Introduction
Bank of Canada
Monetarism
Unbelievable!
Believe It!
Ideology
Article 18
Ex. 1/Ex. 2
A Vision
Conclusion

Example 2 (a)

At a meeting of the national board of the Federation of Canadian Municipalities (FCM) held on September 8, 2001, two resolutions (from Kingston, Ont., and Squamish, B.C.) were passed concerning financing for municipalities through the Bank of Canada; The FCM forwarded these resolutions to the federal government.

Referring to these resolutions, Richard Priestman (COMER, Kingston), writes to David Cohen of the FCM:

"Some background information will help you to appreciate the importance of these resolutions. Since 1974 the government has not being using the Bank of Canada (BoC) to finance public capital expenditures as it did in the previous 35 years, using private banks and other private investors instead. As a result national and provincial debts have climbed to enormous heights. Interest paid by the three levels of government amounted to over $76 billion in 2000, $73 billion in 2001 and is expected to be over $70 billion in the current year in spite of lower interest rates. The share paid by local municipalities was $3.9 billion in 2000 and $3.2 billion in 2001. Funds borrowed from the BoC by the federal government cost less than ½ of 1%.

"The government could and should allow municipalities the same privilege and reimburse them for the interest they pay to the BoC minus the cost of administration. The cost of borrowing privately can double the cost of a project (depending on the rate and the term) because interest compounds over time. More than that, the amount budgeted for capital projects can be many times higher than it would have to be if the projects were financed through the BoC and paid back over the expected useful life of the projects (eg, a sewer's life might be 50 years or more).

"For example, Kingston's current debt stands at $50 million, financed through 10 year debentures at an average interest rate of 7%. Principal payments amount to $7 million per year and interest is $3 million for a total of $10 million per year. On the other hand, if the estimated life of the city's projects was 50 years and was financed at low interest through the BoC, the cost could be spread over the 50 years and would be reduced to $1 million per year plus the cost of administering the loan. (Whenever the principal is reduced significantly it is reborrowed for new capital projects.)"

(In a letter to Kingston, January 17, 2002, the FCM stated that it had not yet received a response from the government.)

Example 2(b)

Toronto attempted to secure financing through the BoC for the Sheppard Subway- without success.
Ms. Liczyk, Toronto's Chief Financial Officer, referred to Article 18 (j): "we have been informed by the BoC staff that the bank rate would be used and is currently set at 5.50%/annum." The idea was felt to be unfeasible... "Given that loans from the BoC are not interest-free, not available directlly to municipalities and are short term."
Mr. Krehm, of COMER (Toronto) replied by noting that "18(c)...provides a means of handling the long-term financing of such projects at less than market rates."

Concerned citizens in several municipalities want to pursue this matter and would like to know if the FCM has received a response from the [federal] government... We also would like to know if the FCM will be suggesting to all the municipalities which are members of the FCM that they should write to the government in support of the resolutions, recognizing that the government is more likely to act on letters from a thousand municipalities.

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