Council Considers Debt Financing for Land Purchase of $45 Million Battery Factory

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A $5 billion battery factory expected to create thousands of jobs could be enough incentive for Windsor City Council to take on new tax-funded debt for the first time in years.

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To secure the biggest private sector investment in Ontario history – a joint venture between LG Energy Solution and Stellantis to power electric vehicles – the city has agreed to assemble land for a $4.5 million gigafactory of square feet. With city reserves holding more than enough funds to pay $45 million for nearly 182 acres needed in the short term, Windsor is looking to debt finance the acquisition of industrial land.

A two-decade path to “debt reduction” has put the city in a good and “enviable position,” Joe Mancina, city treasurer and chief financial officer, told The Star. Following the board’s ‘debt-averse’ commitment over the years to a pay-as-you-go spending plan, he said leveraging debt is a reasonable option for ‘specific types of investment’ , especially to stimulate such important economic development.

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“This is a significant economic investment in the city – a once-in-a-generation kind of investment,” Mancina said.

City administration report recommends city council authorize Monday to fund land acquisition costs through the issuance of debentures to Infrastructure Ontario, which offer terms of up to 30 years, with fixed principal payments and interest paid annually.

“Infrastructure Ontario, they work specifically with public sector organizations,” Mancina said. “They offer very competitive financing rates,” and municipalities, universities, hospitals and other organizations are looking to Infrastructure Ontario “as their primary source of debt financing.”

Windsor Mayor Drew Dilkens said issuing debt to buy land for the battery factory, which is expected to create more than 2,500 jobs, ‘is a very sensible approach’ compared to other options of the city: “looting” the investment budget, which would delay or postpone investment projects, or “exhaust” capital reserves.

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“That’s not to say that all of a sudden the city or the city council, or myself, suddenly did a 180 in philosophy, where all of a sudden we’re ready to issue all kinds of debt and heaven is the limit”, Dilkens mentioned. “This is a very strategic debt issue with a very specific purpose, the benefit of which will last decades and decades for the community,” he said, referring to the great potential for job creation. of the project.

The plant will be located on 220 acres at the corner of EC Row Avenue and Banwell Road and will extend to the Canadian Pacific Railway tracks. The city already owned about 42 acres and conditionally acquired the remaining 182 before Stellantis and LGES publicly announced the plant in March. At its last meeting, council voted to expropriate the last acre needed — a residential lot.

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Although the city will provide tax breaks for the plant as part of its community improvement plans that will see the land taxed at current agricultural rates for the first 20 years, Dilkens said the company will pay its “fair share of property taxes” in subsequent years, “which we will then use to pay down the debt we incur.”

In 2003, the city’s long-term debt level peaked at $230 million and represented approximately 68% of its total financial assets. Flash forward to 2021, this rate has dropped significantly to 5.3% as real tax-financed debt is effectively eliminated.

With recent council approval of long-term mortgage financing for Community Housing Corp. to fund repairs and renewals of existing public and non-profit housing complexes, the city’s long-term debt will reach approximately $120 million if the council approves debt financing to purchase the plant land of batteries.

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The debt financing of the purchase of the land “is not trying to deflect us from the trajectory we are on,” Dilkens said. “We still plan to be very careful.

“It will be just another pressure added to the budget deliberations that the council, like every year, has to figure out how to deal with.”

While debt projections are rising, “they are still well below the highs reached in the early 2000s and should be seen in the context of a much improved balance sheet,” the staff report said.

Existing cash reserves can be used to fund the acquisition of the land for several months until an Infrastructure Ontario debenture is issued. As of December 2020, the city’s reserves totaled approximately $260 million and have “continued to rise throughout 2021,” the report said.

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“The city has made great strides in building reserves,” Mancina said. “These reserves are essential to keep because they provide adequate cash flow. A number of these reserves are restricted funds where you cannot use them for other purposes.

An additional $8 million required for site maintenance, such as the relocation of an open drain that runs through the middle of the property, will be incorporated as part of the 2023 capital plan, subject to board approval, and may be partially covered by grants.

Construction of the electric vehicle battery plant is expected to begin this summer and reach full capacity in 2025.

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