GRAVENHURST — Gravenhurst’s debt level could reach $23 million by 2011, according to a new audit report.
Borrowing on projects such as the Muskoka Wharf have brought the debt up to $10 million for 2009, but those numbers increase as new projects like the pool project and Centennial Centre come online, said Howard Flemming with Gordon, Gingrich, Harris & Flemming Chartered Accountants in an audit report last week.
By the end of 2011 the debt could be up to $23 million, Flemming said.
The debt is all part of the growth of the town, which Flemming compares to the growth of a business.
“The one thing with a town or business growing, there is usually an increase in your long-term debt … most growing companies have debt in order to grow. Very few companies can generate enough cash just to grow on their own,” said Flemming.
The numbers indicate the town is in a good position financially, he said.
The debt to equity ratio was at 21 per cent for 2009 and Flemming said viable businesses usually run between 50 and 80 per cent debt to equity. The lower the number the better, he added.
With the new projects in 2010 and 2011, the ratios will be below 33 per debt to equity, he estimated.
“The question comes up do you have too much debt? Can we repair this debt? … All the indicators would show it (the town) is very, very healthy financially,” said Flemming.
Town treasurer Ken Watson said once the pool and other 2010 projects come online, the town will be at 68 per cent of debt capacity, according to government regulations.
“We still have capacity there. I wouldn’t be recommending council be adding any more on at this point in time,” said Watson.
Mayor John Klinck argued that the town needed improvements as it went without for many years. He said at one time people were embarrassed to say they were from Gravenhurst.
“This community had shrunk. It was dying,” said Klinck.
Starting with the spending on Muskoka Wharf, council has agonized over issuing debt, but the auditor’s financial statement reflects successive councils’ work to make a positive environment for the community, he said.
“You don’t create a positive environment without making investments in the future,” said Klinck.
Klinck said the residential assessment is not reflected in the audit report. In 2000 the residential assessment (what the homes are worth) was $900 million and that number has ballooned to $2.3 billion this year.
The improvements are part of the cycle of growth, he argued.
“We have numbers, ratios that measure up to the best business corporations in the world. That is the facts. The numbers prove it. Yes, we have a lot of debt and I think future administrations … have to be very cognizant of the fact that it is a new cycle we are heading into,” said Klinck.
When the town’s pool project is complete, there will be $20 million more assets under the new Public Sector Accounting Board (PSAB) system of recording municipal assets, said Klinck.
Under the new PSAB requirements municipalities must put values on assets like buildings, bridges, roads, water and sewer systems, Watson explained.
Gravenhurst’s net book value of tangible assets is $55 million in 2009, said Flemming.
The audit statement looks like a business financial statement rather than the traditional municipal audit, Watson said.
“If you are used to reading a business financial statement, these will make a lot of sense to you,” said Watson.