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March 20, 1997
(Municipal and Provincial Affairs)

Debt Relief For Financially Troubled Municipalities

Municipal and Provincial Affairs Minister Art Reid said he is extremely pleased with government's decision to help financially troubled municipalities throughout Newfoundland and Labrador.

The minister was reacting to the announcement in today�s Budget which stated that funding will be allocated to reduce, to manageable levels, the long- term debt of approximately 150 of the province�s 290 municipalities.

Mr. Reid said these municipalities spend more than 30% of their revenues on debt and find it almost impossible to refinance that debt through private lending instutitions. Many of these same municipalities have debt burdens in excess of 50% and are in serious financial trouble. These municipalities, for the most part, are rural communities who are being adversely impacted by difficult economic conditions, the minister noted.

The long-term growth, development and prosperity of Newfoundland and Labrador depends to a large extent on the strength of local government, said Mr. Reid. "A chain is only as strong as its weakest link."

This debt reduction program combined with other initiatives announced in the Budget will serve to strengthen local government and benefit the entire province, the minister summarized.

In addition to debt reduction assistance, the Department of Municipal and Provincial Affairs will encourage all municipalities to explore the possibility of refinancing their long-term debt either through chartered banks or other lending institutions as a means of achieving even further savings.

The minister said a number of municipalities have already achieved considerable saving through the private refinancing of their long-term debt and every effort will be undertaken to encourage town councils to explore this very positive initiative.

"These debt retirement and refinancing measures will allow these financially troubled municipalities the necessary flexibility to be able to afford a level of municipal services that their residents can afford and are prepared to finance," Mr. Reid said.

Mr. Reid said the government's decision to financially help these troubled municipalities serves, in a significant way, to offset the reductions to the Municipal Operating Grant and the reductions in other departmental assistance programs.

The minister said the basis and the extent by which these municipalities will benefit, and the degree, will depend on their tax capacity, economic outlook and their overall financial condition.

"It will not simply be a matter of passing government assistance over to municipalities," said Mr. Reid. "These financially troubled municipalities will be expected to take action as well, including the imposition of tax levels that bear a greater resemblance to the actual cost of providing municipal services."

He added: "We will look at their current mil rates and their tax revenue base and ensure they are trying to do everything possible on their own to address their particular financial problems. We propose to negotiate with all municipalities on an individual basis."

Mr. Reid said that with some possible exceptions, the municipalities that will be financially assisted through long-term debt retirement may not be eligible for funding assistance under Municipal Capital Works Projects until such time as they can demonstrate an ability to finance their portion of the costs.

Communities which are financially stable will receive a larger share of the funding which the government is making available under Capital Works and Infrastructure.

Contact: Gary Callahan, Director of Communications, (709) 729- 3142.