By pooling borrowing and financing programs, municipal financing authorities and similar provincial bodies make it possible for municipalities to get loans at lower rates – and lower costs – than if they borrow on their own.
A better way
British Columbia’s Municipal Financing Authority has raised over $5 billion for community capital projects and saved B.C. municipalities millions through lower financing costs. In 2012-2013, the Nova Scotia Municipal Finance Corporation loaned over $137 million to 25 municipalities and four municipal enterprises.
- Used exclusively to fund capital costs
- Can significantly reduce local debt charges and transaction costs.
How does it work?
Municipal financing authorities or corporations (MFAs or MFCs) are centralized provincial lending agencies with high credit ratings that are able to borrow funds on behalf of municipalities at low interest rates and low transactions costs. In some cases municipal financing authorities have been able to borrow at rates as low as provincial governments.
Municipalities can borrow through B.C.’s Municipal Financing Authority or Infrastructure Ontario at rates as low as two per cent for loans of up to five years, and at just four per cent for terms of up to 30 years. Reducing borrowing costs by just half a percent (or 50 basis points) reduces the total financing costs of a capital project by seven per cent over 30 years.
Who uses it now?
MFAs or equivalent lending agencies have been created in many provinces. Their low-cost loans are especially useful for small and mid-sized communities that would otherwise have to pay more to borrow funds directly through financial markets.
By reducing borrowing costs through MFAs, municipalities have more money available for services and programming, avoiding higher property taxes.
B.C.’s Municipal Financing Authority has expanded its range of services beyond lending to also provide local governments with cost-effective pooled investment, interim financing, and leasing services.