'A welcome surprise': Province announces return to low-interest loans for local authorities

File photo of construction in Edmonton. (CTV News Edmonton)

The Government of Alberta says that it will reverse a previous rate hike on capital project loans to local authorities, a policy that is expected to save municipalities millions.

In 2021, the province increased the interest rate on money borrowed through its Loans to Local Authorities Office by about 0.5 per cent. Prior to this, local authorities paid the same rate as the province itself.

Premier Danielle Smith told the Alberta Municipalities (ABmunis) Convention in Red Deer on Thursday that her government will be returning to the original lending policy, and decreasing the cost of borrowing for municipalities, counties, airports, and irrigation districts.

"Lowering the interest rate will save municipalities $7.2 million in 2025-26 and we estimate it will lead to $12.1 million in savings the year after," Smith said.

The below-market rates will apply to new loans starting in 2025, but won’t impact funds previously borrowed.

"Alberta has lowered our cost of borrowing, and now we are passing that savings on to municipalities. They are our partners in providing services to Albertans, and by working together we can ensure that investments can be made with a minimum cost to service debt," Finance Minister Nate Horner said in a statement.

At the 2023 fall ABmunis convention, St. Albert introduced a successful resolution to lobby the government to reverse the 2021 tax changes, saying it would "allow for improved financial flexibility to encourage municipalities to fund capital projects and save taxpayer dollars."

The city estimated that the rate increase would cost taxpayers $1.48 million more in interest payments on three loans it obtained in 2022 to finance capital projects.

Mayor Cathy Heron said seeing the province respond to this request so quickly was a welcome surprise.

"I don't know if it's going back to where it was exactly a few years ago, but no matter what, it's a win that we can get a break on interest costs."

"Quite honestly, I was starting to feel like I was banging my head against the wall, getting nowhere with the province with all the things we're asking for. And so this actually makes me feel that they are hearing us, at least in some ways," Heron said.

ABmunis president Tyler Gandam said at the Red Deer convention that lowering the tax rates was an important issue for its members, and something the organization had been advocating for.