Borrowing Without Consent: Why Nanaimo (and Canada) Are Sleepwalking Into a Debt Trap
Council is being asked to approve massive
new borrowing powers under recently amended provincial rules. But while staff
emphasize what the City *can legally borrow*, there is no consideration of what
taxpayers can realistically afford. This paper explains the new rules,
translates them into household impact, places them in the broader context of
provincial and federal debt, and delivers a call to wake up before taxpayers
are locked into decades of unsustainable costs.
What Changed in June 2025
In June 2025, the Province amended the
Municipal Liabilities Regulation and the Short-Term Capital Borrowing
Regulation. These changes doubled the 'approval-free' liability zone and
tripled the short-term borrowing allowance.
• Old Rule: Short-term borrowing (≤ 5
years) capped at $50 per capita (~$5M for Nanaimo), no elector approval
required.
• New Rule: Short-term borrowing cap increased to $150 per capita (~$15M for
Nanaimo).
• Old Rule: Long-term borrowing (> 5 years) always required elector approval
(referendum or AAP).
• New Rule: Long-term borrowing now allowed without elector approval up to 10%
of revenues (~$185M for Nanaimo).
What That Means for Households
For Nanaimo, the new 10% approval-free zone
equates to $23.1M of annual debt service capacity. The City already spends
$7.6M annually on debt, leaving $15.5M of new headroom. At current interest
rates (~4.78% over 20 years), that translates to approximately $185M in new
borrowing.
In property tax terms: every $1M in
expenditure equals roughly a 1% tax increase. $15.5M in new annual payments =
~15–16% property tax increase equivalent. And because debt servicing is a fixed
annual obligation, that increase would persist for the 20–30 year life of the
loans.
Why the “Sustainable Revenues” Test is Misleading
The provincial formula defines 'sustainable
revenues' as property taxes, utilities, and user fees — recurring revenue
streams. It excludes one-time grants. Based on 2023 figures, Nanaimo’s
controllable revenues were $231.1M, making the 25% hard limit $57.8M.
But this formula only measures City Hall’s
cashflow, not household affordability. Those revenues are already committed to
services. New debt payments mean either higher taxes or reduced services. The
test is an accounting tool — not a real affordability study.
What Happens if a City Can’t Pay
Unlike a corporation, municipalities cannot
declare bankruptcy. In BC, debt is issued through the Municipal Finance Authority
(MFA), a pooled borrowing system where all municipalities back each other. If
one city defaults, others must cover the shortfall.
If Nanaimo could not service its debt, the
Province would enforce repayment by:
• Intercepting City revenues,
• Ordering property tax increases,
• Or appointing a financial administrator. In every case, taxpayers are the
backstop — not staff, not councillors.
The Bigger Picture
This local borrowing spree is part of a
wider Canadian pattern. Federal debt has more than doubled since 2015.
Provincial governments, including BC, continue to run structural deficits. And
now municipalities, traditionally more restrained, are being given expanded
capacity to borrow without voter approval.
Meanwhile, the cracks are showing: a housing
crisis, persistent inflation, and rising interest burdens. Each level of
government points to its own 'limit' as justification, but taxpayers are on the
hook for all of it.
The BCGEU Strike Example
The BCGEU, representing some of the
best-paid and most stable workers in the province, is on strike seeking an 8.5%
wage increase, arguing they need it just to maintain their standard of living.
If the best-paid workers in BC cannot keep up with inflation, how can average
Nanaimo taxpayers absorb the equivalent of a 15% permanent property tax hike to
service new debt?
Conclusion: Time to Wake Up
Debt ceilings are not affordability tests.
They only show what the City can legally borrow, not what households can
afford. The new rules allow Council to saddle residents with decades of
payments — equivalent to a 15% tax increase — without even asking.
Nanaimo’s Council should:
• Retain voter approval requirements for long-term borrowing,
• Demand affordability studies showing household impact before borrowing,
• Balance ambition with fiscal restraint.
Taxpayers are the backstop. They deserve transparency, accountability, and
consent.
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