FINANCE COMMITTEE – 4th meeting – June 9, 2026 – 1:02 p.m. to 2:56 p.m. – Lafontaine Room – Maison du citoyen, 1st floor

Use of debt: preliminary scenarios – Presentation

The presentation was given by Mr. Kouamé. The objective is to present different debt scenarios to the members of the Finance Committee. These are presented for indicative and non-decisional purposes.

The scenarios presented illustrate:

• The impact on the total debt,
• The impact on debt service,
• The impact on the tax rate increase, and
• The City's financial ratios.

The reference point for comparing the evolution of financial ratios is the current debt situation, which takes into account approved projects. The current and projected debt situations are presented. Considering project approvals and projected scenarios, by 2031, the debt-to-income indicator is expected to reach 1.19% and the debt-to-budget indicator will climb to 11%. The total anticipated debt in 2027 will reach 802 million.

Scenario 1

The first scenario consists of using debt to cover anticipated operating budget deficits, by increasing debt annually to the level of the deficits. The current level of cash payment for infrastructure would be maintained, and the budgetary shortfall would be financed by loans. This increase in debt results in an increase in property taxes to absorb the costs. In this perspective, financial indicators also deteriorate, exceeding the targeted debt ratio thresholds. Concerns were expressed regarding the associated impacts (borrowing cost, opportunity cost, exceeding targeted ratios) as well as the nature of the assets financed. It is also noted that the analysis must take into account the depreciation cost of the assets realized. It was then added that the analysis of asset depreciation was not integrated because it can be assimilated at the accounting level as equivalent to debt service. Furthermore, this scenario does not target specific assets (previous or new). It is a simulation exercise. It is recalled that the scenarios presented are not recommendations at this time, but that they constitute tools for the benefit of the reflection to be undertaken.

Scenario 2

Scenario 2 proposes to gradually increase the City's debt by adding a fixed amount of 5 million dollars per year to the debt. In return, the City would reduce the amount it devotes to cash payment for infrastructure by the same amount. Over 20 years, this represents an additional debt level of 100M$, with associated interest costs of 60M$. However, since the increase in debt is offset by the decrease in cash payment, the scenario does not lead to an increase in property taxes and allows for compliance with established ratios.

Scenario 3

The third scenario is a variation of scenario 2, with an increase in debt of 10 M$ annually, while reducing the cash payment used to finance infrastructure by an equivalent amount. This is not about financing a deficit, but about replacing part of the cash financing with debt. This scenario allows for compliance with debt and debt service ratios, which would approach the thresholds set around 2031.

Scenario 4

Scenario 4 is based on the proposal that the City no longer uses cash payment to finance its infrastructure, and that this amount is transposed into debt capacity. The financial indicators presented show that the debt and debt service ratios increase rapidly, with a breach of thresholds from the first years of projection. A member indicates that this scenario represents a major change in the way finances are managed, mentioning an important paradigm shift. It was then explained that this scenario serves to illustrate extremes in order to eventually help elected officials position themselves among the various possible options.

Scenario 5

Scenario 5 consists of adjusting infrastructure financing by comparing itself to other large cities. The cash payment could be reduced by approximately 33 million per year to approach the average observed in other cities. This amount would be converted into debt, which represents, over a 20-year period, a significant borrowing volume of 600M$ with associated interest costs of 249M$.

In this scenario, the planned tax increases are maintained, and the financial indicators increase, gradually approaching and then exceeding the thresholds set in the medium term. A first question was asked to explain how the city of Laval manages to devote a smaller share of its budget to infrastructure. The administration replied that it does not have this information and that no detailed comparative analysis has been done on this subject. Subsequently, a member commented that this option appears more balanced than the scenarios, while raising a question about the financial room for maneuver it leaves, particularly in the event of a deterioration in economic conditions or a rise in interest rates. It was also mentioned that the current approach is the one that offers the most stability and limits exposure to risks, particularly those related to interest rates. This is the approach adopted by other large cities.

Scenario 6

Scenario 6 consists of using debt for operations, but with a strict constraint on the debt-to-income ratio that remains within the parameters set by the long-term financial plan, which limits debt. It also provides for a gradual increase in taxes to cover the increase in debt service.

Scenario 7

This option provides for the use of debt to finance certain needs, but the City would reduce the cash payment to offset the loan, in order to respect the debt ratio set at 1.25. Total debt is limited and spread over time, which allows staying within the targeted threshold.

Scenario 8

Scenario 8 consists of using debt while aiming to maintain a debt service ratio at a maximum of 15% of the budget. Thus, the City can borrow a higher amount over a 20-year period, while adjusting the cash payment to compensate. This option allows for maintaining the planned tax increases. From 2031, the indicators gradually decrease.

Following the presentation of the debt scenarios, the example of the Police Headquarters was projected in relation to different scenarios providing for the spreading of the loan repayment over a period of 20 years, 30 years, and 40 years.

Finally, other important considerations are presented. It is emphasized that increasing debt reduces financial flexibility and increases risks, for example in the event of unforeseen events or variations in economic conditions. It can also affect borrowing conditions and slow down asset maintenance. The capacity for realization (teams, market, costs) is a factor to consider. The exercise must be done to reconcile needs and means. A discussion period followed. The discussions first focused on the prioritization of investments. Members emphasized the importance of better distinguishing the types of infrastructure (essential, economic development, quality of life) before making decisions on debt. It was also mentioned that it is difficult to position oneself without having a global and clear picture of the needs, both in terms of infrastructure and realization capacity. Other elements could have an impact on the proposed scenarios, such as obtaining a credit rating, the upcoming report on the infrastructure project, or the position of the Union des municipalités du Québec. It is recalled that the objective is not to recommend one of the scenarios presented, but to support the implementation of a debt policy.