pay operating expenses.

Secondly, a municipality’s debt-servicing costs (interest and principal payments) cannot exceed more than 25 percent of its “controllable sustainable revenues;” that is, property taxes, charges and fees. Grants do not count in the revenue number for debt limit calculations.

And lastly, a municipality cannot borrow more than this authorized debt.

The province looks at the percentage of authorized debt a municipality has used, And they monitor another data point, known as the Real Debt Per Capita. Both are considered as indicators of how well a municipality has managed its debt.

SO WHO MANAGED BETTER?

Decafnation did a comparison of the city’s debt from the 2012 council (when Larry Jangula was mayor) to the 2026 council.

Which one would you guess incurred more debt and used more taxes to make its principal and interest payments?

We found that the current councils elected in 2018 and again in 2022 incurred less than half the total debt of the Jangula council in 2012. As a result, the newer councils used much less of its provincially authorized debt capacity and paid less to service that debt.

In 2012, the city’s total debt was $28.754 million (adjusted to 2026 dollars), or 26.9 percent of its debt capacity.

By 2026, the new councils had reduced the total debt to $12.384 million, a 56.7 percent reduction. And they had used only 12.4 percent of their debt capacity, a 64.7 percent drop.

The other key provincial indicator of debt management is what’s called the Real Debt Per Capita. The amount of debt the city owes per population figures.

Looking at Courtenay’s Real Debt Per Capita figures shows a similar story.

The high degree of borrowing by the 2012 council meant $1,188 of debt per Courtenay resident. The new councils reduced that number to just $420 of debt per capita through better financial management to pay down the debt and more strategic borrowing. These are CPI adjusted 2026 dollars.

COMPARED WITH OUR NEIGHBORS

Here’s a comparison of Island municipalities, listed by the 2026 percentage of the total borrowing ceiling they have used.

Comox used 0.7 percent of its ceiling because the town relies almost entirely on cash reserves and Development Cost Charges. It has virtually zero debt.

Campbell River used 6.9 percent. The city has a substantial revenue base and it has retired debt on older capital assets.

Powell River used 27.2 percent. It recently built a wastewater treatment plant and has a constrained industrial tax base.

Cumberland used 55.7 percent. An example of a small tax base and upgrading a multi-million-dollar wastewater treatment plant.

FUTURE DEBT PROJECTIONS

In 2019, the new council created an Asset Management Bylaw that inventories the city’s infrastructure, projects timelines for repair or replacement and projects those future costs. And the City Council also created the Strategic Infrastructure Investment Program, a 10-year plan to generate savings through annual tax increases to cover future previously unfunded infrastructure expenses.

Since 2019, Courtenay has based its capital budget on up-to-date detailed information about what assets have failed and which are projected to fail within two years.

“Managing our assets involves planning the work to avoid disruption of service and having a long-term financial strategy to pay for it,” Councillor Cole-Hamilton said. “This means tax increases sometimes, but it heads off bigger financial problems and potentially huge tax increases down the line.”

With those two initiatives and continued good financial management, the future borrowing for known infrastructure maintenance and debt repayment costs should continue to decrease over time.