Nova Scotia

Is CBRM bankrupt? Financial statements, experts say no

This fall, mayoral candidates said Cape Breton Regional Municipality was either bankrupt or on the verge, but experts say CBRM can continue to operate and pay off its debts.

'This doesn't look like a municipality that doesn't have the wherewithal to continue operating,' says expert

During fall election debates, Archie MacKinnon was one of two mayoral candidates who said CBRM was either bankrupt or on the verge of collapse. Experts say that's not so. (Tom Ayers/CBC)

During Nova Scotia's fall municipal elections, two mayoral candidates said Cape Breton Regional Municipality was either bankrupt or nearly so.

That's not the case, say others.

"We're a bankrupt municipality. People know. This whole island knows that," mayoral candidate Archie MacKinnon said during one of the election debates.

Chris Abbass said during a debate that CBRM is "on the verge of financial collapse." In another, he said the municipality is not sustainable.

"We're slowly going bankrupt and if we don't do something about our cost-effectiveness and our efficiency in government, we're going to become ... a ward of the province or something, but we won't be anymore."

But Mark Gilbert, a retired finance expert who was with the Department of Municipal Affairs and is a retired local government professor at Dalhousie University, said CBRM's financial statements show otherwise.

The municipality does have net debt of roughly $145 million, but Gilbert said if you add in non-financial assets, it is more than $300 million in the black.

Mark Gilbert, a retired Nova Scotia Municipal Affairs finance expert, says if CBRM wanted to increase its debt, it has the financial capacity, but it would have to consider how to pay it off. (Submitted by Mark Gilbert)

"This doesn't look like a municipality that doesn't have the wherewithal to continue operating," he said.

With that much debt, a big question is future infrastructure needs and the municipality's ability to pay for the cost of borrowing through taxes or user fees, Gilbert said.

However, CBRM's debt-service ratio is just over 10 per cent and the province doesn't red flag that until it hits 15 per cent or more.

Gilbert said that means the municipality could borrow if it needed to finance large projects.

"If they were interested in borrowing, the capacity would certainly be there," he said.

"The thing that most municipalities are concerned about, and I did some research in this area for Infrastructure Canada, is not so much being able to borrow, but it's being able to service the debt."

Jennifer Campbell, CBRM's chief financial officer, said the municipality would only be in trouble under extraordinary circumstances.

Jennifer Campbell says CBRM's debt is spread out over 10 years and the municipality is well positioned to pay off its debts over the long term. (Tom Ayers/CBC)

"For example, all of our long-term debt would have to be called at once, resulting in an immediate financial obligation of over $80 million and … that is not going to happen," she said.

CBRM has long-term debt financing through the province's Municipal Finance Corporation that spread payments out over 10 years, Campbell said.

"If you're going to look at our net debt through the lens of immediate pressure, that's going to overinflate that and make it look like we aren't solvent, when, in reality, that obligation is due over a long period of time and we're well positioned to meet those obligations over that term.

"We have not defaulted on those terms, nor are we even close to defaulting on those terms."

Municipality a going concern

It would be a struggle if all the debt came due in one year, because non-financial assets can't be easily liquidated, she said.

Vehicles and buildings could be sold, but some non-financial assets would be more difficult to convert into cash.

"How do you sell a used municipal road or used municipal sewer pipes? There's simply no market for that," Campbell said.

Last year's audited financial statement shows the municipality is a going concern. CBRM ended the year with a slight surplus of $12,000.

It's not yet clear what the pandemic's impact will be on this year's finances, but a current statement is due to be unveiled at Tuesday's council meeting.

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ABOUT THE AUTHOR

Tom Ayers

Reporter/Editor

Tom Ayers has been a reporter and editor for 36 years. He has spent half of them covering Cape Breton and Nova Scotia stories. You can reach him at tom.ayers@cbc.ca.

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