For town looking to raise money, is a new credit program in the cards?

The Town of Gibbons is considering a plan to issue its own credit cards to help raise money to fund maintenance and infrastructure upgrades.

The idea was the brainchild of Farrell O’Malley, the town’s chief administrative officer, who said the municipality could partner with a lender with ties to a major credit card company.

The town would be the primary cardholder and issue cards to homeowners in the community. At the end of each month, the town would pay off all the bills to ensure no interest payments would be sent to the credit company guaranteeing the card, O’Malley said.

Cardholders would pay the town what they owe. All interest from outstanding balances would go to the town, instead of the credit card company.

A homeowner who fell behind on payments would have the debt transferred to their property tax bill.

To move the idea forward, provincial and federal legislation would be needed.

O’Malley said he hopes to have a package for the province to consider “within the year,” with the goal to have a pilot project underway by spring 2021.

A new way to pay for projects

The town would borrow money at the Bank of Canada’s overnight lending rate, which O’Malley said currently sits at 1.75 per cent. 

If the card carried an annual interest rate of 13 per cent, the plan would have the potential to bring in $900,000 to $1.8 million a year, he said.

The money from the credit card program could be used to pay for roads and facilities, O’Malley said.

“It allows us to grow the funding for new infrastructure, roadways or other rec facilities, leisure facilities, trails and other services without adding to the tax base,” he said. 

Bruno Mercier with National Bank Financial in Edmonton said it may not be smart to have municipal governments get involved in the lending business.

“I think it’s a really interesting alternative way to raise funds,” Mercier said Thursday. “But I think it could be fraught with all sorts of risks and unintended consequences.”

It may be overly optimistic to assume the majority of homeowners in the community would participate, he said. Gibbons, with a population of about 3,000, may be too small to support such a program.

“It’s an interesting case study,” Mercier said. “And if it works, it will be very good for them.”

The operating budget for Gibbons last year was about $6 million, with a separate capital budget of $1.2 million, O’Malley said. 

Under the credit program, the town could develop a long-term plan for infrastructure projects.

“Which would help small businesses have ongoing work from year to year which employs more people and provides more certainty,” he said.

Gibbons is about 36 kilometres northeast of Edmonton.

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